Nov 01 2012

Has the Baby Market Failed?

The tools of economics can be applied to almost any social institution, even the decision of individuals in society whether or not to have children. All over the rich world today, potential parents have decided against having babies, the result being lower fertility rates across much of Europe and the richer countries in Asia, including Japan, South Korea and Singapore. Lower fertility rates have some advantages, such as less pressure on the country’s natural resources, but the disadvantages generally outweigh the benefits.

The story below, from NPR, explains in detail some of the consequences of declining fertility rates in the rich world, and identifies some of the ways governments have begun to try to increase the fertility rates.

The problem of declining fertility rates can be analyzed using simple supply and demand analysis. In the graph below, we see that the marginal private cost of having children in rich countries is very high. The costs of having children include not only the monetary costs of raising the child, but the opportunity costs of forgone income of the parent who has to quit his or her job to raise the child or the explicit costs of child care, which in some countries can cost thousands of dollars per month. Marginal private cost corresponds with the supply of babies, since private individuals will only choose to have children if the perceived benefit of having a baby exceeds the explicit and implicit costs of child-rearing.

The marginal private benefit of having babies is downward sloping. This reflects the fact that if parents have just one or two children, the benefit of these children is relatively high, due to the emotional and economic contributions a first and second child will  bring to parents’ lives. But the more babies a couple has, the less additional benefit each successive child provides the parents. This helps explain why in an era of increased gender equality, families with three or more children are incredibly rare. The diminishing marginal benefit experienced by individual couples applies to society as a whole as well, therefore the market above could represent either the costs and benefits of individual parents or of society at large.

Notice, however, that that the marginal social benefit of having babies is greater than the marginal private benefit. In economics terminology, there are positive externalities of having babies; in other words, additional children provide benefits to society beyond those emotional and economic benefits enjoyed by the parents. The podcast explained some of these external, social benefits of having children: a larger workforce for firms to employ in the future, more people paying taxes, allowing the government to provide more public goods, more workers supporting the non-working retirees of a nation, and more competitive wages in the global market for goods and services. Higher fertility rates, in short, result in more economic growth and higher incomes for a nation.

When individuals decide how many children to have, they make this decision based solely on their private costs and benefits, since the external benefits of having more babies are enjoyed by society, but not necessarily by the parents themselves. Therefore, left entirely alone, the “free market” will produce fewer babies (Qe) than is socially optimal (Qso).

So what are Western governments doing about low fertility rates? The podcast identifies several strategies being employed to narrow the gap between Qe and Qso. In Australia households receive a $1000 subsidy for each baby born. In Germany mothers receive a year of paid leave from work. Here in Switzerland mothers get three months of government paid leave and $200 a month subsidy to help pay for child care after that. Each of these government policies represents a “baby subsidy”. In the graph above, we can see the intended effect of these policies. By making it more affordable to have children, governments are hoping to reduce the marginal private cost to parents, encouraging them to have more children, which on a societal level should increase the number of babies born so that it is closer to the socially optimal level (Qso).

Unfortunately, as the podcast explains, it appears that parents are relatively unresponsive to the monetary incentives governments are providing. This can be explained by the fact that the private demand (MPB) for babies is highly inelastic. Even if the “cost” of having a baby falls due to government subsidies, parents across the Western world are reluctant to increase the number of babies they have.

As we can see in the graph above, a subsidy for babies reduces the marginal private cost of child-rearing to parents. But the MPB curve, representing the private demand for babies, is highly inelastic, meaning the large subsidy has minimal effect on the quantity of babies produced. Without the subsidy, Qe babies would be born, while with the subsidy only Qs are born, which is closer to the socially optimal number of births at Qso, but still short of the number of births society truly needs.

The “market for babies” in rich countries is failing. Because of the positive externalities of having children, parents are currently under-producing this “merit good”. One of two things must happen to resolve this market failure. Either the marginal private costs of having babies must fall by much more than the government subsidies for babies have allowed, or the marginal private benefit must increase. Either larger subsidies are needed, or some moral revival aimed at encouraging potential parents to consider both the private and social benefits of having children when making their decisions.

