Governments Should Act Now or Face Extra Financial Ache from COVID-19’s Child Bust

PD James’ 1992 dystopian novel The Children of Men envisions a world in which rapidly aging humanity has become sterile. Coincidentally, the novel begins in 2021 with the death of the last person born on earth. Although the real year 2021 is not quite as dramatic, the number of births is falling worldwide. A COVID-19 baby bust is underway.

A year after the pandemic began, it’s clear that home quarantine hasn’t resulted in more pregnancies – even though Netflix and Chill are on the world all the time. In fact, the COVID-19 pandemic appears to have had the opposite effect: preliminary data available nine months after most countries closed last March suggests a sharp decline in births in developed and some emerging economies.

For example, the United States had 7.7 percent fewer births in December 2020 than in the same period in 2019. For that January, Arizona, Iowa, Ohio, and Florida saw an annual decrease of around 9 percent. While California saw a dramatic 19 percent decline in February, partly due to families leaving the state.

It’s a similar picture across the Atlantic, as January birth reports suggest Europe is no better. Hungary has declined by 9.4 percent annually. Russia saw a decline of 10.3 percent, France by 13.2 percent, Spain by 20 percent and Poland by a whopping 24.7 percent. Even Sweden, which had implemented less stringent mobility restrictions last year, recorded a 6.4 percent decline. If this trend continues, a total of 400,000 Europeans could be fewer by the end of 2021.

A baby bust is also underway in Asia. Births in Japan and South Korea, which are already home to some of the world’s oldest societies, fell nearly 8 percent in December 2020. In China, the first country hit by the pandemic, cities like Guangzhou and Wenzhou reported declines of between 19 percent and nearly 33 percent.

While it contradicts most of the jokes, the baby bust is consistent with historical evidence. High death events such as pandemics and economic crises tend to be followed by a decline in the birth rate.

For example, at the height of the pandemic influenza in the United States in 1919, births fell 7.1 percent annually from 3.8 percent in 2020. Unlike today, most deaths from Spanish flu were adults of children. Camp ages, which partly explains why the decline was so steep.

And when Hurricane Katrina hit Louisiana in 2005, it caused more than 1,800 deaths and $ 125 billion in damage. The number of births also fell immediately afterwards. A year after the hurricane, births in the disaster areas designated by the Federal Emergency Management Agency (FEMA) had dropped 19 percent.

Although acute, the effects of major death events on childbirth are rapidly reversing. By 1921, two years after the peak of the Spanish flu, the United States had returned to its previous level of annual births. After Hurricane Katrina in the Orleans township, the most populous of the six disaster areas in Louisiana in 2005, the birth rate returned to pre-hurricane levels two years later.

With that in mind, the COVID-19 baby bust may not be all that worrisome other than that it occurred during the ongoing slowdown in birth rates that has plagued the West since the end of the post-war baby boom in the 1960s. The resulting aging of the population has hampered growth, increased debt and made social security systems increasingly precarious. Of course, none of these developments is a development we need more of.

What can policymakers do to combat this decline? Tax assistance is an option. In the United States, the recent COVID-19 aid package includes substantial tax credits for children. Parents of children under the age of 5 receive US $ 3,600. People with children ages 6-17 receive $ 3,000. Both are significant increases over the last $ 2,000 per child. Democrats in Congress are pushing to make these tax changes permanent. Republicans like Sens. Mitt Romney and Marco Rubio also commented on the benefits of increasing tax credits.

Tax incentives are only one way to combat demographic decline, however, and it is far from clear whether it is the most efficient. Recent evidence from Eastern Europe suggests that fiscal transfers are expensive to give birth to – and on average, are not very effective.

In 2015, the Hungarian government introduced interest-free home loans and tax breaks for families. More recently, Prime Minister Viktor Orban has announced free IVF treatments and personal income tax exemptions for women with at least four children. In Poland, the ruling Law and Justice Party kept its flagship election promise and launched the Family 500+ program, which grants families monthly allowances of around US $ 127 per child.

About 4 to 5 percent of Hungary’s annual GDP is now spent on pro-natalist politics. in Poland it is between 3 and 4 percent. Since the announcement of pro-natality programs, the birth rates have hardly increased: from 9.2 to 9.4 percent in Hungary and from 9.6 to 9.8 percent in Poland. However, the tax base of the federal states has been permanently changed: Politically, it would be almost impossible to withdraw these family benefits.

Structural policies that help parents better integrate child birth into their careers are another solution to demographic decline. As any working parent who juggles newborns and zoom calls can testify, the pandemic has made these conflicting demands much easier. For those unable to work from home, the impact was devastating: closed schools meant that many parents – especially women – had to leave their jobs to take care of their children. A survey by the Kaiser Family Foundation in March found that half of mothers who quit their jobs due to COVID-19 gave a reason for schools or daycare to close.

Compulsory macroeconomic provisions on paid leave would be a long-awaited first step in making births more attractive. The United States is the only country in the Organization for Economic Co-operation and Development that does not have compulsory paid maternity leave. In a recent letter to Congress, more than 200 companies called on lawmakers to improve policies on paid family and medical leave. This seems like a more effective way of incentivizing the birth of children – not to mention giving already overburdened taxpayers less of a burden than direct subsidies. It is also more likely to work: Since 2007, when Germany introduced parental leave allowance in addition to childcare allowance, the country’s birth rate has increased from 8.3 to 9.4 percent.

Indeed, paid maternity and paternity leave alone may not be enough if childcare costs continue to rise. In New York, caring for one child makes up 22.1 percent of the income of a middle family. The US Department of Health defines childcare as affordable when it represents no more than 7 percent of the family’s income. By this metric, only 9.4 percent of New York families and 6.5 percent of Wisconsin families can afford childcare. While the Biden government’s stimulus plan includes $ 1.9 trillion in “childcare deserts,” long-term initiatives (such as the Childcare Workers’ Family Act) are required to address this crisis.

In developed economies, healthy demographics depend on the economic tradeoffs becoming more attractive in having children. COVID-19 has dealt another blow to a long-term depression in birth rates. Historical experience suggests that a mini birth boom is likely to follow the baby bust in 2020 and 2021. In the long run, however, more creative tax and structural incentives need to be put in place to prevent James’ dystopian novel from becoming a Western reality.