Do Money Worries Affect People’s Decision to Have Children?

When it comes to birthrates, chart-topping Israel does it differently.

Do people decide to have children based largely on financial considerations? If so, do economic events like the recession in Europe and the United States and the recent cuts to child benefits in Israel affected the number of toddlers you see at the playground?

Research shows that the relationship between the cost of raising children and economic conditions and the birth rate is complex. There is no clear relationship between economic conditions and childbirth, and different countries display different behavior. In the United States, for example, the economic downturn has brought a sustained decrease in the number of children per woman over the past five years, to a birthrate low. However, in Britain, the recession has led to a baby boom and added to expectations that this year’s Christmas shopping season will be the best since the recession started in 2008.

It is very likely that the economic downturn in recent years is one of the main factors impeding Europe’s recovery in birthrates. According to an analysis conducted by Eurostat, the European Commission’s statistics bureau, 2008 – the year of the financial crisis - was a birthrate turning point in Europe. In previous decades it has suffered from low birth rates and population aging, but in the last six years it saw a sustained increase in the number of births. In 2008, there still was not a drop in fertility rate, but between 2008 and 2011 there was a 3.5% drop in the fertility rate in 24 EU states. In Spain, which experienced a sharp recession, the birth rate dropped to 1.39 children per woman in 2010.

The birth rate in the United States was also influenced by the downturn, with families deciding not to have another child or the unemployed delaying starting a family. This is in addition to the fact that women in the United States and other developed countries begin to give birth at later ages, and hence have less opportunity to have more children. Figures published in September show that the U.S. fertility rate fell in 2012 for the fifth year in a row, to a new low since figures started to be compiled in 1920. Last year there were 63 births per 1,000 American women compared to 127 births per 1,000 in 1990, and 188 births per 1,000 in the 1960s. This comes to an average of 1.88 children per American woman, compared to 2.06-2.12 children per woman before the recession. This means the fertility rate in the United States has dipped below the replacement rate.

Israeli exceptionalism

In Israel, the situation is more complex because of large differences by population groups. Muslim women do not act in the same way as ultra-Orthodox Jewish women and ultra-Orthodox Jewish women do not act like secular Jewish women.

But it is widely accepted that Israel is a leading exception in the global landscape when it comes to fertility rates. While the average fertility rate for OECD (Organization for Economic Development and Cooperation) countries is 1.74 children per woman, in Israel it is close to three children per woman. In most OECD countries (excluding New Zealand, Iceland and Turkey) the fertility rate does not reach the population replacement rate of 2.1, the amount of children per woman needed to keep a country’s population stable.

In Israel, the average fertility rate for Arab women is 3.33 children per woman, while for Jewish women it is 2.98 children per woman. Moreover, the fertility rate in Israel has been increasing since the mid-2000s after decades of continuous decrease in the overall fertility rate from a peak of 4.03 children per woman in 1955. Despite the difference between population groups and economic burden, it appears that the need to have children is so deeply ingrained in Israeli society that it outweighs economic factors in the decision to make babies.

It would be interesting if the recent cut in child benefits will affect birth rates, as it lowers by several hundred shekels the amount the government gives monthly to parents with two or more children. Some conclusions can be drawn from the cut in child benefits that Israel instituted in 2003, which was the subject of a comprehensive study conducted by Tel Aviv University and Harvard Law School Professor Alma Cohen, Israel Central Bureau of Statistics Chief Scientist Dmitri Romanov and New York University Prof. Rajeev H. Dehejia. The researchers examined birth rates in Israel between 1998 and 2005. During this period, two significant economic events occurred: In 2001 a law was passed increasing child benefits and in 2003 a cut to those same benefits was implemented by then-Finance Minister Benjamin Netanyahu.

The researchers concluded from the data that the change in economic incentives led to a gradual reduction in Muslim women’s fertility. “Until the mid-80s the fertility rate of Israeli Arab women was among the highest in the Muslim world,” says Romanov. The peak was in 1965 - with 10 children per Israeli Arab woman. In the ‘80s it stabilized at 4.6 to 4.8 children per woman, and after two decades of remaining stable, in 2001 it started to drop to 3.5 children per woman.

“When a woman doesn’t work, as is the case with most Muslim women, and there are no educational expenses because the children stay at home, the children’s benefit she receives is higher than the marginal cost of raising the child,” says Romanov. “From purely economic considerations, and ignoring cultural and moral considerations, it makes sense for the family to have another child.”

Religious 
vs. secular Jews

However, among Haredi women, the researchers did not find a strong effect from economic incentives during this period. Romanov cautions, though, that the study ended in 2005, only two years after Netanyahu’s child subsidy cut, and it is unclear whether the cut led to delays in childbirth or the acceptance of a lower number of children altogether. Those with financial resources apparently did not changer their plans because of the cut. It can also be assumed that it took families times to absorb the significance of the benefit cut to the point that it affected their decision-making.

“Perhaps they believed that such a dramatic cut would be reversed over time,” says Romanov. He notes that in research conducted by the National Insurance Institute over a longer time following the cut, from 1994 to 2007, they found that the benefit reduction did reduce the Haredi birthrate. He concludes that a cut in child benefits will also slow the fertility of Haredi women as the years go by.

In the third group, among secular Jews, those in the top deciles of the income distribution scale were not affected by the benefits cuts, while those in the bottom deciles were, says Romanov.

A survey conducted by the Adler Institute in February found that three out of five secular Jewish Israeli parents and half of traditional Jewish Israeli parents said the economic situation of the past year caused them to consider not having another child. In a stark contrast, among Haredim and religious Zionist parents, the survey found only one out of 20 making that statement.

“There is no average story, every group responds differently,” says Romanov about Israeli birth rates.

Haaretz