Don’t you love economics? We make everything seem so logical! And like they say, it all comes down to supply and demand!

Discussion Questions:

  1. What makes low fertility rates among parents in the rich world an example of a “market failure”?
  2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?
  3.  What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?
  4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?
  5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

13 responses so far

13 Responses to “Has the Baby Market Failed?”

  1. Prahnav Sharmaon 12 Nov 2011 at 12:26 am

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    I believe that the low fertility rates among parents in the rich world is an example of a market failure because the low fertility rates are a cause for a lack of economic development. According to the podcast, governments look upon additional babies as economic investments for the future. They pay taxes, contribute to the work force, increase the size of markets and improve economic growth. However, with a reduced number of babies supplied to society, economic development is restricted. The market for babies has reduced its supply to society, causing it to fail.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    In the developed world, people generally earn a higher income relative to the developing world. Thus women here are incentivized to work and earn a higher living for themselves. Working is time consuming and this restricts the ability of a woman to raise a child effectively.

    Also, parents in the developed world are generally more aware about the amount of monetary commitment required to raise a child. In the west, babies are generally put to day care institutions, and purchasing all the necessary supplies for a baby can be expensive. Parents may decide to invest this cost of raising a child from their income proportion into something else that they are interested in.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    As outlined by the question there are two types of consequences that lower birth rates pose to the society and the environment. There is an economic consequence and there is an environmental consequence.

    Looking at the economic consequences, society would not benefit from the lack of babies born as they are economic investments for the future. In the long run, with more babies in a country, the country can earn more money from increased tax revenue and consumer consumption in society. However, this would not be the case if there were fewer babies born.

    Environmentally, the lower birth rates are a blessing as society will have to consume fewer resources from nature to sustain itself. With a decrease in the number of humans, there is most certainly a decrease in the carbon footprint of the human race, leading to a rise in environmental sustainability.

    Personally, I feel that the environment gains priority over the economy because without the environment, there is no economy. It is the environment that provides the required resources to propel the economy forward and if that is not recognized, the consequences would be dire. Although both should try and be improved, the government should consider the consequences to the environment first before considering the economic losses.

    4. Why have governments incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    When the parent’s demand for babies is graphically portrayed, the curve is highly inelastic. This is the situation in spite of the subsidies provided by the government to incentives parents to have babies. In such a case, the subsidies provided by the government are probably insufficient to efficiently raise and educate a child. Due to the high unresponsiveness of parents, only a significant increase in subsidy value can increase the quantity demanded.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today are low fertility rates? Should we be worried?

    In order for governments to increase the incentives of parents to have more babies, there must clearly be a higher amount of subsidies offered. To do this, a government would have to allocate more money to providing this increased subsidy for babies. This could be achieved by increasing taxes on inelastic goods in society and some proportion of this increased revenue could be allocated to subsidizing parents to raise babies. Governments would have to experiment on society to calculate approximately how much taxes must be placed to increase the subsidies provided to such an extent, that parents would begin to increase their responsiveness.

    If this is not done, then the populations of Western Europe and the rich countries of Asia would see their numbers decrease over time. There may also be a reduction in economic development over time as the population decreases. However, I do not think that this is too great an issue for such countries. There are other nations which are experiencing very high fertility rates and their population numbers are expected to steeply increase. The countries reducing in population can simple take in immigrants from these other countries to sustain the economy and its growth. As the population of a Western European nation decreases, there will be growing incentive for people in the developing world to immigrate into such a country. Thus the economy can still survive and grow with regulated immigration.

