Fertility and Social Security

The data show that an increase in government provided old-age pensions is strongly correlated with a reduction in fertility. What type of model is consistent with this finding? We explore this question using two models of fertility: one by Barro and Becker (1989), and one inspired by Caldwell (1978, 1982) and developed by Boldrin and Jones (2002). In Barro and Becker’s model parents have children because they perceive their children’s lives as a continuation of their own. In Boldrin and Jones’ framework parents procreate because children care about their parents’ utility, and thus provide them with old-age transfers. The effect of increases in government provided pensions on fertility in the Barro and Becker model is very small, whereas the effect on fertility in the Boldrin and Jones model is sizeable and accounts for between 55 and 65% of the observed Europe-U.S. fertility differences both across countries and across time. ∗The authors thank Robert Barro for his comments on an earlier draft, seminar participants at CERGE (Prague), Columbia University, the Minneapolis Fed, New York University Stern School of Business, Northwestern University, and Stanford University for many helpful discussions, Alice Schoonbroodt for excellent research assistance, and the National Science Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.