Fertility and family policy in Australia

Research Paper No. 41 – February 2008

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4. Macro-level explanations for low fertility rates

Many interacting factors appear to have contributed to Australia's (and other countries) falling fertility rates. These include advances in reproductive technology, especially the development of the contraceptive pill; life course changes, such as delays in those transitions that typically precede childbearing; an overall fall in the formation of partnerships; and an increase in the rate of relationship breakdowns. Women's increased financial independence is also a factor.

Delays in achieving those milestones that typically precede having children restrict women's potential childbearing years to older ages, thereby further limiting the number of children they could have and increasing their risk of childlessness. Such changing life course and fertility patterns tend to become norms, influencing the expectations and preferences of those entering or currently in their childbearing years.

Behind some of these life course trends are changes in the labour market and the economy. There is evidence that economic downturns are associated with a lower level of fertility (e.g., Martin, 2003; Ruzicka & Caldwell, 1982). However, the effects of the economic cycle cannot explain the declines in fertility that have occurred in periods when the economic outlook has been relatively positive.

Several authors have suggested that the globalisation of the economy and associated labour market changes of the last two decades have resulted in lower fertility rates. Low-skilled yet relatively highly paid jobs for early school leavers have virtually disappeared, having been replaced by jobs entailing fixed-term contracts and part-time or casual hours, thereby providing limited economic security (Kohler, Billari, & Ortega, 2001; McDonald, 2000b; Saunders, 2001). McDonald (2001) also argued that this era of job insecurity has been accompanied by a strong economic cycle of "boom and bust" and rising or fluctuating house prices that not only lead young adults to invest in their education and career development, but also encourage couples to maintain dual incomes.

The costs of having children are inextricably linked with these broad structural forces. At the same time, several authors have suggested that since the introduction of child labour laws the benefits of having children have been restricted to psychosocial ones. Such benefits, however, do not accumulate as family size increases (Kagitcibasi, 1997; Kohlmann, 2002).

The costs of having children may be conceptualised as being direct or indirect and financial or non-financial. To some extent, direct financial costs tend to be reinforced by improvements in living standards, for these may lead to today's luxuries becoming tomorrow's necessities. Indirect financial costs include having reduced earnings and potentially curtailed careers when caring for children takes precedence over paid work (foregone earnings). Indirect non-financial costs include any lost or diminished opportunities for social relationships, mental stimulation and prestige, which are linked with giving up paid work or substantially reducing work hours, while direct ones include difficulties experienced by parents in managing both paid work and family responsibilities.

In addition, it is sometimes argued that parents nowadays are more likely than parents of the past to invest much time and energy in providing their children with experiences that they feel will enhance their children's emotional development and educational achievement (e.g., Allan, Hawker, & Crow, 2001). Consistent with these observations are Australian time use data that suggest that parents are spending more time with fewer children (Bittman, 2002). This approach to parenting may be seen as a direct non-financial cost to the parents, although the longer-term benefits for their children may be substantial.

Other changing values that may be incompatible with parenting have been proposed. These include the suggestion that there is now an enhanced emphasis on achieving self-realisation, autonomy and freedom (Coleman, 1999); a desire on the part of young adults to keep their options open (Mackay, 1997); society's increased intolerance of children; and a diminished value attached to parents, especially mothers (e.g., Crittenden, 2001).

Some of these cost-related explanations for low fertility apply particularly to women. McDonald (2000b, 2001), for example, argued that in many countries "gender equity" has progressed well in those institutions that are oriented to the individual, such as education and employment, but family-oriented institutions have lagged behind by continuing to assume a male breadwinner model of family life. Under these circumstances, women's opportunities are limited if they have children, thereby discouraging them from having the number of children many would like to have. Some authors have argued that this is a key area in which government policy can affect fertility rates (e.g., Andersson, 2005; McDonald, 2000a, 2000b). It seems reasonable to suggest that the gender equity explanation can be extended to marriage itself. In OECD countries where women's opportunities for enjoying a self-fulfilling lifestyle are seriously curtailed by marriage, fewer women are likely to get or remain married.

