The Nonlinear Library LW - The 2nd Demographic Transition by Maxwell Tabarrok
Apr 7, 2024
07:45
Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: The 2nd Demographic Transition, published by Maxwell Tabarrok on April 7, 2024 on LessWrong.
Birth rates in the developed world are below replacement levels and
global fertility is not far behind. Sub-replacement fertility leads to exponentially decreasing population. Our
best models of economic growth suggest that a shrinking population causes economic growth and technological progress to stop and humanity to
stagnate into extinction.
One theory of fertility decline says it's all about opportunity costs, especially for women. Rising labor productivity and expanded career opportunities for potential parents make each hour of their time and each forgone career path much more valuable. Higher income potential also makes it cheaper for parents to gain utility by using financial resources to improve their children's quality of life compared to investing time in having more kids.
Simultaneously, economic growth raises the returns to these financial investments in quality (e.g education).
In addition to higher incomes, people today have more diverse and exciting options for leisure.
DINKs can go to Trader Joes and workout classes on the weekend, play video games, watch Netflix, and go on international vacations.
These rising opportunity costs accumulate into the large and pervasive declines in fertility that we see in the data.
If this explanation is correct, it puts a double bind on the case for economic growth. Unless AI upends the
million-year old relationship between population and technological progress just in time, progress seems self defeating. The increases in labor productivity and leisure opportunities that make economic growth so important also siphon resources away from the future contributors to that growth. Empirically, the opportunity cost of having kids has grown large enough to bring fertility well below replacement levels all around the world.
The opportunity cost explanation suggests we have to pick between high incomes and sustainable fertility.
Luckily, this explanation is not correct. At least not entirely. There are several observations that the opportunity cost theory cannot explain without clarification. Across and within countries today, the relationship between income and fertility is positive or U-shaped. Further economic growth can raise everyone's incomes to the upward sloping part of the relationship and begin a 2nd demographic transition.
Micro Data
Above a $200k a year, fertility is increasing in household income.
** Update **
I replicated this graph from more recent ACS data (2018-2022) and also weighted each point by population to give a sense of the size of each of these income brackets
This U-shaped relationship holds up in
multiple
data sources with different measures of fertility. The households in the top percentiles of income stand to lose far more future wages from having children, but they have ~20 more children per hundred households than the middle income percentiles.
This isn't exactly inconsistent with opportunity cost but it requires some explanation. The number of dollars that households are giving up by having children is increasing in household income, but as you get more and more dollars, each one is worth less. Going from making say $75 to $150 dollars an hour pushes you to work more hours, but if you go from $150 to $500, you might be happy to work half as many hours for more money and spend the time on other things, like starting a family.
So while the dollar opportunity cost of having kids is always increasing in household income, the utility opportunity cost is not.
The positively sloped section of the relationship between income and fertility isn't just spurious correlation either. Random shocks to wealth, like
lottery winnings, also increase fertility.
This rules out the DINK leisure time explanation for low ferti...
Birth rates in the developed world are below replacement levels and
global fertility is not far behind. Sub-replacement fertility leads to exponentially decreasing population. Our
best models of economic growth suggest that a shrinking population causes economic growth and technological progress to stop and humanity to
stagnate into extinction.
One theory of fertility decline says it's all about opportunity costs, especially for women. Rising labor productivity and expanded career opportunities for potential parents make each hour of their time and each forgone career path much more valuable. Higher income potential also makes it cheaper for parents to gain utility by using financial resources to improve their children's quality of life compared to investing time in having more kids.
Simultaneously, economic growth raises the returns to these financial investments in quality (e.g education).
In addition to higher incomes, people today have more diverse and exciting options for leisure.
DINKs can go to Trader Joes and workout classes on the weekend, play video games, watch Netflix, and go on international vacations.
These rising opportunity costs accumulate into the large and pervasive declines in fertility that we see in the data.
If this explanation is correct, it puts a double bind on the case for economic growth. Unless AI upends the
million-year old relationship between population and technological progress just in time, progress seems self defeating. The increases in labor productivity and leisure opportunities that make economic growth so important also siphon resources away from the future contributors to that growth. Empirically, the opportunity cost of having kids has grown large enough to bring fertility well below replacement levels all around the world.
The opportunity cost explanation suggests we have to pick between high incomes and sustainable fertility.
Luckily, this explanation is not correct. At least not entirely. There are several observations that the opportunity cost theory cannot explain without clarification. Across and within countries today, the relationship between income and fertility is positive or U-shaped. Further economic growth can raise everyone's incomes to the upward sloping part of the relationship and begin a 2nd demographic transition.
Micro Data
Above a $200k a year, fertility is increasing in household income.
** Update **
I replicated this graph from more recent ACS data (2018-2022) and also weighted each point by population to give a sense of the size of each of these income brackets
This U-shaped relationship holds up in
multiple
data sources with different measures of fertility. The households in the top percentiles of income stand to lose far more future wages from having children, but they have ~20 more children per hundred households than the middle income percentiles.
This isn't exactly inconsistent with opportunity cost but it requires some explanation. The number of dollars that households are giving up by having children is increasing in household income, but as you get more and more dollars, each one is worth less. Going from making say $75 to $150 dollars an hour pushes you to work more hours, but if you go from $150 to $500, you might be happy to work half as many hours for more money and spend the time on other things, like starting a family.
So while the dollar opportunity cost of having kids is always increasing in household income, the utility opportunity cost is not.
The positively sloped section of the relationship between income and fertility isn't just spurious correlation either. Random shocks to wealth, like
lottery winnings, also increase fertility.
This rules out the DINK leisure time explanation for low ferti...