Friday, December 2, 2011

The price of children and fertility responses: Evidence from the Israeli Kibbutz

by Avraham Ebenstein, Moshe Hazan and Avi Simhon


December 2, 2011

For years, policymakers trying to influence the decisions of would-be parents have tried to change the ‘price’ of having children. In France they have made it cheaper; in China more expensive. This column looks at whether such policies are likely to have their desired effect. It examines unique evidence of a shock to the cost of having a child in Israeli communities between 1990 and 2000.

To what extent does economics affect fertility decisions? Ever since Gary Becker’s seminal work on the economics of the family in the 1960s (Becker 1960), economists have argued that money weighs heavily on the minds of would-be parents, and policymakers throughout the world have been heavily influenced by such research. For instance, French policymakers looking to combat an ageing population have not only implemented generous maternity-leave benefits at almost full pay, they have also provided special support for women who have a third child and reduced mortgage payments on larger apartments. China, meanwhile, has tried to push fertility in the opposite direction. In a bid to stem its growing population, China’s One Child Policy has imposed heavy costs on parents who have unsanctioned births, with fines often representing several years of household income for parents who have a second or third child. For policymakers, the relationship between fertility and financial incentives has tremendous relevance.

In recent research (Ebenstein et al. 2011), we try to test the effectiveness of such policies. To conduct a reliable study, we would require data on a large population who experienced a dramatic and sudden change (‘an exogenous shock’) to the cost of raising children. To a large extent, this is precisely what occurred in many collective communities (kibbutzim) in Israel during the 1990s and 2000s, as a result of a wave of “privatisation” where kibbutzim began to require members to bear the costs of children privately. Traditionally, in kibbutzim the cost of raising children was borne fully by the collective, with all costs of daily life shared equally among members. The collective funded food, medical care, day care, clothing, and education. Parents with more children were allocated larger housing units by the kibbutz, insulating parents from virtually any (financial) marginal cost of having an additional child. Beginning in 1996, however, kibbutzim began to change their economic organisation by paying differential wages and charging their members the full price for services that had previously been provided at no cost to the member. Privatisation transferred the costs of food, day care, clothing, and housing from the collective to the individual parents. Between 1996 and 2005, 166 of the 237 kibbutzim were privatised. For economists, this provides an ideal opportunity to examine how changes in the cost of childbearing affect fertility.


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