Data shows, consistently, that poor people have more children than rich people; economically speaking, children are an inferior good. Children are production goods because they do work, consumption goods because they are enjoyable, and investment goods because they support parents in old age. Jobs in the modern sector require education and health. To pay for this, parents have to focus their resources on fewer children.
Bryant, John. "Theories of Fertility Decline and Evidence from Development Indicators." Population and Development Review, no. 33 (2007), pp. 101-104 and 122-124
Lloyd, Cynthia. "Investing in the Next Generation: The Implications of High Fertility at the Level of the Family." In R. Cassen, ed. Population and Development: Old Debates, New Conclusions. Washington, D.C.: Overseas Development Council, 1994, pp. 181-202
Panayotou, Theodore. " The Population, Environment, and Development Nexus." In R. Cassen, ed. Population and Development: Old Debates, New Conclusions. Washington, D.C.: Overseas Development Council, 1994, pp. 149-152
Hardin, Garrett. "The Tragedy of the Commons." Science, Vol. 162, no. 3859, 13 December 1968, pp. 1243-1248
April 7, 2009
Professor Robert Wyman: Now I have--to--I must tell you that I have very bad news for you. It has nothing to do with the exams. It's that I've been talking with my economist friends and what they tell me is that you are inferior goods. They even tell me that Yale students are probably among the most inferior of all goods. Of course, I put on my naïve face and said, 'What are you talking about?' and this is what I learned.
You take--I hope I've learned to bring my--This is a standard economics kind of diagram. What it shows is the amount of clothing that an individual buys. If they're very poor, they buy at the Salvation Army Store and they spend a very little bit or they buy very few clothing. When they get rich they go to Brooks Brothers and buy suits for $1,000 and that's probably an underestimate of what they actually spend. As their income increases, the amount that they spend, or the number of things that they buy, increases. All a very standard kind of thing.
The ratio, there's an extra little fillip to this, not wildly important for this course. How much this line increases for a particular change in income is called the elasticity, how big a change there is. In clothing, you really don't need an awful lot of clothing to put on, but you can spend a lot on it. I know myself that when I was a graduate student, I used to buy all my clothing at the Goodwill Store and now that I'm a professor I have a little more income and I don't buy so much at the Goodwill Store, but it's still a great place to buy things and I see the other graduate--the graduate students know exactly what I'm talking about.
Really, clothing has a big elasticity, but food down here, you know you really can't eat that much more food. We try, of course, but we don't succeed. So no matter what your income is, if you--certainly if you measure the food in pounds you don't eat an awful lot more. If you measure it in dollars you can buy caviar and live on caviar, but basically there can be a high elasticity or a low elasticity. That's one of the clear and simple ideas of economics and I'm sure it's nothing new to you. Now can you think of a counter example to this? Something that as people get richer they buy less of.
Professor Robert Wyman: What?
Professor Robert Wyman: Spam. Good. Cheap food. What's--that's a generation ago, so how many of you have ever eaten Spam? You went to prep school or something, right? I have never eaten Spam, but McDonald's hamburgers are one of those kinds of things. For people in a poor country, like rice. What do they go from--brown rice, unpolished rice is what the poor people eat or in India millet and then when they get more money they go to polished rice or they go to wheat. In all countries food is one of the important things that you eat up higher on the food chain. You change what you want to eat depending on your income and you can eat less of what you previously did.
Public transportation is another example of goods that you buy less of as you get richer. If you get richer, you take a taxi or you have your own limousine and a chauffeur and so forth if you're really wealthy. All of these things do the opposite thing to that. Economists have a word for that kind of a good and it is?
Professor Robert Wyman: Inferior, good. Now what's another example of that? You guys. One of the most robust phenomenon in the world is this fact. Poor people have a lot of kids, rich people have very few kids. This works no matter how you spin it. You can compare a poor country, so take any Sub-Saharan Africa country that you want, to a rich country take any European, American, Japanese country that you like; if this is income across countries, as they say cross-sectional, this is very, very true.
If you look within a country like--pick any country, the rich people tend to have fewer children than the poor people. Also you can spin it a third way with time, if you look at when a country was poor, they'll be having a lot of children and then, as they develop economically, they get rich, they have fewer children. This is an absolutely robust kind of data. One of the--yeah--
Student: What if you measured value of children by investment per child?
Professor Robert Wyman: We're going to get to that later. That's at the end of a lot of intermediate stuff. This is the number of children that you get, it's not how much you're spending on them but the number of children that you have. You have these three different ways, you can have a high slope, a low slope, and the slope can even turn down.
This is some real data for--this is the total fertility rate and going from one, or even less, up to eight children and this is the gross domestic product per adult, and this is the log of it because it goes over six orders of magnitude. That's--some places earn an awful lot more so there's not a linear scale but a log scale. Over that whole range you can see some very good correlation. Those countries which have poor income, have a lot of children, and those that have a lot of income have few children.
This is two different periods in time, 1960 which is really before the third world fertility transition and 2000 when you're in the middle of the third world fertility transition and you have these points for the 1960--the circles, the pluses are for 2000 and you see there's--what's happened is they've slid down this line, the countries have slid down this line. They're still pretty much the same relationship but the countries progress and their income goes up. This is the regression line for 1960; this is the regression line for 2000, a small difference. It's not--it hasn't changed very much, so again this is really a very robust kind of thing.