    -Prahnav

  2. Sahelion 13 Nov 2011 at 10:56 am

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    Although there are some advantages to having a low fertility rate, there are far more disadvantages. Market failure refers to not being able to properly allocate resources, so maybe low fertility rates are an example of market failure because if parents aren't having children, there are no resources (labor) for the future. Babies are the future of a country, as they will be the ones to pay taxes, supply labor, and overall increase the welfare of a country, but if parent's aren't having enough children, it can be said that the market has failed.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    In rich countries, the costs of not only raising the baby is high, but also the money spent to ensure the baby's survival and comfort, is also very high. In addition, the opportunity cost lost for when a parent has to leave work and stay home to look after the baby, is also high. Therefore, in rich countries, many people are choosing not to have children because they think it is a disadvantage to them economically. In poorer countries however, often, the costs are raising the child is lower. In addition, in poorer countries, parents have as many children as possible so that as soon as they're of age, they can begin working to earn the family money.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    There are many economic benefits of lower birth rates because babies are economic investments. Businesses will get a worker or a consumer when the baby is older, government will get a taxpayer and a guarantee that the country will live on, while parents will get someone to look after them and support them when they can no longer support themselves. Therefore,t he economic consequences of not having enough babies is high.

    There are environmental benefits to having less children- the country has to provide less natural resources to support its population. Also, there are less environmental consequences such as a reduced amount of carbon footprint.

    I think, that the government really should try and increase the number of babies born. Although the environment is extremely important, the social welfare of a country's population is more important. With no babies, a country's economy and therefore overall welfare will decline. There will then be a small amount of young people trying to support an aging population, leading to a financial strain for the government.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    Despite the governments paying parents to have children, the amount of babies born has not increased; this could be due to the fact that even though parents are being paid to father children, the amount of money they're being paid is not enough to make them consider having a child. Parents are thinking that the amount of money they're receiving is not nearly enough for them to have one parent leave work to raise the child or spend a huge amount of money on taking care of the baby.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    To create strong enough incentives for parents to have more babies, governments will have to allocate less resources to something else in order to reallocate those resources to provide incentives for parents.

    Over time the populations of Western Europe and the rich countries of Asia will decrease, resulting in no economic growth and reduced output. Fewer people will be around to support the ones who need it. I think those countries should be worried because there will be just too much of a burden on the young working force. It would be an extremely grueling task for the young work-force to take care of an aging nation. In addition, since there aren't that many tax payers, the country will also have fewer revenues. Low fertility rates could eventually lead to elimination, so a government needs to do all it can in order to increase fertility rates.

  3. Anya Mauruson 13 Nov 2011 at 4:21 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    Market failure is any situation where the allocation of resources by a free market is not efficient. The low fertility rates among parents in rich countries of the would is an example for market failure, because there is no money or not enough money allocated to reimburse parents for the large amount of opportunity cost they undergo as parents.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    One reason might be that in developing countries, religion is still very present. Most religions promote “baby-making”. Also through religion, the concept of a family and carrying on the family name is promoted. Another reason that fertility rates are so low in rich countries is that wages are fairly high, therefor there is more incentive to get a good job first before having children. But once people have a stable job, that they enjoy they are most likely to stay with their job instead of leaving it and having children or giving up large amounts of profit for children. In developing countries, wages are lower and therefor to have many children, means to increase the income of the family, because in many developing countries child labor is accepted. Also, in richer countries the lifestyle is better. So many people are driven to earning as much money as possible. This is most likely achieved without having children.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    There are many economic consequences for lower birth rates because there are so many economic benefits for high birth rates. A baby is an economic investment for a generation, because a baby can take care of its parents, when the parents get old and because once the babies are older and they have jobs, they will pay taxes which provide money for the previous generation, who are most likely living off the government, as they have all retired.

    Of course with less babies, there will be less people in the next generation and therefore less energy will be used because there will be less people. Environmentally speaking, a low baby rate is positive for the environment, but economically speaking, a high baby rate is better because it offers a lot of profit to the country.

    Governments should be trying to increase the number of babies born, because babies are the next generation and can heavily profit the country, by being its next basketball MVP or the next Nobel Peace Prize winner of that country.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    Most likely this is because adults find that children have become so expensive, time consuming and strenuous, that even payment by the government won’t help. Also in most cases, like in Germany and Switzerland, the amount of money paid to parents is so little that is pretty much only pays for the diapers. Parents still have to give up a lot of time and money if they want to have children.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    To increase the incentives for parents to have more kids, one would have to lower the costs of having children, as that is probably the largest turn-away for parents. It is hard to raise the amount of subsidies given to parents without taking away too much money from other important services.

