Wednesday, April 7, 2010

Regarding the Decline in Birth Rates

The NY Times reported the link between recession and reduced birth rate:

American births fell in 2008, updated government figures confirm, probably because of the recession. The one exception was the birth rate among women in their 40s, who perhaps felt that they did not have the luxury of waiting for better economic times.

The birth rate for women in their early 40s rose 4 percent over the previous year, reaching its highest mark since 1967. The rate for women in their late 40s also rose, slightly. But birth rates fell for teenagers, as well as women in their 20s and 30s.

“Women are postponing births to those later ages, above 40,” said James Trussell, director of the Office of Population Research at Princeton.

Paul Krugman questions the link:

Doesn’t it take nine months from conception to birth? Abortion aside, to reduce births in the first three quarters of 2008 in response to a recession that started in Dec. 2007 would have taken pretty impressive rational expectations.

What are we missing?

First the data, then the missing piece.

The data seems to support the initial theory. The chart below shows the change in GDP by state on the x-axis and the change in the number of births by state (in 2008 [red] and 2009 [blue]) on the y-axis. In both years it appears that the birth rate had a relationship with GDP growth, thus individuals may have in fact based having a child as much in late 2007, as in late 2008 (i.e. predicting the downturn).



But was it a "prediction" or was the pain already felt? I believe the missing piece is HOW the recession began.... with a crash in the value of one's home. By the summer of 2007, the year over year change in the value of homes was pretty much down in all regions of the United States. Is it a surprise potential parents are less willing to have kids (expensive) when your largest investment tanks?

The chart below shows the relationship beween the change in the price of a home (Case Shiller) and birth rate change (I took liberty to match metro area to states). The y-axis remains the same as the chart above (change in birth rate in 2008), but the x-axis is now the annual change in the case Shiller home index from June 2006 to June 2007 (i.e. WHEN these couples would have been "trying" to have kids born in early 2008).


So were people able to predict the downturn or was it simply that the recession as defined by the NBER lagged the pain felt by potential parents?

I'll go with the latter.

Source: CDC / BEA