If you compare countries a 10% increase in per capita income equates to a 13% decrease in fertility. It's a very interesting thing; you have big culture differences between countries. Within a country where you're under, more or less, if you have a homogeneous country, more or less the same culture, the freedom of people to change their fertility--to control--to choose their fertility is much more limited within a culture. Now if you look only within a country you get a much smaller change, a 10% increase in income correlates with only a 1% change in fertility. So it depends exactly how you run your statistics, how big an effect this is but it's absolutely robust, we always find it.
Here's a great term paper for you, or even a research paper for the summer or something. It's usually--this is with respect to the Yale students. It's usually presumed that the families of Yale students generally have a very good income. Probably even within--I mean Yale tries to get a distribution of incomes but within each class we probably do very well so we're a high-income group. It's probably also true that we generally have very few children, that your families probably each have very few children. You can take a ratio of family income to number of children and that ratio for different groups is probably a measure of how inferior you are. The higher the ratio income to number of children tells you how much parents don't want children because they have a lot of income.
Guess who has this data? Where have you filled in this data? Admissions office; if you applied for a scholarship which I think at least three-quarters of you apparently do, some sort of financial aid, they have income data on your family and they also have the number of siblings in your family, all that is data that they have. If you can get it out of admissions you could really do some very interesting study of what is that ratio for Yale students. Then once it's published from Yale, every other school in the country is going to try to do it and it'll do for different works. I haven't seen these kind of things published, that this ratio for various special socioeconomic groups.
This is kind of a surprising phenomenon that rich people buy--have fewer children. One year I taught this course and there was a guy in it, a somewhat older guy who was actually already a professor in Kenya, but he had come to Yale for more education and he took this course. After the course he told me that he was just blown away, that he had never realized, coming from Kenya, that poor people had more children then rich people. Actually he put it the other way, he had no idea that one of the aspects of being rich was that you have fewer children, and he was a college professor or a university professor in Kenya.
This is quite, actually quite shocking. You heard, I mean our whole cultural story is that parent's love children, parents want children, well they want them, maybe they love them--well not when they're teenagers of course. You would expect that more income would be an enabling factor, a very big enabling factor, that you'd, in general, have more children. But it isn't the case. Well this is--anomalous things are of great interest to scientists, including social scientists, and so economists of course have paid a good amount of attention to this. The way they talk about children is that they try to generalize, just the way scientists try to generalize things, make Newton's Laws apply to everything, whereas before they were a lot of different things, so they try to do use the same words they use for suits or food for children.
The kinds of things they say are that children are "a time intensive commodity"; they take a lot of time to either enjoy or bring up properly. Women's value of time is a key component in "the price of children", that children have a price like any other good. The time--this is all quotes out of various recent articles. The "time cost of children and other household production", children are one of the things that households produce. Then they talk about the opportunity costs for households to "produce and consume a child". I love the idea of what parents are doing is consuming you.
I will put on the web an article by Jonathan Swift, the same guy who did Gulliver's Travels, you know this article? A Modest Proposal, exactly; this is tongue in cheek on his part but at that time, much earlier and much later, the English were concerned about the Irish problem. The Irish were very poor, they had tons of kids, and they didn't like to be ruled by England, so the Irish problem had to be solved. What Swift suggested was that the Irish eat their children. This would provide good food for them, a lot of protein and everything. So, it would solve their starvation problem and it would reduce the population problem there.
Of course this was tongue in cheek but it makes really interesting reading and especially his--notice his use of--if you bother to read it, it's not required, his use of numbers. It's full of numbers; it's a real takeoff on what fairly contemporaneous people, like people starting to write economics, were writing.
This idea that economics deals with children just as they do with any other commodity, it's the genius of economics to be able to do that, just as it's the genius of science to be able to make generalizations. But it's also one of the reasons people reject the approach. They just--people generally don't want to consider themselves commodities. Why should people want fewer children as they get richer? Well the basis of essentially all modern economics is rational actor theory, that people act to maximize their happiness, -- or utility, or preferences, there's a lot of different jargon words with slightly different meanings, -- and they don't act against their self interests.
Now there's new psychological economics, or neural economics, which finds out this isn't really true, but that doesn't matter. Most theory depends on rational actor theory. So economists believe that people decide what to do, based on a calculation. It doesn't necessarily have to be a conscious calculation, which is a little problem there, of what's good for them and they act that way. Somehow economists have to figure out why is it good for people who have money to have fewer children? Why is it in their self interest?
Actually a guy wrote a paper, Gary Becker in 1960, and then he got a Nobel Prize for this, for bringing family--what they call family economics into the mainstream of economics and treating children like any other good. Some of what I'm going to tell you really comes from Becker's theory. As I mentioned, one of the fundamental ideas is that it costs money to rear children, and so they can be considered an item to be purchased, and so they call them a good, anything that you purchase is called a good.
There are different kinds of goods and children are--all of them or at least most of them. They're a production good like a machine. A production good is something you buy, like a machine for a factory to do work. And children, of course, especially in poor settings, do various kinds of work. We'll come back to each of these things. They are also a consumption good, a consumption good is something that you buy and maybe eventually use up but you enjoy it. You buy it because you get pleasure in some sense out of having that, not because it does work for you. The third thing is, they can be an investment good. You put money into a child when they're young, and then when they're older you get something back for it; a return just like putting money in a bond, you put it in and then you wait some time and you get, presumably, more back.
First consider children as a production good, which is very largely the case in poor countries. One thing that's pretty obvious is a child does not cost much to make; it's pretty cheap. In a peasant family children do a lot of work for the family. They can run errands, they collect firewood, they can fetch water, they take care of younger children, they weed the fields, there's a whole bunch of things that children will do. You have some readings on that in today's readings.
