Inequality and declining fertility

The Economist notes a new working paper (pdf) by Bloom and colleagues of the Harvard School of Public Health, which shows that a short-term implication of reduced fertility in poor countries may be increased inequality. As fertility declines initially among the richer residents of the country, they are the first to reap the demographic dividend. From The Economist:

The three countries in the Harvard study which saw the largest declines in child dependency were Côte d’Ivoire (with a GDP per head in 2011 of $1,800), Namibia ($6,800) and Peru ($10,300). The pattern of their demographic change shows a clear progression. Poor Côte d’Ivoire saw its child-dependency ratios fall most among the rich and least among the poor. In Namibia child dependency fell furthest in the middle of the income range; the decline in the second-poorest group was largest of all. In middle-income Peru, the pattern was different again. There, child dependency fell across the board by roughly equal amounts.

What seems to happen is that falling fertility widens demographic differences in countries with a per-person GDP of around $2,000; that the forces of inequality and convergence are balanced in countries where GDP per person is $5,000; and that by the time this figure has reached $10,000 per person, the forces of convergence are dominant. To put it another way, the rich lead the decline in fertility, producing a short-term increase in income inequality as they capture the benefits of demographic change first. Then the middle catches up as they educate daughters and plan families, followed by the poor, so that eventually fertility is lower across the board and the economic benefits of the demographic dividend are spread more evenly.

As fertility is typically highest among the poor before the fertility transition, they would seem to have the most to gain, but are the last to transition. The paper would suggest that increased inequality should not, in itself, be seen as a negative thing in countries undergoing a demographic transition. However, there might be a large dividend if the exit of the poor from the low income-high fertility state could be accelerated.

HT: Economics and Psychology Research blog

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