    I think that because it is very hard for the government to increase subsidies given to parents, the fertility rate of rich countries will most likely stay low. I think that there will always be people who want to have children therefore there is no real reason to panic, but this is an issue that could turn into a larger problem in the near future.

  4. Sofie Appelkviston 13 Nov 2011 at 5:36 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    This is an example of a market failure because the government is allocating large sums of money towards something that isn’t improving. Thus, the government is being made worse off by its loss of money, while the birth rates are staying the same.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    One would initially think that families who are financially successful would have more children than those who have trouble affording the expenses of childcare. However, contrary to popular belief, this is not the case. There are multiple other factors that effect familes’ decisions to have children, primarily being the conflict of work hours. In the more affluent countries, parents tend to have craving occupations, calling for long work hours which take time away from the possibility of raising a child. Also, women in the rich world are more inclined to work and earn money than women in poorer countries and would thus have less time to care for their children. When it comes to raising a child, women are put in a position where they have to take time off from work and lose that potential income. Ideally, jobs which allow women to balance work, money, and childcare would revert the falling fertility rates.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    The decline in birth rates is a serious issue when it comes to a country’s ability to thrive. As stated in the podcast, “a baby is an economic investment”: a country needs its citizens; taxpayers, contributers to the workforce, and product consumers in order to have a steady economic balance. With the fall in birth rates, countries are experiencing lack of all of these aspects, namely the lack of tax payers, employees, innovators, and consumers that would contribute to total tax revenue to pay for a country’s crucial assets.

    On the other hand, lower birth rates contribute positively to society from an environmental standpoint. With less people on the planet, less resources are consumed, less land is industrialized, less toxic factory fuels are emited, less waste is piled up, among several other aspects.

    There are arguments both for and against government intervention in regards to fertility rates. On one side of the sprectrum, the government can’t force or brainwash women into be more fertile and wanting more babies, but on the other, babies are, as previously stated, an economic investment and crucial necesity for the perpetuation of a nation. Personally, I agree with Prahnav that new generations are a requisite and should take the priority over some of the negative implications.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    The government sought to aid families financially in order to motivate them to have more children. However, in our money-driven society, the subsidies offered are not enough to persuade families to take time off of work, where they would be earning substantially more money, and spend tens of thousands of dollars on raising children. Also, there are several aspects of childcare that cannot be compensated for financially, namely time, stress, housework, and marital relations.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    As stated towards the end of the podcast, the quality of childcare and flexibility of maternity leave can contribute to the decision to have a child. In order to achieve their goal, government must approach the issue from a different angle. For example, if government were to reallocate a portion of the baby-subsidy on childcare infrastructure, such as daycare and work schedules, then there would ultimately be more success in raising fertility rates.

    In regards to what I adressed in a quesiton above, if government fails to raise birth rates, there would be no younger generation of taxpayers to pay for pensions, no employees, no workers, no innovators, and ultimately no sources of not only economic, but general progression for a country, or even a continent. Ultimately, I think we should be worried. The imbalance of the economy would call for a complete recalculation of how to pay for the expenses that are now lacking, and with the lack of that money, several consequences, potentially including debt or higher taxes, would quiver modern day’s society.

  5. Carl Krasson 13 Nov 2011 at 9:34 pm

    Discussion Questions:

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    The market is allocating the resources incorrectly, leaving many resources not bringing a benefit to society.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    In the rich world there is perfect equality between men and women, women want to partake in society and contributing to their family by working. The marginal cost for women to become pregnant has increased drastically, as she has to change/quit her job to raise her child or has to employ staff to take care of the children. Both result in a large opportunity lost and a marginal loss.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    The economic consequences of lower birthrates are far reaching. If the active working population is decreasing, there are less active tax payers, less active workers, less people that are working for the economic growth of a country. The population becomes older and there is not enough youth to take over the vacant job positions. In the long term the workforce will decrease and the economic growth of a rich country will slow.