They actually do a lot of work. Here's an example, "little Baz," the name of a kid, "can run all over, fetch up cows out of the stock fields, or oxen, carry in stove wood and climb in the corn crib and feed the hogs, and go on errands down at his grandma's." Guess where that description comes from? Could be anywhere in the world, it happens to be a Kansas settler in the late 1800s. In America, like other places, in the farm economy kids do an awful lot of work.
There's a saying from Indonesia that, by age seven, a child does more work for the family than the family has to do for it. To study that, sociologists, anthropologists, economists actually go out in the field and observe in peasant societies. The professor or graduate student stays with the family or stays very--in the same village with the family and always carries around a clipboard, one of these clipboards.
What they do is, they write down everything that the parents do for the children and everything that the children do for the parents. Mom is cooking, sister is washing vegetables, little brother is sent to the neighbors for a bit of cooking oil, baby just defecated, mom stops cooking to clean up the baby, etc., etc. You can imagine all this down on a clipboard.
That's when a child is young; the family puts a lot of work into the child. As the child gets older they require less and less from the family and they start doing more work for the family. So economists--you can calculate, or anthropologists, anybody can calculate a crossover age. What is the age at which children do more work for the family, measured say in hours, than the family does work for the children? It's no longer quite as young as the 7 that the Indonesians talked about, but modern calculations show it's something like at age 13 children are doing more work in an agrarian society, children are doing more work for the family than the family puts in to them.
In your reading packet is a story about Tanamani, from Malaysia, and every year students ask--it's a wonderful story, you'll love it, why do I put that in?, and of course it's child labor. It shows you what--how exactly--a little bit unusual instance but how children are viewed, it is not romantic at all, it's a straight economic calculation, you maximize the amount of work that you get out of a child.
Jonathan Swift I think mentions age 6 as the age when children can begin earning money as pickpockets and David Copperfield was sent to work apparently at the age of 10, and Charles Dickens himself went to work at the age of 12. Currently calculations from the United Nations International Labor Organization shows that there's something like 250 million children aged 5 to 14 that are employed and half of these children are employed full time, not as casual laborers but as full time. This estimate, this is not a decreasing phenomenon but this estimate is up from earlier ones of 73 million children, so from 73 to 250 million, child labor is apparently increasing quite significantly in the world.
Agrarian societies, just from the work that children do, children can be an economic benefit and so people want a lot of them to work around the farm. Even in the early stages of industrialization children are often sent into earning work where they earn cash and in real poverty situations, in industrially developing countries, even the small wages of children can make a sort of life and death difference in the survival of the family.
Notice that this all changes now when modernization comes in. One of the things that happens is children go to school, and if they go to school, they have fewer hours to work at home so--their benefits go down. Money has to be provided for tuition, for books, for clothing or uniforms, for shoes. Children on the farm often don't have shoes but when they go into the city, to be proper, they usually have to have shoes, so their costs go up, their benefit goes down, and their cost goes up.
Another aspect of modernization: medicine becomes available. Now if a child gets sick, the parents have to spend money on doctors or on medicine, or they perceive that they have to do such a thing. If the family is in the city and previously--and there get to be a lot of children working, but there are also a lot of adults out of work, the government eventually puts in child labor laws and says children can't work and it makes it illegal and therefore you can't--children can't work at all, their benefit goes down. All of these things act to reduce the value of children as production goods; they're just not as good a production good as they used to be.
Now consider children as a consumption good, again that's the pleasure or fulfillment that parents get out of having children. One article I read talks about children as a consumer durable, that's because they last a long time, and they're like refrigerators they last a long time, they're a durable good and you see the reports every month of what--of how many more or less durable goods are being bought.
It's very interesting because the purchase of durable goods, you don't usually pay cash for that. They go on a credit card and an easy payment plan for later payment and it's the same for children. They don't cost anything--they don't cost much to make and the costs come later. I'm thinking the child is kind of a like a house. If you're poor, you can or could until the recent debacle, buy a house with no money down. So you don't have money and you get a mortgage. It's later on, after you have the house, that you have to, every year, pay off the mortgage. You've got to maintain the house, insurance for the house, taxes for the house. The upfront cost is very small, later costs are high.
As you know, a lot of people enjoy shopping very much and then once they choose, they say this is what I want, and they get a big bang out of the actual purchase. Making children is very similar, people enjoy the foreplay and then they get a big bang. Well that didn't work very well. Ok.
So, another aspect--finally got it--another aspect of this is children as consumption goods, and this has to do with modernization. You can't consider goods separately, one from the other. People have a certain amount of money and what they buy will depend not only on the cost of each individual good but on their relative costs. What happens when a country modernizes with respect to children is that the cost of children is perceived to go up, education, health, all these--clothing--all these costs go up inexorably, but at the same time the cost of manufactured items goes down. Radio player, television, any of the goodies that you spend an awful lot of time with. As time goes on, technology improves, the cost of those goes down.
So modernization increases not only the absolute cost of children but more, even more intensely, the relative costs because as their costs go up, the costs of other things that people want go down. That's another cause why people might want fewer children as time goes on.
Another aspect is the time cost of children. An important idea is that people have not only limited income, which they can spend as they choose, but also a limited amount of time and we all use the phrase, spend their time, and economists take that as a serious issue and they think that time is spent in a rational manner. Time can be used for leisure, time can be used for parenting, or if the person works time can be money, it can be used to work and earn money, and each person has to balance, or each family has to balance, these things.
