When Parents Have to Pay Dearly for Their Children
OPINION |

When Parents Have to Pay Dearly for Their Children

THE DIRECT AND INDIRECT COSTS OF BECOMING PARENTS AFFECT THE PROPENSITY TO HAVE CHILDREN, AS SHOWN BY VARIOUS EMPIRICAL STUDIES ESTIMATING THE EFFECTS OF INCOME, WELFARE AND EDUCATION

by Letizia Mencarini, Bocconi Department of Management and Technology
Translated by Alex Foti



In developed countries having a child is - in the majority of cases - the conscious choice of the two prospective parents. While in the past, especially in agricultural societies, having a child could carry net economic benefits, due to the low cost of care and raising one and the early contribution of the child as an additional worker, in post-industrial societies the cost of having children is high and children remain financially dependent on their parents for a long time. Economic transfers are always made towards the child, while the benefits she or he represents for parents are usually only of a sentimental nature.
 
So do the people who have more economic resources have a larger number of children? The relation is not so clear. Alongside the direct costs of having a child, there are also indirect costs, i.e. the opportunity costs represented by lost earnings and stunted careers for parents, especially for mothers. The overall income effect (the overall wealth effect is harder to measure) on the propensity to have a child is positive, if direct costs prevail, or conversely negative, if the indirect costs of becoming a parent are comparatively higher. The debate is both theoretical and empirical.

According to the paradigm of what is called the theory of the second demographic transition (Lesthaeghe and Van de Kaa, 1986), in developed countries the progressive tendency has been to consider the family less central in one's life and to focus on personal fulfillment, making individuals - in particular women - with higher education and income levels desire smaller or no families. In Becker's theoretical approach according to the so-called new home economics (Becker, 1981), the increase in women’s (and men’s) incomes can be ambiguous: it increases disposable income but also the opportunity cost of having children. The empirical evidence is unclear, too. On a macro level, given that all developed countries are characterized by low fertility rates below replacement level, in many countries well below that (1.5 children per fertile woman, say), the substitution effect would seem to prevail. However this does not seem to be the case form more advanced countries among the developed ones (for example Nordic and Anglo-Saxon countries), where instead the positive income effect offsets the negative substitution effect. For this group of countries, the positive relationship also holds at the individual level, that is, women with higher incomes tend to have greater fertility. But in other countries thing are not (yet?) this way: in Germany, for example, the relationship seems to stay negative overall.
 
In a recent study, we analyzed the trajectories of individual wellbeing of German parents before and after a child’s birth, using income as a moderation factor. Although at different levels (more significant for fathers than for mothers), after the birth of the first child, the level of wellbeing is much lower than before conception, this negative effect is significant only for very high incomes. The effect is reinforced by the interaction between income and education, and is thus higher in the case of rich and educated parents. For less educated parents, the negative effects of having a child are not only of a lesser entity, but are also invariant with respect to the level of income. The birth of a child is certainly a dramatic event in the life of individuals involving material and emotional changes, which can be very satisfying due to our innate sense of altruism and continuation of the human species, but very often also carries psychological costs, such as dissatisfaction with the ensuing life of the couple. All this should be reflected in a level of individual wellbeing that stays constant across levels of income and education. And financial costs should be more burdensome for the less affluent parents anyway. The opposite result obtained can be explained by the fact that the wealthier and more educated parents have sources of individual satisfaction linked to other life domains, for example their careers, so that having a child is on average less important for their personal fulfillment. Moreover, at least in the early years of the child, balancing work and family life is really difficult, particularly in a country like Germany where the welfare state hasn’t been particularly generous with parents until recently, and this cannot but increase the opportunity costs of having a child, especially for mothers.
 

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