    Environmentally speaking, lower birthrates are good, as there are less people consuming less of the world’s resources, emitting fewer emissions.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    The government incentives have failed because the private demand for babies is highly inelastic, no matter the subsidy. Even when the cost falls, parents aren’t making more babies.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    Well this really depends of the government. I personally think that a subsidy worth 35,000 euro is pretty lucrative for having babies. But I believe that having plenty of babies should be made “cool” again using the media. When our future generations see that having 4 kids is “cool” maybe there will be another baby boom. At the moment we should not be worried, because there is a lot of migration of people into these rich countries, proving labor in all shapes and forms. That’s also why a country with a low birthrate like Germany continuously has economic development and growth.

  6. Paul Oratoron 14 Nov 2011 at 3:36 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    With a lower number of babies there is a lack of future workers and consumers, this causes market failure because the economic development is slowed down by the lower number of babies. A higher number of babies mean an increase in the future number of consumers, tax payers and workers, therefore slowing down the economic growth; causing market failure.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    In the rich world fertility rates are lower due to the more luxury for the consumers. In the modern world the salaries are higher than they are in the developing world; this means that people are able to afford a better, more luxurious lifestyle. In the developing world people often have a lot of babies in the hope that their children will one day provide for them when they are unable to provide for themselves. In the wealthy world this is not the case, here people are taken care of even when they are old and therefore don’t need to have children in order to provide for them. In addition it takes time and work to raise children; often people aren’t willing to cover the expenses, both financially and in terms of time, which it takes to raise a child.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    Economically it is bad that there is less babies. Fewer babies mean a smaller workforce, less consumers and less tax payers; therefore it would cause the economy to shrink in the long run. However, it would have a positive effect on the environment, because the CO2 emissions created by the people are decreased because there are less people. I think government should try to gain some sort of control over the amount of babies created in order to provide a strong and even economy for their country.

    4. Why have governments incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    Governments have failed to control the fertility rates because women are not willing to give up work and a paycheck in order to have a baby which just creates extra costs. Even though governments provide subsidies for having children it is not enough money to compensate for the money lost when leaving a job.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today are low fertility rates? Should we be worried?

    I believe that governments are not doing enough to make sure that the people really know how important it is to have children. There is barely any commercials promoting this and there is no real want to have babies created. People should be made aware of how important it actually is to have babies; they should also know the economic benefits created for the public in the long run. If governments cannot control this then we will soon see an increase in old people in the population, therefore there will be a decline tin the size of the workforce causing the economy to shrink. Governments and people should be worried about their future if the governments fail to encourage their population to have more children.

  7. Serra Tosuneron 14 Nov 2011 at 3:41 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    I think that the low fertility rates among parents in the rich world are a basic example of a market failure. This is so because the low fertility rates are a cause for a lack of economic development. According to the news report, governments look upon supplementary babies as economic investments for the future. They pay taxes and contribute to the work force; they increase the size of markets and improve the economic growth. However, with an increased number of babies supplied to society, economic development would be restricted. As a consequence, the market for babies has reduced its supply to the society, causing it to be unsuccessful.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    In the developed world, people earn a higher wage relative to the developing world. Working is time consuming and this limits the capacity of women to raise a child successfully. Also, parents in the developed world are generally more aware about the amount of financial commitment in order to raise a child. However in the west, babies are generally put to day care institutions, which could come to a huge expense in the long run. Parents could decide to invest the money that they could be investing towards their babies towards other interests because the expense isn’t for a long term.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    The economic consequences of lower birthrates are reaching quite far. If the active working population should be decreasing this would result in less active tax payers, which would eventually lead to less active workers, less people that are working for the economic growth of a country. In the long run the age of the average population becomes older and there are not enough young people to take over the job positions. In the long term the workforce would decrease and the economic growth of a rich country will slow down. However if we think about the world, then the lower birthrates are in favor of the world but economically speaking the lower birthrates would results in people consuming less goods.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    The government’s motivations have failed because the demand for babies is highly inelastic because there are no subsidies for babies. Even if the cost would fall, parents would still not make more babies.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    As noted in the news report, the quality of childcare and flexibility of maternity leave could have a positive impact of having a child. However, in order to achieve its goal, the government must think differently. One example could be that if the government was to reallocate a portion of the baby-subsidy on childcare infrastructure, such as daycare and work schedules, then they would ultimately be more success in raising the fertility rates in the short run. However there is also the other option, if the government fails to raise birth rates, there would be no younger generation of taxpayers to pay for pensions, no employees and no workers. These are the general progressions of a country which should be a worry for the population.