Most of the time, and I'll show you some data on this, required for childrearing is spent by the mother. In fact, almost exclusively in most societies, the mother does all--basically all the work. In the peasant society the mother does all the housework, everything at home is generally done by the mother and this time is not valued at all. Mostly in peasant cultures, women's work at home doesn't count, she may do the--she and the children may go out into the fields and do an awful lot of work weeding and everything, and also again culturally, this usually just doesn't count.
Women's time is not particularly valued in traditional societies. In traditional times, she can't get a job, so she's not going to be able to get--there are just no jobs available for her. Then modernization comes in and jobs become available in the cash economy and cash is what people value. Cash in an agrarian society is so rare, so difficult to come by that that's what is really valued.
Jobs become available and in many industrializing situations, and especially in the third world now, the first jobs that become available are low skilled jobs like sewing. Almost every country that enters into the modern world has started its "industrial revolution" by sewing jobs in factories; Bangladesh, Indonesia, all over the world sewing is the first kind of thing and this is largely a women's job. You see this in China, all over the world, that some of the earliest jobs in the modern sector are for women. Assembly--you look at assembly--pictures of assembly lines and almost any electronic goods, who's doing the assembly? Very largely women are doing it.
Once job opportunities become available then you start--you set up a competition between childbearing and working; when childbearing the woman is at home, she can't be out in the city working, and her time is spent taking care of the children, and therefore she doesn't earn an income, or she can have fewer children or no children and go to work and earn income. Modern--what happens is the opportunity cost to women, which was considered essentially zero in traditional times, starts rising as jobs become available for women, the opportunity cost of having children rises.
That's another thing that as modernization precedes you might expect that families want fewer children. As modernization proceeds people get richer and all of these effects might really not be due to the income but just time going on in the way that I've been talking about, the changes that modernization brings.
Now the third kind of thing that we have to consider for children is to consider them as an investment good. That means you pay now you, get a return later. Of course the value of children doesn't stop, but once they grow up, if the culture has strong families, and that's a very important 'if,' then the children, when they grow up, will perceive that they have a responsibility toward the parents and that they have responsibilities to support the parents in old age or even before old age.
It's interesting to note that, if there's no stock market in a country, or banks, and poor people really don't have access to these things in most places at the earliest stage of industrialization, there's nothing else for people to invest in. There's just no market for things, there's no market for their savings, because rats and insects eat up an awful lot of food, you can't really store the food, so basically almost the only mode of investment is in children, so children are indeed, in pre-modern societies, very much an investment good.
This is brought home--I mean I read a lot about this but the experience of it in the developing country is very interesting to hear. We had a graduate student, he was from India, and he was from an upper class family and his family had only a few children and all his relatives, his whole class, the people he really knew had already done their fertility transition, had very few children.
He was a good hearted soul and wanted to help poor people, so he worked--before he came to Yale--he worked in an adult literacy program, that's really one of the best things that you can do, and this particular program was aimed at the very poorest people who were still illiterate. In the course they discussed everything, because you need vocabulary, you need to discuss it, so there's a lot of discussion as well as reading. One of the things they discussed was family planning; in fact, a nun had been speaking in the class strongly in favor of family planning trying to convince them that they shouldn't have so many children, that they would be better off with fewer children, which was the experience of his social class.
One day one of the adults took Anand, this guy, aside, and said, "you know you are wrong about family planning. I have no money to save for retirement, there's no social security, the government won't care for me in old age, and I need a son to care for me in old age. I have ten children, if even one of them survives and becomes successful, then I will be lucky and have a comfortable old age." That was very nicely put what the man said to Anand, But there's also Anand's reaction was also very interesting. That even though he grew up in--and he had never thought about that before, he never heard about it, he'd never thought about it, he never perceived it form the point of view of a poor person and he was very impressed.
When he told me this story, he said he was just amazed at how compelling the argument was and he couldn't think of anything to say back to the person in support of his previous views. Again, for the very poorest people about the only strategy they have for old age is to have children who will take care of them, and in most cultures that means a son will take care of them.
Kids cost very little in a poverty stricken culture, they wear hand-me-down clothes, they don't have toys or lots of anything like that, they get basically no school or medical care, the kind of food that poor people eat is fairly cheap and interesting in terms of time, beyond the first child, the first and second child, as soon as they get up to be five, six, seven, they start taking care of the younger children, so the time burden on the mother sort of goes away once you have somewhat older children, and older means like five, and they can start strapping the baby on their back and going around with the baby so that extra children are not--don't even cost much time for the parents, they cost very little money, you already have all the hand-me-down things, so it's just a subsistence amount of cheap food that the child needs. It's--children are a very small cost and they're a benefit as old age insurance is perceived to be quite, quite great.
What happens as modernization--so parents are basically willing--poor parents are willing to invest the little bit that they have and a little bit that's needed in a lot of children. How does modernization affect this investment? If jobs start to be available in the cities and/or possibilities open up for migration abroad to jobs, all the people from India and Pakistan, they go to the Middle East to work in oil related jobs, to the rich economies; people come to America to find jobs.
They all send back remittances; at least the first generation is very, very good about sending back remittances, which is a huge fraction of poor people's income. Even though the remittances may not be a huge fraction or what they're earning in America or in Saudi Arabia, in terms of the income that their parents are living on, and poverty stricken, it can be a very, very big increment to their income.
Children can be a really good investment, if they can get a job in the city, or get a job abroad, they're a really good investment. Modernization increases, everything else it decreases--the value of children, but modernization increases their value; this aspect of their value as an investment.
