Earlier this week, I was interviewed by Paul Brennan on Reality Check Radio, on New Zealand's declining birth rate. You can listen to the interview here. We didn't have time to go through all of the questions I was given beforehand, so I thought I would add some points here, along with some links to some of the underlying data and research.
First, we need to understand what the numbers mean. The age-specific fertility rate is the number of births per women of each year of age (often it's reported in five-year age groups). The completed fertility rate is the number of births per woman over their entire childbearing years (typically assumed to finish at age 50, since so few women older than 50 give birth). Ideally, we want to know the completed fertility rate for each cohort, but we have to wait decades to find that out. So instead, national statistical agencies like StatsNZ measure the total fertility rate, which is the number of babies a woman would be expected to have, on average, if they experienced each of the age-specific fertility rates in that year.
To maintain a stable population (ignoring the impact of migration), a population needs to maintain a completed fertility rate of 2.1. This is more than two (which is theoretically all you would need to replace each couple), because not all women live to childbearing ages. So, each woman that lives to childbearing age needs to have more than two children to maintain a stable population. Now, it is worth noting that the total fertility rate is not the same as the completed fertility rate, because age-specific fertility rates change over time. In fact, when birth rates are falling, the total fertility rate probably over-estimates the completed fertility rate, but that's a story for another post.
Here's the total fertility rate for New Zealand since 1921 (source here):
The baby boom is easy to see, with the total fertility rate peaking at 4.31 in 1961. It then declined to approximately replacement level by the late 1970s, and until about 2012 the total fertility rate remained at or around replacement level. In fact, since 1978 the total fertility rate has only been above the replacement level in 1989-90 and 2007-2010. After 2012, the total fertility rate has been falling, down to 1.56 for the year ended December 2023. It is this recent decline that has many people freaking out.
What has contributed to the decline? In my view, there are two factors. First, children are really expensive. As noted here, JUNO estimated in 2021 that the cost to raise a child to age 18 in New Zealand was $265,680. That's pretty expensive, especially when you consider that the cost of housing has grown a lot in the last decade or so. According to Infometrics, the ratio of house price to income has grown from 4.9 in 2010 to 7.0 in 2024 (the period when the total fertility rate has been declining). Before 2010, the ratio was relatively stable (back to 2005, based on that dataset). As housing costs go up, that squeezes family's ability to afford to raise children.
Second, there are two long term social changes at play (and I only mentioned one of them in the interview). Women have been delaying fertility. As shown here, the median age of mothers giving birth to their first child was 27.4 years in 1998, but had increased to 29 years by 2018. Women delay fertility for a number of reasons, but two contributors are a longer period spent in education (more women going on to and completing tertiary study), and a greater focus on career development before having a family. One consequence of women delaying the start of fertility is that it leaves fewer years of childbearing age to have children (and so women have fewer children), and greater likelihood of fertility problems (and so more women remain childless).
The second social change is higher labour force participation of women. Even though the gender wage gap remains persistent, women do earn more than in earlier decades, which means that the opportunity cost of time spent out of the workforce has increased. This increases the 'implicit cost' of having children.
Of course, New Zealand is not alone in facing declining total fertility rate. It's been a trend across many (but not all) OECD countries (and most other countries as well). Here's the trends since 2012 (New Zealand is the red line, and the OECD average is the bold black line):
Can countries turn the trend in declining fertility around? The extreme example here is Hungary, which has offered some very large incentives to increase fertility, including a lifetime exemption from paying taxes for women with four or more children. Estimates vary, but Hungary may spend as much as 6 percent of GDP on families. How much extra fertility has that spending 'bought'? Hungary's total fertility rate increased from 1.25 in 2010 to 1.59 in 2021, a 27 percent increase (although some have claimed that the increase in total fertility rate is just an artefact of the data).
Closer to home, Australia introduced a baby bonus in 2004, worth AU$2500 per baby (now AU$5000 per baby). The baby bonus has been estimated to have increased the Australian total fertility rate by about 7 percent, which is hardly a huge change. In fact, Australia's total fertility rate was indistinguishable from New Zealand's in recent years, and was just 1.63 in 2022.
Taken together, it seems unlikely that countries can have a large enough impact on the total fertility rate to fight the tide that is driven by costs and long-term social changes. At least, it can't be done at the current levels of spending (and now South Korea is talking about introducing an incredibly generous baby bonus worth US$70,000).
The main demographic consequence of a falling total fertility rate is an ageing population. The median age will increase over time, and the proportion of the population in older age groups will grow. The main economic consequences relate to a need to recalibrate the infrastructure and social services that the population will need in the future. We may need fewer early childcare centres and schools, more elder daycare and rest homes, and greater healthcare capacity for people who are living longer (albeit also possibly healthier for longer). We will also need more age-friendly policies. Whether there will be a negative fiscal impact is less certain.
A declining total fertility rate is not something for us to fear. However, it is something that we need to take account of.
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