  8. Annaleaon 14 Nov 2011 at 8:24 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    There are far more disadvantages to a low fertility rate, causing a lack of economic development. Market failure relates to the inability to accurately allocate resources; if parents are not having children, they are not using their capabilities to their full potential and are therefore causing a negative impact on the nation. Lower labor for the future and income for the government could be caused by this. Also, the government is allocating a large amount of money to a situation that is not improving; therefore the government is worse off. All of these circumstances added together result in market failure.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    People in rich countries have the ability to invest in other things and spend their money in other ways than in children due to the success of the economy. People in rich countries have more money per capita, more square feet of housing per capita, etc. With the ability to trade freely and for women to be extremely successful in the workforce, women found that they could potentially have a better role as a money earner than as a mother. With a larger workforce and fewer babies to take care of, a country can show much more short term economic growth. Also, potential parents in the rich world are more aware of the monetary costs of raising a child and the burdens it will have on their professional lives.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    There are many economic consequences of lower birth rates; society would not benefit from the lack of babies born due to the fact that they are of great economic benefit for the future, for companies as well as the government. Also, if the population is decreasing, there are less taxpayers, and less laborers. The current population will slowly grow older and there will be not enough of a younger population to take over jobs, leading to a gradual decrease in economic development.

    Environmentally, lower birth rates are a benefit. Less population means less of a strain on the natural resources of the nation, and fewer resources consumed per person. With a decrease in population, there is clearly a decrease in the “carbon footprint”, leading to a more sustainable environment.

    In my opinion, the government should be making a slight effort to increase the number of babies born, but not to such an extent that they are losing money for no reason. It is important to consider the fact that without a sustainable environment, the world might not exist, meaning that economies in general might not exist. It is important to consider what is vital for our survival before considering what is vital for our government.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    This is due to the fact that demand for babies is relatively inelastic. Parents are relatively unresponsive to the governments’ efforts and are still reluctant to producing more kids. They find benefits in other things such as their professional lives, and are content with no or one/two children. They are only concerned with the private benefits, and often do not consider the social benefits that a child could provide to the nation in general.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    I believe that if the government truly wanted to, they would be able to create strong enough incentives. However, they would have to approach this from a different angle, as explained in the podcast. They could, for instance, provide more benefits in terms of child care, child infrastructure, or even pay a much larger subsidy, there would ultimately be more success in raising fertility rates.

    If the birth rates do not increase in the near future, there is a cause for worry. As mentioned above, over time, labor will decrease, employment will decrease and there will be less of a younger generation to take over the roles of the aging generation. There will be no new innovators, inventors, people to continue modernizing our society. Also, since there would be fewer tax payers, there would be several consequences on the government and therefore the entire economy of the nation.

  9. Mina Gokcenon 15 Nov 2011 at 12:46 am

    Discussion Questions:

    1.What makes low fertility rates among parents in the rich world an example of a “market failure”?

    Market failure is any situation where the allocation of resources by a free market is not efficient. Within this context, the demand for babies is highly inelastic meaning that consumers of babies will be relatively unresponsive to the lower of the price, as the costs outweigh the private benefits. This means that the decrease in the costs for babies is more than the increase in quantity demanded and supplied of babies. When all resources are allocated efficiently, the equilibrium price is established.There are two problems in this situation:

    1) Not enough babies are being supplied; resources are underallocated.

    2) The government's money is being overallocated.

    The lack of babies and the overallocation of the government's money creates an inefficency or an example of market failure.