Several other things happen during modernization that increase the value as investment. First of all child mortality, the first thing in a demographic transition, or usually the first thing that happens is a quite severe drop in infant mortality. What that means is children now are likely to grow up. Previously children died very young or died at various times in their young ages, and if something is going to disappear, like if something is going to get stolen from you, you don't try to buy a really fancy car if you're pretty sure it's going to get stolen and it's the same thing with children.
If the odds are very high that your children are going to die it's really not--and if modern medicine isn't available -- it's not really a good idea to put a lot of investment into a child that's going to die. As modernization--some ideas of sanitation, public health come into play, and the expectation that children will live increases, and then there is a longer period for them to live and return income to the parents.
The other side of the coin is pretty much the same; the parents are living longer. In the old style of fertility, married people just kept having children until they became sterile at 45 or something like that, and then at the old life expectancy they didn't have much longer to live and they were still capable of working at 40, 45 and then they die. Even if they have children that stay alive, there's not a long period of dependency where they'll get income from their children.
If you have your last child at say 40 or 45 then they're going to reach maturity when you're 60 or something, almost 60 and that's at or above the life expectancy in very poor countries. The increased longevity of both children and parents make it a much better deal to have children as an investment good, because there's a longer time they can pay you and you're going to be around for a longer time to get this.
As opposed to the other ways that children are looked at economically, as an investment good modernization can massively increase the value of children. That would be--we have counterbalancing--if people have more money as modernization goes on, you think they could afford more children, but they become less good as consumption goods, they become less good as production goods, but they come much better as investment goods.
Of course as people have more money, they have more money that they can save, and one of the ways they save it is by investing it in the children. One of the issues then is if the value of children is now mostly as an investment good, how do you maximize this investment?
In agrarian societies there are really no opportunities outside farming, that's what the society does, period we're done. If, indeed, the agriculture is traditional, you're doing it exactly the way your grandfather did it, and his grandfather did it, and that's a very safe way to farm because you're on the edge of survival. If your crop doesn't grow you're in big trouble, so if you try something new there's always a danger that it might not work.
If you do something the way it's been done for hundreds of years or thousands of years or you perceive as thousands of years in your family on your land, you're pretty sure that it's going to work. You may not get an awful lot out of it but you're sure it's going to work. Peasants are very conservative, not only about their production, their agricultural production but everything else in their life because they don't have anything extra to gamble with, so they're not going to take on anything new. The old way of doing it, the father passes it onto the son exactly as he has been doing it. You don't need an education to do farming in a traditional kind of way; you learn it while doing it with your father.
When education gets modernized--when agriculture gets modernized, there's fertilizers, there's new varieties of seeds, you have to pay attention to money and when you enter into the market economy you have to have some mathematical abilities to know about money, you may have to borrow money, there's interest rates, there's payback schedules, there's all kinds of things so that education starts becoming very valuable, even in agriculture.
Early on, the combination of not needing education and the probability that the kids will die young, there's really not much benefit in investing in education in an early agricultural society. The best strategy at that time is to have a lot of children and put a minimal investment in each of them and hope that some of them don't die, and that's in fact empirically true, that the investment before the demographic transition, the investment that people put into their children was indeed very small and subsistence carried on the way it always was.
Now population increases because foreign foods come in, all kinds of things happen, and population starts increasing, land becomes scarce. Now imagine you have a small farm and you yourself are living as a subsistence farmer, and you've got a whole bunch of kids, and now you're faced with dividing up your land among the kids. Well you know the kids aren't going to be able to do it, you can barely do it on your size farm as you divide it up among two, three or so sons, and it just isn't going to work so you're in crisis.
When the kids inherit such a little bit of land not only are they going to have big trouble, but they're not going to have any excess to provide for you, so children, stop becoming children if they stay in the farm economy, stop becoming any kind of a decent investment to keep you going when you're getting a little old so you've got to figure out what to do, you're facing a crisis.
The outside economy is modernizing, you may not be modernizing but the outside economy is modernizing, and jobs become available, largely jobs that require some sort of education; white collar jobs, the government jobs. Big, huge bureaucracies spring up, that--I'll mention that in a little bit -- and parents rather rapidly realize that the only option is for the kids to go to the city and get a job. But, all the parents, everybody reaches that state pretty much at the same time, so the cities are just flooded with people coming in looking for the still scarce jobs.
How do you have an edge up? It has to be education, that is the only way you can get these white collar jobs, you absolutely need an education. In manufacturing jobs you do better, you have to deal with machinery; you have to know things about machinery.
I was in Peru quite a ways back and they took peasants off the Altiplano, this high dry plain where there's no water, the land is terrible, and they live on about $1 a day. In order to get a job in the mines, the first job is you take a shovel and you--there's big machines that eat away at the rock face but a lot of it drops down, and they need people with shovels to get the rest of it and dump it into the trucks, so this is really a minimum skill labor job.
They needed to have two things, which not everyone had, 1) to know that machines can be dangerous, that they can get hot from spinning around, that they can be electrified, that you don't just touch something unless you know what's going on. The second thing) you have to know enough about time to get to the job on time every day; the shift comes on, you've got to be there. The peasants don't come knowing those sorts of things and those that do know those things can double their income to $2 a day, if they can get jobs. That's even the most basic kind of job requires a kind of mindset and educational thing that you don't get generally on a farm.
