DECLINING FERTILITY AND THE RISING COST OF CHILDREN

Abstract

This paper examines, at the aggregate level, the relationship between cost of children and number of children (as measured by the total fertility rate) in Japan and other East Asian countries, using a new methodological approach called National Transfer Accounts (NTA). The private and public direct costs of children are measured by private and public transfers flowing into the ‘child’ age groups from older age groups. The estimated elasticity between cost and number of children is high, and the elasticity between the human capital component of the cost of children, i.e. education and health costs, and number of children is even higher. This is consistent with the widely held view that in the highly success-oriented societies of East Asia, human capital is a very important factor in parents’ family-size decisions. The estimated elasticities are measures of the trade-off between quality and quantity of children.

Keywords:

• direct cost of children
• National Transfer Accounts (NTA)
• private and public transfers
• human capital

Acknowledgements

Research for this paper was funded by two grants from the National Institute of Health, NIA R01-AG025488 and AG025247, and a grant to the Nihon University Population Research Institute from the ‘Academic Frontier Project for Private Universities’, matching fund subsidy from MEXT (Ministry of Education, Culture, Sports, Science and Technology), 2006–2010. The authors are also grateful to UNFPA (RAS5P203) and the Japan Medical Association for financial assistance.

Notes

1. It should also be noted that in a particular age group, the difference between consumption and labor income is an age-specific ‘deficit’ per capita. When the age-specific deficits are summed over all children's ages, the result is a measure of the overall direct cost of a hypothetical child who lives through the childhood ages experiencing the age-specific per capita deficit at each age. This overall direct cost of a child has both private and public components.

2. For a more detailed explanation of methodology pertaining to calculation of the age-specific per capita production profiles, see Ogawa et al. (forthcoming).

3. It should be noted that Figure 3 does not show transfers from elderly to grandchildren. In the NTA system, inter-household transfers are assumed to occur only between household heads. In addition, even in the case of intra-household transfers, transfers are assumed to be made between household members via their household head. Thus, in the NTA computation, the transfers from grandparents to grandchildren are assumed to be indirect through the parents of the grandchildren.

4. The source of the NTA estimates for South Korea is An et al. (2009). The estimates for Japan, Taiwan and Thailand have been computed by the authors.

5. If one takes differentials of both sides of the equation log(LCD) = a+b log(TFR), one gets the equation d(LCD)/(LCD) = b[d(TFR)/TFR], where d(LCD) and d(TFR) represent differentials. In words, the fractional change in LCD equals b times the fractional change in TFR. This implies that a one-percent increase in TFR generates a b-percent change in (child LCD), where b is the elasticity of LCD with respect to TFR.