The Birthrate Decline and the Economy

Heritage Explains

The Birthrate Decline and the Economy

A double whammy for future generations

This week, research fellow Rachel Greszler explains how the declining birthrate affects the U.S. economy. 

Michelle Cordero: From The Heritage Foundation, I'm Michelle Cordero, and this is Heritage Explains. Everyone said there'd be a big baby boom after the COVID-19 lockdowns. Just like snow storms that force couples to spend a lot of time together indoors, lead to an increase of babies about nine months later. But what happened was the exact opposite. According to the CDC, 2020 marked a record low fertility rate of 1.6 and was the sixth straight year with an outright decline in the number of births. A fertility rate of 2.1 is needed to maintain a stable population.

Cordero: That would be enough children to replace their parents when they die, also known as replacement level fertility. The pandemic and all its uncertainty likely contributed to the 2020 decline. But birthrates were already declining before the COVID-19 pandemic. According to Heritage expert and today's guest, Rachel Greszler, American women have been having fewer children for some time now. Ever since the financial crisis in 2008, births have been in decline. Greszler says with astronomical debt rising and birthrates at a historical decline, we're creating a double whammy for future generations. Fewer people left to pick up a higher tab. After this short break, Greszler will explain how a decline in birthrates affect the American economy.

>>> Declining U.S. Birthrate Another Reason to Rein in Federal Spending

Cordero: Rachel, what type of an effect does the decline in birthrates actually have on the United States?

Rachel Greszler: Well, especially given the financial situation that we're in today with already an enormous amount of debt going into the COVID-19 pandemic and then increasing it massively over this past year, what that means is that we could potentially have a declining number of people to pay off that debt. In the past, it's always been the reverse, and so you counted on the population growing and more workers being out there and producing income tax revenue, more people being able to support the social security program and those elderly individuals collecting benefits.

Greszler: Now, it's potentially the reverse happening, and we can have fewer people paying off those taxes. Just looking at the total amount of debt, a baby born in 2007 entered this world with a debt of about $30,500. 13 years later in 2020, that figure was almost double at over $59,000. That same trend would continue, in and of itself, even imagine the policymakers somehow magically found a way to stabilize the deficits and not add to them in the future, the fertility rate alone being as low as it is at 1.6, would cause that problem to continue to exacerbate, debt levels per person to continue to rise over time. Because really, just to maintain a stable population, you need a fertility rate of 2.1 compared to that 1.6 that we had in 2020.

Cordero: You also wrote that this leads to slower economic growth. How do you connect those two things?

Greszler: Yeah. There's been a report by the Federal Reserve that noted that the lower fertility rates lead dislocate economic growth, and just simply looking at economic growth is the sum total of what the people in the country are producing, if you have fewer people that are producing, you have slower economic growth, that's a problem when you're counting on faster economic growth to help climb out of this massive hole that America has created for itself. That creates a problem, not just for the debt as we look at the amount that people would potentially have to pay back, but I was reading a article today by some of my colleagues that work on the Index of Economic Freedom.

Greszler: They pointed out that what's happening to America's score, their level of freedom is going down merely because of our financial condition. They say that the US fiscal health score in 2020 was only 35 out of 100, and had we been basing our rating simply on that fiscal score, the US would have been in the economically repressed category. The reason for that is that you take away individual's freedom and opportunity when the government has to take so much of their money. So, we're having kind of a double whammy here between declining number of people to pay an increasing amount of debt.

Cordero: So, less people to pay debt, and then also less people to contribute to a gaining economy.

Greszler: Exactly.

Cordero: What is the current administration doing to help families so that they can feel more confident about having larger families, or women about starting them in general?

Greszler: Yeah, attempts to help families. They have the American Families Plan that's part of their so-called infrastructure. But I think that this is flawed in a number of ways, and we can look at similar plans and action items that have been put in place in countries abroad, in Europe, in particular. So, the goal is to help people to be more financially capable of having families, to have the workplace flexibility, to meet families needs. So, you implement government mandated programs, taxpayer finance programs, things like paid family leave, subsidized childcare in an effort to help families, but then it doesn't actually end up helping families. There have been some unintended consequences.

Greszler: Things like it not being the ideal outcome for children and for families, them having negative consequences from being pushed from what might've been their ideal childcare situation of family care into the government directed subsidized childcare programs. Also, just the financial impact of that, is great to talk about providing all these benefits, which are dollars that flow to families, but there's another side of that, that doesn't come for free. So, you have to take that money out of people. And you can't just take it out of people who aren't families.

Greszler: It comes from everybody. What results is that yes, families have access to things, but those don't provide them with the choices that they had before, and so they're left with fewer choices and lower incomes because they're having to pay for these big government programs.

Cordero: Okay. In conclusion then, Rachel, can you give us just a couple items of what you think Congress should be doing instead?

Greszler: Yeah. I think that there are a lot of ways that we can help families to have the opportunity to pursue whatever goals are best for them, and that's really, the objective of policymakers, should not be to steer them in one direction or another, but to respect families on preferences and help them to have opportunities to make the choices that are best for them. That comes from having the opportunity to earn an income, things like occupational licensing reform, so that people don't have to spend years and pay excessive fees to perform a job that they already know how to do, that they already have the capability of doing.

Greszler: Things like expanding apprenticeship programs. So, instead of incurring six figures of debt for a college education, you can get an education and training for free and have a job coming out of that. Then there are other ways to help families. On the childcare side, there are so many regulations out there that are really hampering the availability of the smaller in-home family providers who tend to be more flexible. They're significantly less expensive, but we've seen the number of those providers cut in half between 2007 and 2017.

Greszler: That's taking away options for families to have the care that they need. That's because these regulations are so burdensome, that it's difficult for smaller in-home providers to be able to offer those types of care.

Cordero: Imagine that, regulations making things more difficult. Rachel, thank you so much for helping us explain this issue today.

Greszler: My pleasure. Thanks for having me, Michelle.

Cordero: That's it for this week's episode. Thanks so much for listening and we'll see you next week.

Heritage Explains is brought to you by more than half a million members of The Heritage Foundation. It is produced by Michelle Cordero and Tim Doescher with editing by John Popp.