Education becomes an extremely valuable commodity. But, in order to get the job and to stay alive, kids have to be healthy, so you have to put money into education and you also have to put money into health for the kids that's the prerequisite. If you have a bond, like a kid, you've got to have a safe-deposit box for it, that's like health insurance or healthcare for it, otherwise it's going to disappear on you. This investment in children, which in education and healthcare, becomes a very good deal; that if you can manage to invest that much in your child and go to the city or go abroad, get a good job, and their income will be so much more than yours that they can send you back a significant amount.
These investments in children are called human capital, or the result of them is called human capital, it's the health and education of the population. It's now realized that when economists study "why is one country rich and one country poor?", well part of it is their physical, their stock of physical capital. Physical capital is the factories, the machines, the buildings, and all the stuff that you can knock on. They've realized that that's not the biggest difference, the biggest difference is human--what they call human capital, how educated and how healthy the population is. So it's a very big thing.
An interesting thing, we have two different factors that are now in play, why a child becomes a good investment good. One, with education they can get a higher paying job, and with better health they can live longer and the parents can live longer, so they're paying you back not only at a higher rate if they're educated and healthy but for a longer time period. We normally think of that things add, well you get a certain benefit from their education, earning more per year, and you get a certain benefit from their health, they're living longer and you might be tempted to add those two, but in fact they multiply.
That you're getting a certain extra amount per year over 30 years or something like that, so the two factors multiply and that's one of the really big things in Becker's theory is how these factors that go into the increment a child will bring in, the health and the education multiply with each other and so even fairly small increments in either one lead to a very big return; multiplication is a very large effect.
The end of this that as an investment good, investment in children's health and education is very rewarding, it's a really rewarding kind of investment in the kind of economic situation that we've been discussing. Here's the catch, that if you're poor you can't make these investments in a whole lot of children, and so the best strategy, instead of having a lot of children and dividing up your assets among a bunch of them, you have a very few children and you concentrate your assets, you concentrate what you can invest in a few children, and you get them fairly good healthcare and as good an education as you can get for it.
Children that have these two things, it's called the quality of the child, again that's another economic jargon term, that the health and education of a child are the quality of the child. The way this change that goes on in the demographic transition is called the switch or the trade off from quantity to quality. Before the transition parents want a lot of children because the main thing they're worried about is the probability that they're just going to die and there's nothing the parents can do about that, the local folk medicine is almost totally ineffective so the kids are just going to die kind of randomly, but as time goes on that's not true anymore, they can do something to keep their kids alive and they get the kids educated so that they can earn a good rate of income.
There's this trade, a switch from wanting quantity to wanting quality in the children. Parents catch onto this very quickly, some of the very rapidity of some of the third world fertility declines has been due to that--when the land gets filled up by people it becomes very obvious right away that you've got to do something and the only thing available are jobs in the cities and--they know very well that the kids need education to compete in that job market.
In terms of policy you get some really interesting kind of conundrums. One is, education is what the people want, they want it desperately and yet if they keep having eight children, the country is going to be hopeless, so policy makers like the idea that in order to get an education people have to reduce their fertility, but they also with good hearts want to make education free.
The question in a developing country is how much to charge for education. Its a very, very major issue because you need to strike a balance between--setting the price low enough so that you can get a lot of your children educated, yet setting some price so that it's an incentive to parents to not just absolutely flood the system and overwhelm everything.
Wherever you set this [price], parents will always use strategies to maximize their benefit. One of the kind of strategies that people worry about, that parents can do, is the first child stays at home, second child stays at home, eventually that child grows up and starts doing work and then they can do the work around the house that's needed, and the weeding the fields and the work on the farm. The third child is now, in a sense, surplus, you don't need their labor.
If there's free education you get them educated, send them to the city, and you can do that if there's no cost to getting a child educated third, fourth, fifth, sixth there's no limit to the number of children that you could have, you send them all off to the city, they send you back money. Same with healthcare, that if you have a welfare government and it doesn't set this just right, if healthcare is also free or nearly free, then again there's no cost to having the extra children, people may continue to have that many children and then the whole system just gets flooded and you have a failed experiment.
Education and healthcare are some of the fundamental variables in this relationship between economic development, jobs becoming available, and how many children that you have. In developing countries, as you know, there are a lot of people, labor is cheap, but capital is scare, they're not rich, they don't have a lot to invest in factories and everything, so it's hard for them to build a steel plant or a petrochemical plant, that takes a lot of bucks and a lot of know how.
What about producing a teacher? Is that an expensive or a cheap proposition? Teaching is labor intensive, it's not capital intensive, you need maybe a chalkboard and some chalk and some places don't even have that. Education, being labor intensive, it is one of the cheap things that countries can do. Basically even the poorest country can have surplus labor, largely female, and give it a minimal amount of training. All you have to do is make them basically literate and they can go out into the villages and teach children to read and to write, which is amazing progress, and then that bootstraps itself.
If you look at developing countries, that's one of the things they really invest in. First, primary education and they get a big return from that; they have the finances to do that. In fact, almost all developing countries also have a pretty good university structure, not a research level university but a teaching university. If you look at places--they're producing doctors--I don't know if you know this, but in America something like half of all the doctors that get licensed are trained abroad.
Now some of them are from England, Sweden, Germany that are training them pretty much the way we are. But, more are coming in from India, Pakistan, Philippines, places like that, and the people are just as smart as anywhere else, they maybe work harder, more ambitious, maybe it's harder even to get into but they can train thousands and thousands of doctors. A medical school class in Mexico City would be like 3,000 students or something, the law classes are all very, very huge because it's cheap and the marginal cost if you already have a class in physiology with somebody lecturing, add another 100 students doesn't cost you anything.
