Fertility, Overlapping Generations, and the Welfare State

 

M.S.L.J. discusses two new models of human fertility over the past two hundred years recently published:

This “fertility transition” is discussed in a new paper published in The Proceedings of the Royal Society by Martin Kolk, Daniel Cownden and Magnus Enquist from Stockholm University in Sweden. It suggests that low fertility rates will be difficult to maintain indefinitely, and models different possible scenarios for future population size.

The crux of the paper rests on the emergence of correlations in family size between parents and their children after the nineteenth-century decline in population. Such association between the generations may be because kids resemble their parents both culturally and genetically. Population modelling in the paper therefore distinguished between “lifestyles”, cultural behaviours that can affect fertility directly (such as the age at which to start having babies), or indirectly (career choice), and “lifestyle preferences”, genetic traits and social values inherited solely from parents that might influence a person in their choice of “lifestyle” (and therefore affect their fertility).

Using two different models, the team found that intergenerational fertility correlations are likely to bump up the number of babies being born—they foster cultural and genetic selection processes that favour lifestyles with higher fertility.

The first model relied on a simple demographic process where generations did not overlap (unfortunately for Grandmas and Grandpas). In each generation, individuals inherited one of two possible “lifestyle preferences” from their parents: a disposition towards having many children, high fertility (H), or a bias against it, low fertility (L). They then only adopted the preferred lifestyle if it were demonstrated either by parents or other role models in their social environment—otherwise they adopted the opposite. Fertility rates then varied depending on the proportion of individuals modelled as (HH), (HL), (LL) or (LH) over 25 generations.

(HL) and (LH) individuals quickly disappeared, (HL) within three generations. At the same time, the proportion of the population comprised of individuals disinclined to have many kids, and encouraged by their social environment not to do so either, increased rapidly. This outcome reflected the realities of population decline in the eighteenth and nineteenth centuries.

Evolutionary principles though dictated what came next: the frequency of people with more kids (HH) increased so that eventually the fertility rate went up. In the meantime, correlations in fertility between parents and children reached their maximum roughly around the time that the proportion of (HH) individuals and (LL) individuals was balanced—variance peaked at this point. The growing dominance of (HH) individuals therefore necessarily led to less correlation between parents and children in their choice of family size.

The second model shook up social mores, showing that the continuous introduction of novel social fads could, if so inclined, sustain low fertility rates (one historical example could be the introduction of the contraceptive pill in the 1960s). Such fads would depend on cultural surroundings that welcomed diversity and difference; as Dr Kolk points out “the more choices people can make the stronger the effect on fertility”.

The second model allowed an individual’s lifestyle to be comprised of many different independent elements, each with their own impact upon fertility (unlike the more binary lifestyles explored in the first model). The results were similar initially to those of the first model, but fertility increased only slightly overall. Correlations between parents and kids also persisted over time, because new fads ensured continuous variance in lifestyles on offer.

Both models fit with empirical evidence of the decline in populations seen since the mid-nineteenth century, and both suggest that fears for falling fertility may yet be unfounded (although, of course, the models are overly-simplified and take no account of external forces, such as political policies, that could affect the number of babies born). Where the two differ is over the issue of whether historical population decline, the “fertility transition”, was a singular historical event (as suggested by the first model) or the point at which greater cultural diversity, and the possibility of different lifestyles (and therefore different numbers of children) first became apparent to people (as suggested by the second). The “fertility transition” ushered in the variance in lifestyles that gave rise to growing correlations between parents and children in their choice of family size.

The latest technological advances and more education for women may bring social shifts that influence global fertility in the years ahead—as they did over the past 200 years in richer countries. While the precise effects of these phenomena remain uncertain, Dr Kolk and his team have shown (if their models are correct) that big families will soon be back.

 

The big question facing fertility in the modern world is whether the current trend of declining fertility is sustainable, and (perhaps more interesting) if it is not what will be the mechanisms that would increase fertility. The current trend of Western nations having fertility levels barely at or below replacement levels - 1.6.7 in Sweden, 2.06 in the United States, and 1.90 for the United Kingdom - is an issue which has not gotten nearly the attention that it deserves.

 

The welfare state largely has the structure of a Ponzi scheme (which even Paul Krugman asserted before the fiscal situation of Western welfare states came under scrutiny after 2008) in which each generation, thanks to population growth, has taken more out which they put in. However, thanks to growing populations and the coercive nature of the welfare state, it's Ponzi-like traits have been supressed, and its actuarilly unsound nature has been insulated from adversity.

Paul Samuelson's overlapping generations model can used to illustrate how the welfare state only functions when there is a tacit contract between generations to provide for the aging generation in hope that the succeeding generation will do the same for them. Declining fertility increases the costs upon  the working generation to keep the social contract, and when that declining fertility is coupled with an explosion in both public and private debt, the costs to keep the welfare state's contract is immense compared to the expected benefit of keeping that contract.

 

A higher fertility rate reduces the costs of keeping the welfare state's contract, and keeping a high fertility rate is thereby one of the most underappreciated aspects of ensuring the soundness of the welfare state.