    2.What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    Nowadays, society has more of everything (income per capita, etc) and since there is also gender equality, most women prefer to enter the workforce instead of staying at home to raise a child. Inhabitants of rich countries are able to invest in other things that are more beneficial and cost less than a child. The private cost for raising a child is more than the private benefit of raising a child. The costs do not neccesarily have to be monetary as there is also an opportunity cost. The family who chooses to have a child will bear the opportunity cost of earning additional income that could have been provided by the adult who now stays at home with the child. In the developing world, the private benefit of having a child exceeds the private costs, as more children equals more sources of income once they are of age to work, which is much earlier than in the rich world.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    Babies are seen as economic assets and are quite beneficial socially. More babies would form the basis of more consumers, more income, more tax revenue, and better funded pension plans. They would lead to more economic growth and economic development in the future. A lack of babies will be beneficial in the short run, as more people can join the workforce instead of staying at home to raise a child; however, in the long run, the costs will outweigh the short run benefits, because the current population will age and there will be fewer people to fill the jobs leading to a decline in economic growth.

    Without babies, the economic situation may deteriorate, however, the enviromental situation will flourish. There will be less consumers of natural resources, less pollution and the "carbon footprint" of society will be reduced. After all, without environment, there is no economy to protect. Raw materials are required in the production of all goods.

    In areas where the population is declining, governments must take action and promote policies that aid in increasing the number of babies born, because the environmental advantage of a lack of babies is outweighed by potential future economic losses owing to lower economic growth and increasing costs of elder care.

    4.Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    The money provided by the government to have more babies does not compensate for the expensive costs of child-rearing. There is also an opportunity cost of gaining more income, which is not compensated for by the government incentives. The subsidy is too little compared to the overall monetary and opportunity costs for raising a child.

    5.Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    I do not believe that governments will be able to create strong enough incentives for oaretns to have more babies, because they would have to increase the subsidy substantially, which is close to impossible to finance. The only way would be for the private benefits of the consumers to increase how, which seems unrealistic. The rich countries will have a hard time attaining economic growth and will not be able to support their aging citizens. As citizens of such countries, we should be worried. The countries could accumulate a lot of debt or enter recession leading to a decline economic development. A potential solution could be a carefully planned execution of an pro-immigration policy to ensure that economic growth is sustained.

  10. Lukeon 15 Nov 2011 at 6:43 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    In the rich world, having babies is viewed as an economic investment, especially by society and the government. This is due to the fact that society invests in the baby, with expecations that in the future when the baby has developed into an adult, it will then contribute both to taxes and the workforce. Therefore when a market sees a decline in supply of babies compared to what society believes it requires, then the market is said to be failing because of this lack of supply and the economy doesn’t grow at its optimum abilty.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    The primary reason why fertility rates are lower in the rich world rather than the developing world comes down to two factors. Firstly in a richer society, gender equality is no longer an issue and we see a very large female workforce and females are no longer expected to raise a family at home whilst the man works in the average family. Instead we see that women are becoming increasingly ambitious and fixated on their careers as they no longer are expected to raise the family. Furthermore another factor which contributes to the lower fertility rates is the accessibility of contraception to those who want it. In a richer society it is very easy to protect yourself against pregnancy; therefore the number of cases of unexpected pregnancies has decreased massively compared to the developing world. Abortion rates are much higher in the richer societies because developments in these economies have enabled the population to have the choice as to whether to have a child or not

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    From an economic perspective, lower birth rates mean in the future there will be a smaller workforce than the countries potential output of workers, this will also mean that the country will receive less taxes, meaning slower economic development. However from an environmental perspective this is not necessarily a bad thing, because, with the world’s population growing as rapidly as it is, it is having a massive negative effect on the environment, due to increased total carbon emissions and enormous amounts of waste and rubbish. Therefore a smaller than potential population would slow the production of these things down to the extent that there is a larger time period with which to respond and solve these problems the world faces.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    The government’s subsidies have failed to work because of the inelastic nature of the private demand for babies. This means that no matter how much capital the government injects into reducing the marginal cost of producers supplying babies the change in quantity demanded will always be relatively insignificant.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    In my opinion I do not think that government would be able to create a strong enough incentive for parents to have more babies due to the way society acts today, in the sense that there is an equality of gender and no expectations on women to raise children. I think in this way the populations of the richer and already developed worlds will begin to decline and will reach an optimum rate of growth that is much lower than population growth rates in the previous century. Therefore the populations of the less economically developed countries, whose fertility rates are still very high, will begin to exceed those of the developed world. I think this has both negative and positive consequences for the future; the developed world will become increasingly dependent on the workforces of the undeveloped world, which will put these countries in a very advantageous position with lots of influence. However, one positive aspect of this will be that the developed countries with slower population growth rates will have more control over their growth because the growth won’t be excessive and out of control, these countries will also have a smaller carbon footprint, and furthermore they won’t be as concerned with crowded populations as other countries will be in the future.