Costs of having children may also be known or unknown. McDonald (2000a) pointed out that the financial and psychosocial costs of having children can be difficult to decipher, and that negative "unknowns" themselves encourage individuals to err on the side of caution and thus discourage them from having children.

Many of the factors that are thought to influence fertility can be affected, to a greater or lesser degree, by government policy. There are a number of studies on the impact of policy on fertility rates. However, estimating the impact is challenging, requiring a number of methodological issues to be addressed.

First, the range of policies that can potentially affect fertility rates is broad. Policies that may be relevant include the tax and income support system, child care policies, educational policies, and policies that affect parents' ability to balance family and work responsibilities.

Second, often a number of policy changes are implemented at the same time. This makes identifying the separate impact of individual policies difficult. Disentangling the influences of individual policies is made more difficult by the fact that the intended outcomes of specific policies may take a long time to take full effect.

Third, it is likely that some of the variables that are thought to affect fertility decisions will also be affected by decisions about fertility (that is they are endogenous). For example, women's childbearing decisions affect labour supply decisions and labour supply decisions affect decisions about childbearing. In addition, endogeneity may also be present at the macro-level. For example, it may be hypothesised that higher levels of financial transfers to families with children increase fertility rates; however, it may be the case that there is some other factor that affects both fertility rates and the level of transfers to families with children. An example of this may be a growing public concern about low fertility rates are and hence an increased value being placed on children.

Fourth, a number of the explanatory variables that are thought to influence fertility decisions and are affected by policy are difficult to measure accurately. A good example of this type of variable is the private cost of children.

Despite the difficulties in an assessing the effectiveness of government policies, there is evidence that they can have an impact on fertility. Laroque and Salaníe (2005), using data for France, found that family benefits have reduced the cost of raising children and consequently have increased the fertility rate. They estimated that a decrease in the private cost of children by 25 per cent would increase fertility by about 5 per cent. In a recent study, d'Addio and d'Ercole (2005) used panel data from 16 OECD countries for the period 1980-99 to show that a higher level of government payment to families was associated with a higher fertility rate, as were higher replacement wages during parental leave, higher female employment rates and a higher share of women working part-time. Lower fertility rates were associated with higher unemployment rates and with children having a larger negative impact upon mothers' earnings (foregone earnings).3 On the other hand, Sleebos (2003), following a detailed review of research that examined the relationship between policy and fertility rates, concluded that "the evidence provided by this review seems to suggest a weak positive relation between reproductive behaviour and a variety of policies" and that "findings are often inconclusive or contradictory, partly because of methodological differences" (p. 48). Grant et al. (2004) concluded that the literature for France suggests that the increase in fertility rates "is less attributable to a single policy mechanism than to its ability to create an environment that encourages childbearing. This environment is created by a combination of policies that jointly serve this aim" (pp. xv-xvi).

This brief review suggests that the factors explaining the fall in the fertility rate are complex and often mutually reinforcing. One of the most fundamental of these is the postponement of first births, which consequently shortens possible childbearing years and increases the risk of having no children at all. The factors appear to include broad technological; structural, cultural and social changes; and changes in personal financial circumstances.

However, there is a great deal of controversy about the existence or relative importance of some issues, such as the significance of increasing individualism and women's employment in making decisions about having children. Little is known about some issues, such as men's contribution to childbearing decisions and the impact of disagreements between partners in relation to making childbearing decisions. Furthermore, the nature and relative importance of forces deterring couples from having children will vary somewhat for different sub-groups in the population (e.g., ethnic groups). The understanding about these sub-group differences is still a long way off.

The above discussion highlights the importance of broad contextual factors influencing fertility decisions. Government policy is part of this context, and although the extent to which they can affect fertility decision-making is debated, there is, in our view, growing evidence that policy does influence fertility rates.

3 While there is strong evidence, using cross-country data, that higher rates of female labour force participation are associated with a higher fertility rate, there is some evidence that, in a multivariate context, the direction of the relationship is sensitive to the range of other macro-level variables that are controlled for in the modelling. For example, Kogel (2006) found that when the increasing age of childbearing, formal child care use, and the long-term unemployment rate of women are controlled for the relationship reverses.