Education up to very high levels is something that developing countries can often afford because it's a labor intensive occupation. When you think of the brain drain, what happens then is you get more doctors than India can support, more doctors than Mexico can support, so they want to come to the United States and you get the brain drain. The most highly educated people from all these developing countries, which the government has invested in to pay for their education, they go to England, they go to America, they go to France, they go to Japan, if they're allowed in, and they get a job.
That's the old style brain-drain, where the people physically move to here, but it's also the modern job flight that now, again as I said, with the internet and cheap shipping costs all these jobs can stay in India or somewhere and we ship the jobs out, the accounting. Accounting is done in the daytime, banks do all kinds of transactions, they ship all that data overnight to India and during our night, which is India's day, the Indian accountants work on it and by the morning you have all your accounts settled.
Engineering is worked on in Chicago during the day and then, however far the plans have got, is shipped off to again, usually India, and the architects there work on it and ship it back to Chicago, and that's increasing. One of the important factors in this is basically the cheapness of education, that education is a labor intensive operation and so developing countries can do it quite well.
Within the developing countries, they can rather rapidly produce a lot of say college educated people, and these people expect good jobs. They've risen up, maybe by a great amount of effort, risen up from the utter poverty in their villages and now they have a college education and they're ready for a job. The country usually doesn't have jobs for them, the economy is not yet developed, so what is there--there's a tremendous demand for--for white collar jobs. And if they don't get these white collar jobs, there is tremendous unrest among the young educated people; they're very verbal, they know each other, they know how to communicate, they're mobile, you can have a very unstable political situation develop right away.
The governments in all these places almost always respond with government jobs, since there isn't--the private sector is not yet capable of producing jobs, there's government jobs. You get these enormously bloated bureaucracies in almost every underdeveloped country where, to do the tiniest little thing you need 16 different people to stamp it, sign it, and approve it, and it takes three days for each of these people to make a decision.
That's sort of--things get out of whack when--because it's cheap you can produce a lot of education but then you can't them jobs and once you establish these big bureaucracies, then further economic development may become difficult because to do the slightest thing, build a factory or do something new or import something you have to go through all this bureaucracy. Because the government doesn't have money to pay these people, they get paid very poorly, so corruption; if you give us a very small bribe this is a wonderful thing for the bureaucrat, so he'll pay attention to your thing and only take two days instead of three days to approve whatever it is you've given him.
Again, this is the problem of the relation between demography and international and economic development in poor countries. It's all these interlocking things; the demography always interlocks with every other aspect of your economic development.
In terms of the whole picture of the changes in the world, probably this is the kind of sequence--we've talked about a lot of different factors that happen to bring people into modernity. I want to sort of summarize a lot of that. The first thing that apparently happens, it starts in the renaissance in the West and continues on into the enlightenment, and then the industrial revolution. The first thing that happens is people stop thinking supernaturally about things and start thinking about the real world and trying to think rationally about it.
Technological progress ensues and allows them better shipping, better navigation, they get all the way to America, discover American foods, bring them back and start a population increase in Europe. Good ways to prevent disease are discovered, industrial revolution increases productivity, you start thinking rationally about things and everything can get better. More food means less death and so population increases and this starts in the 1700s in Europe and really starts--1900s in the currently developing countries and we saw before that sometime--that the relationship between mortality drop and fertility drop was not a given, but in almost all cases, whether they went in parallel and mortality was below fertility.
Since early time, population has been increasing and, even in an agrarian society, that means as population increases the pressure on the land is going to go up and you're going to get tinier and tinier plots until you reach a crisis. Now, some places--Remember what a surprise we had that England, which was industrially advanced, its urbanization was advanced, its education was advanced, everything was advanced, but it had one of the latest fertility transitions.
Why? Maybe because of primogeniture, that they didn't have that kind of pressure on the land because only the oldest son inherited and the land plots did not get smaller and smaller. The political structure was such that the landed gentry were the ones that controlled parliament and the cities really didn't count that much where the excess people were, so England did not experience the same kind of tinier and tinier plots and the vast amounts of rural poverty that other places had.
Anyway, with the scarcity of land, the plots gets smaller and huge number--in most places--huge numbers of people fall into this abject kind of rural poverty. Then the two things that I've talked about today or one of the things that I've talked about today happens next. First, individual families have to figure out a new strategy, they realize that education for kids is the only way out of their situation and that means that they have to have fewer children.
At the same time, with respect to the currently developing countries, the Western governments either out of the goodness of their heart or because they're scared about revolution, and communism, and anti-Americanism, they have to help the third world so they start supporting family programs and what they do is two things. One, they buy advertising and just setting up clinics, the social, the cultural acceptability of controlling fertility by some sort of contraception becomes acceptable. It's not anymore a totally taboo topic, and then they actually provide the goods themselves so it allows people to work.
Their economic interest is in having fewer children but if they're--if there are not the contraceptives available as say in China, there was for a long time, or it's not culturally acceptable, they can't act on that desire. Family planning programs come in, either government ones or foreign supported ones; their own government supported ones or foreign ones and that allows people to act on their desires to have fewer children.
Then fertility falls because they're now using some sort of contraception and then, as we saw, I guess last lecture, that when fertility falls then you get this bulge of workers and the economy takes off. So that's kind of a way of putting the whole thing together.
