Can governments spend their way to a higher birth rate?

The warning was stark. “Like many other countries, Canada does not have a sustainable fiscal structure,” Parliamentary Budget Officer Kevin Page wrote in an e-mail this week. “Policy makers will need to address the aging demographic issue. We feel it should be part of the discussion leading up to the 2012 budget.”

Canada’s population is aging. In 1996, there was 1.2 Winnipeggers under the age of 20 for each Winnipegger over the age of 55.

By 2006, the situation had begun to reverse, with the city having 1.03 over-55s for each Winnipegger under the age of 20.

And yet Winnipeg, the median (or “typical”) resident of which was 38 years old in 2006, is one of Canada’s younger cities, especially in comparison to some blue-collar Ontario and Quebec cities, where the “typical” resident is (or will soon be) 45 years old.

An aging population has a real impact on a city. Aging communities tend to have lower typical incomes, greater dependency on government income supports, more sluggish real estate markets and low-wage-low-skill job markets. It’s a toxic soup that leaves a feeling of doom hanging over the community.

Many places, like Manitoba, have put an effort into attracting immigrants to prevent communities from aging too rapidly as the “Baby Boomers” retire from the workforce.

By many accounts, this has worked fairly well in Manitoba, where many people are the children, grandchildren or great-grandchildren of immigrants, and thus sympathetic to newcomers.

There will always be those, however, who will bemoan the fact that Canadians are not having enough babies. If only Canadians got busy and produced more of their own children, they say, we wouldn’t need so many immigrants.

Never mind the fact that immigrants have beneficial economic effects and, as this blog pointed out some time ago, often bring with them a culture that values education — a cultural infusion we very much need in Manitoba.

Indeed, there are governments that have tried to use subsidies and tax credits to boost birth rates. How have those efforts worked out?

  • A 2003 study of changes made to France’s Parental Education Allowance in 1994 found that government financial incentives played a role in encouraging people to have a first child. However, these incentives were largely ineffective at convincing people to have anything more than a second child.
  • In May 2004, Australian finance minister Peter Costello urged his compatriots to get cuddling and produce “one for mum, one for dad, and one for your country”, offering the parents of newborns a $3,000 bonus for their efforts. A paper produced by researchers at the Royal Melbourne Institute of Technology University in 2010 found that the bonus had a “positive effect on fertility rates”, leading to about an additional 119,000 births. But it also concluded, however, that the program cost about $39,000 per newborn to run, and has not increased fertility rates to levels needed to replace the aging. Furthermore, an effort to control costs by means-testing recipients is expected to reduce the program’s impact.
  • A 2009 Princeton University study of the impact of the incentives introduced by Quebec in the ’80s to boost birth rates found mixed results. On the positive side, it found a 1.72 percent increase in fertility as a result of these incentives. On the down side, it found that these incentives took women out of the work force — and subsequently reduced their average earnings — and cost nearly $400,000 in 1986 dollars ($738,000 in 2011 dollars) per newborn.

Many studies have also cautioned that birth rates can also change over time due to other factors, such as immigration patterns and economic security.

In the final analysis, it appears as though it is possible for a government to spend its way to a higher birth rate — but at a very high price per child, and not to a level sufficient to reduce the need for immigrants.

So, the next time you see a new Canadian, thank them for joining us here in Canada. They’re helping the economy at a much more reasonable price than the alternatives would cost.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

3 Responses to Can governments spend their way to a higher birth rate?

  1. W. Krawec says:

    The amount of government spending it would take to create an appreciable impact on birth rates would have to be enormous. There is such a wide range of factors contributing to a decreased birth rate that offering a fatter baby bonus is too simplistic to have a major effect.

  2. It definitely is a mixed bad on birthrates and financial incentives.

    It cultural, financial, social and a whole host of factors that make people want to have kids and have more of them after the first.

    The government can help somewhat but they are not going to be able to change trends that started centuries back to smaller unit families.

    Canada, unlike Japan, can reply on immigrants because it is accepting of them.

  3. Jim Burnside says:

    Did not Quebec offer incentives for awhile , and if North American culture was not so absorbed in me myself and I , maybe we would have time for babies

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