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Does Falling National Fertility Increase Income Inequality?

August 20, 2012 • Family Planning, Africa, News

The following article was published in The Economist and describes how falling fertility in various countries usually begins with the relatively more well-to-do, which for the short term may exacerbate financial class divides — as the benefits of smaller family size decisions accrue to the already more wealthy.

Baby monitor

In poor countries lower fertility is usually good for growth. But it can also increase inequality

Aug 11th 2012 | from the print edition


ECONOMIES benefit when people start having smaller families. As fertility falls, the share of working-age adults in the population creeps up, laying the foundation for the so-called “demographic dividend”. With fewer children, parents invest more in each child’s education, increasing human capital. People tend to save more for their retirement, so more money is available for investment. And women take paid jobs, boosting the size of the workforce. All this is good for economic growth and household income. A recent NBER study* estimated that a decrease of Nigeria’s fertility rate by one child per woman would boost GDP per head by 13% over 20 years. But not every consequence of lower fertility is peachy. A new study by researchers at the Harvard School of Public Health identifies another and surprising effect: higher inequality in the short term.

Countries with very high fertility are usually dirt-poor-peasants value extra hands, however small, to help in the fields. (In Niger, which has a GDP per person of $700, the average woman can expect to bear more than seven children.) Low-fertility countries (with significant exceptions, such as China) tend to be rich. The Harvard study confirms that this pattern is replicated within countries: as a rule, the poor tend to have larger families. The authors use Demographic and Health Surveys (DHS), which contain a lot of detail about family structure and household assets. DHS data from 60 developing countries enable them to divide households into five income groups and to show that in every continent, the “youth-dependency ratio” (the number of children under 15 compared with the working-age population) is lowest in the richest group, next lowest in the next-richest group and so on. The poorest group has the highest youth-dependency ratio. The gap between top and bottom is marked. Ratios in the richest households are a third below those in the poorest ones.

Over time the differences in fertility between rich and poor should narrow as everyone has fewer anklebiters. So fertility will eventually fall furthest among the poor, where it is highest to start with. You might expect poor people to lead this process of transition because they have more scope to cut family size. In fact, they lower their fertility rates more slowly than the wealthy. According to the Harvard study, during the past 20 years the average number of children fell by about 50% more in the richest households than it did in the poorest. In Côte d’Ivoire, for example, the child-dependency rate in the poorest group fell by 13% between 1994 and 2005. Among the richest, it fell by 32%.

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