  11. Megon 15 Nov 2011 at 9:44 pm

    1. What makes low fertility rates among parents in the rich world an example of a “market failure”?

    Market failure refers to an inefficient allocation of resources. In this case, supply of babies is low, and the number of babies supplied is less than the socially optimal level. At the same time, the government is allocating money towards subsidies for babies that has little effect on the supply of babies. This results in an overall loss of welfare for society, and thus is an example of a market failure.

    2. What are the primary reasons fertility rates are lower in the rich world than they are in the developing world?

    In the rich world, gender equality has allowed women more opportunities to work. Therefore, babies in rich countries have a higher marginal cost, as they come at the opportunity cost of a woman working and earning income. The cost of babies also includes the cost of raising the child, for example childcare costs. The marginal private cost of babies exceeds the marginal private benefit, so the supply of babies (fertility rate) remains low.

    Also, in the developing world, there is a much higher child mortality rate than in the rich world. Parents in the developing world who have several children have more assurance of a healthy offspring who will be able to work and support them into old age.

    3. What are the economic consequences of lower birth rates? What are the environmental consequences of lower birth rates? Should government be trying to increase the number of babies born?

    Lower birth rates has the direct effect of reducing a country's potential workforce, as well as fewer people paying taxes. As the average age of the population increases, more jobs will be unable to be filled, and economic growth will be slowed.

    In contrast, the environmental consequences of lower birthrates are positive. A lower population means less pressure on the natural resources of a country, and a lower carbon footprint.

    On one hand, if governments try to increase the number of babies, this could result in economic growth and increased social benefits as more people would be paying taxes. However, this ignores the positive impact of low birth rates on the environment. Also, if governments try to increase the number of babies born, it may not be very effective and could cause inefficiency in the economy, in which case it would not be a useful allocation of resources.

    4. Why have government incentives for parents to have more babies failed to achieve the fertility rates that government wish they would achieve?

    Despite government incentives, the supply of babies has not increased by much. This is because the marginal private cost of babies is highly inelastic (steeply sloping). Parents are not very responsive to the subsidies; even if babies are cheaper, parents don't want to raise more children.

    This could be due to the high cost of raising children — the subsidy doesn't reduce the cost by enough to make it attractive to parents. Also, the opportunity cost of having a baby remains very high regardless of subsidies. A woman will not want to quit an important, well paying job to raise a child even if it becomes very cheap to do so.

    5. Do you believe that government can create strong enough incentives for parents to have more babies? If not, what will become of the populations of Western Europe and the rich countries of Asia given today’s low fertility rates? Should we be worried?

    I don't think that the government can create strong enough incentives to raise the birth rate. Raising children is not just a question of money, but also a question of time and priorities. Even if it becomes more economically viable to have a baby, governments can't convince women in the developed world to give up their jobs to raise children.

    If the supply of babies remains low, the populations in Western Europe and the rich countries of Asia will become older and eventually start to shrink. This would cause problems for the country's workforce and would greatly slow down economic growth.

    This could become a worrying solution in the future but at the moment there are still solutions available. One solution to this problem could be immigration. If these countries are accepting of immigrants this could allow them to replenish gaps the workforce left by the shrinking population and thus promote economic growth.

  12. Amiron 27 Aug 2014 at 11:35 am

    “British Columbia adopts a broad-based carbon tax” How do you think that a broad based carbon tax, such as the one introduced in British Columbia, is likely to affect equity in a society?

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    Has the Baby Market Failed? | Economics in Plain English

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