South-Western College Publishing - Economics  
What Would the U.S. Demand Curve for Kids Look Like?
Topic Economic Analysis
Key Words fertility, economic growth, population, costs
Full Article

If you have an InfoTrac or BCRC access code, click on the appropriate source to login and view the full text article.
Reference ID:

News Story On or around 17 October 2006, the U.S. population will surpass 300 million, up from 200 million in 1967. At current projections, the U.S. population will hit 400 million around 2043. This growth stands out, though: Over that time period, the EU and Japan expect to lose, rather than gain, total population. Why?

Several decades ago, Nobel Prize-winning economist Gary Becker introduced the economic theory of fertility based on simple microeconomic theory. He suggested that as economies grew, the benefits of having additional children fell, while the costs of having additional children increased. The result: a reduction in the number of children parents will have in more advanced economies. Currently, the U.S. female fertility rate is about 2.1, which about equals the replacement rate - the rate at which births equals deaths in a society.

The benefits of having additional children have decreased over time in the U.S. and other developed economies, because parents have fewer incentives to have large families. In agrarian societies, children are necessary because they help on the farm. In poorer and less developed societies, families have more children because the infant mortality rate is higher: In Mali, the fertility rate is seven per woman. We still want to have children, though; we receive benefits by being able to carry on a family name, being a parent and passing knowledge down to others, and to a much lesser extent to help us in our old age. Principal benefits, though, are non-monetary; you can't put a price tag on parenthood.

On the other hand, the costs of having and raising children increase over time. Sending children to college is more and more expensive, and most families require two incomes just to make ends meet. If one spouse chooses to stay at home and raise the kids, the family loses that individual's current (and future gains in) income.

Space can also become an issue. In Singapore, the fertility rate is 1.05; in Hong Kong, it is 0.95. Living space and housing prices in Japan and the EU indicate that parents only have room for a few children. People don't want to raise children in cramped spaces. But in the US, families need only move out to the suburbs - or to the exurbs - to get more space for themselves. And housing becomes much cheaper outside of the city, relatively speaking. In some areas around Houston, Texas, the median price of family homes is $130,000; in San Francisco, that number is $700,000. In fact, the population center has been moving South and West over time; it was in Maryland in 1800, and is between Missouri and Oklahoma today.

So why do we expect population to increase in the US in the future? Part of it has to do with our own fertility rate, and also the increase in immigration we expect to see. Part also has to do with our ability to spread out a little more, and have some space to build bigger houses for our families. And finally, the U.S. focus on organized religion, in contrast to the EU and Japan, increases the population. Polls have indicated that Americans involved with religion are more optimistic about the future; that optimism may translate to the desire to have children. Obviously, immigration rates may change, and we will ultimately run out of space, but at this point we still have that room for growth. Compare that to China, though: While its population is over one billion in absolute terms, its one-child policy has significantly reduced its own female fertility rate (now down to 1.7), and it restricts the number of people who can immigrate into its country.

Was Gary Becker correct? In many ways, yes. There's no accounting for the joy--and pain-that being a parent can be, so full benefits and costs cannot be calculated. But it's amazing how much can be explained with costs and benefits-such as Becker's theory about family size.

Discussion Questions:
1. Gary Becker's theory suggests that a graph of marginal benefits and marginal costs can be used to determine the optimal number of children per family. Draw such a diagram and explain how those curves are derived.
2. The article summary suggests that organized religion may also play a positive role in the number of children a family has. Why do you think this is so?
3. China has long had a policy of restricting families to only one child, and also restricting immigration into the country. What impact do you think both of these play on the fertility rate in China, and on population growth there?
Multiple Choice/True False Questions:
1. If the U.S. fertility rate is near the population replacement rate, what may be the cause of the increased growth in population?

  1. Increase in immigration
  2. Decrease in immigration
  3. Change in the way the Bureau of the Census counts
  4. Movement of people into the EU
2. What does Becker's model suggest would happen to the optimal number of children if the costs of receiving higher education continue to increase the way they have been?

  1. Increase
  2. Decrease
  3. No change
  4. Fall to zero children.
3. Which of the following would NOT decrease the benefits of having children?
  1. Pessimism about the future.
  2. Increase in the resources needed to provide for oneself in old age.
  3. Need for support after retirement
  4. All of the above would decrease the benefits of having children.
Source "Now we are 300,000,000." The Economist, October 12, 2006.
Instructor Discussion Notes Discussion Notes
These notes are restricted to qualified instructors only. Register for free!

Return to the Economic Analysis Index

©1998-2006  South-Western.  All Rights Reserved   webmaster  |  DISCLAIMER