Now this is all very nice theory that I proposed to you and you notice there's not too many data slides that I put up for this. It sounds great, I'm sure you're all convinced; yeah that's a good answer. When you start looking at this in more detail things don't turn out to be so convincing.
One, about the cost of children going up, which is the first part with children as a consumption good. Well what did children actually need? They need some clothing, they need some food, that's basically what they need to stay alive and that's all that they got in the old days. Well what's happened to the price of clothing in the last several decades? No, the price of clothing all around has fallen tremendously. Clothing with the new fabrics, you can't wear them out at all. I have that problem, I can't throw things away so my clothes just are all -- it's very cheap, it's made in China, Bangladesh, all around the world. The price of clothing has dropped tremendously as a fraction of income, you always have to do that as a fraction of income.
The price of food has dropped around the world as a fraction of income, so the basic necessities of children have really dropped and dropped quite drastically when you see a graph of that it's quite drastic. If you consider the cost of providing the same goods that pre-transition people provided for their kids, if it's a cost to providing that now has gone way down as a fraction of income. As I said, often--usually education is provided free by the government and sometimes healthcare is provided free by the government.
It doesn't look like an economic issue that if you want to just have kids the way you used to have them the cost has not risen but the cost has gone down. What has changed is in the minds of people they now perceive that they must provide for their children a completely expand--different and expanded set of goods than previously. Children have to have the kind of education that they never had before.
They have to have enrichment activities, all kinds of stuff. If you read about China, I mean it's amazing what Chinese--they only have one child and that child is so over programmed it makes you look lazy. I mean they go to dancing lessons and music lessons, and English lessons, all after school, the kids are just working like crazy.
You may have noticed near the beginning, but not at the beginning of the previous lecture, a whole bunch of Chinese came in and sat over there, they were the Presidents of the student--I didn't know who they were, they turned out to be the Presidents of the Student Associations at some of the really big universities in China. So these are--to get to be a top dog in a huge university is a big deal. What were they interested in? This issue of modernization, that they're spoiled, they realize that, they were telling me--I spoke to them later, that they didn't want to have a sibling, they were really enjoying getting everything as an only child, and they did not want a sibling. She's laughing because you know that story.
The other side of the coin is, as the only child they have to succeed. They have to get top grades in their education, so the amount of pressure on them to work like crazy all the time to study, study, study is severe. They were interested in--largely in the pressures on them which they were feeling. I guess as Presidents of their student body's they were probably overachievers like crazy and so they would feel this pressure enormously. Then you hear other stories where kids learn to play this game, so if a parent wants them--why don't you wash the dishes tonight or help around the house, ‘oh if I do--if I take time away from my studying, I'll fail my course.'
It's this change in mentality that has raised the cost of childrearing, it's not the actual--that the actual cost of child raising. If you raised them the old way, that went way down, but there's been a culture change that's required an enormous increase in the expenditures on children. Of course nowadays for you, parents don't expect probably anything from you in return as an investment, just to pay one year of Yale is probably more than some Chinese might make in their whole life.
Now opportunity cost is another interesting thing. We talked about the mother's time, so as you remember, the cost of children is not just what you spend in cash but it's the opportunity cost of childcare time. If you're out doing childcare you don't have the option to also work at that. Studies have shown that it's actually the time cost of children that way outweighs the direct cost of buying things for them and 70% of the cost of a child is in the value of the time spent on it.
As people get richer, yes, they buy more for their children and they buy more expensive things but their earning power also rises and it's this rise in earning power that makes the 70%--so that 70% of the cost of children is the time they're not spending working. When the people go out and do these time study things, I don't know how well you can see this, but this is the amount of time that a mother spends in childcare for her children.
If it's one child it's 2.2 hours a day and even up to 6--when they have 5 to 6 children, the wife is not employed, so this is a stay at home mom, it's 1.9 hours. There's really no significant difference depending on the number of children that you have. This is upstate New York in, I think, the 1950s, this is fairly recent, this is not even a developing country. The amount of time spent is actually quite small.
Now compare this to the mother getting a job, she's--so people work 40 hours a week, say if it's 9 to 5 and if they don't get paid for the half hour of lunch they can--they work eight hours a day and depending on how you do lunch it can be 8.5 or 9 hours, and then they have to commute maybe a half an hour to work and a half an hour back with--getting properly dressed for the job and commuting and actually getting there, so we're talking 9, 10 hours a day that a working mother, in this case, but it could be a father, is away from home, so that's the cost of having a job is like 10 hours, the cost of having any number of children, I mean seven to nine then something different is going on, and remember it's only about two hours a day.
The cost in time of children is not really all that great, and the only time it gets bigger is if the child is less than one year old, which it takes three or four hours a day to take care of children. Now this is for all the members of the family, this is just the mother, this is all members of the family so again--now this is 2.7 compare that to 2.2--they have one child, it's a half hour, the other members of the family together put a half an hour into the child is 2.3, this is a little bigger, but it's never more than an hour a day put into the child for all the other things.
Again, it doesn't change an awful lot with a lot of children; later children are cheap because there's basically little incremental cost to that. Here's more recent data and this--the red line here is mother's childcare and this is per week, this is not per day; it's something that starts out in the 1960s and 1970s which is comparable to the data you just saw. It was nine; ten hours a week which is just a little bit over an hour a day, and time goes on and I'll talk about that later. It increases but it's very small and here's the father's housework, it's like 2.5 hours a day.
It's not--the amount of time it takes to deal with children, although our myth is that it's very, very time consuming, the actual fact when you take the data it doesn't really work out that way. Now you have to be careful, this is extr