Babies are really cute. They're also good for the economy.
The fertility rate can be an important part of a nation's long-term economic picture. When there are more people around, and more of those people spend the extra money and buy the new things it takes to raise kids, and eventually those kids grow up to be taxpaying workers, it spurs more economic growth. Conversely, a falling birth rate means a future with fewer workers and fewer people paying taxes (at least absent some offsetting degree of immigration).
That's why a recent discussion paper by two Princeton researchers is worrying. It concludes that recessions drive down fertility rates -- and that those rates tend to stay low even after the economy has recovered.
Here's what the researchers conclude about the most recent U.S. recession:
The estimates imply that of the women aged 20-24 at the start of the Great Recession, an additional 151,082 will remain childless at age 40 (an 8.9% increase in the rate of childlessness). We find it remarkable that changes in macroeconomic conditions have such a profound effect on individual women’s lives.
Writing about the paper Friday at the Moody's Analytics blog Dismal Scientist, Adam Ozimek noted that this effect could be considered a form of "demographic hysteresis." Hysteresis refers to a time-lag effect, and in the labor market, the word often describes the phenomenon of a recession leading to permanently higher unemployment.
"Demographic hysteresis," in this case, would refer to a permanently lower birth rate for a certain cohort of women. It's not really a surprise that fertility rates decline during and right after recessions: When people lose their jobs and money is tight, they might not think that's the best time to start a family. But the big finding of this study is that many women remain childless even after the economy recovers.
In part because of the Great Recession, the U.S. tax base will be lower 50 years from now than it otherwise might be. That's something policymakers may want to consider both now and when, inevitably, the next recession hits.