Baby baby baby oh

Don't worry. I'm not going to be paying homage to Justin Bieber. Actually this post is more about what I recently read in the Strait Times. Some MPs in Singapore have suggested that the amount of baby bonuses offered are too low and that the current Parenthood package offered by the Singapore government is too small to convince Singaporeans to have more kids.

I have a few concerns with the causal implication behind this statement actually. Bear with me since i'm sure we've all heard the arguments on why fertility rates have dropped. But to me the MPs' assertion basically states that if the return to having babies is more profitable, more women would choose to have kids.

Two things come to mind from such an assumption. Question 1 is whether this is true, Question 2 is whether such an instrument/monetary measure is necessarily good.

Let's start with the first one. It comes down to what is the marginal impact of raising the baby bonus by XX amount. Demographically, we know that marriage rates and divorce rates have decreased and increased respectively in Singapore. The median age to get married has also increased in Singapore. Adding these things up, one has to question whether the decline in birth rates is due to couples having less babies... or less couples altogether.

If its the latter, then the baby bonus is not the right instrument to tackle the birth rates; I'm single right now, but i'm not about to go get married just so that i can get a baby bonus.

If its the former, then we are looking at the married couple on the margin who is trying to decide whether to add a child to their household.

Here's where we need more number crunching. As a starter, we should do some eyeball metrics. Has the number of children per married household (absenting the baby boomer generation) really declined or held steady over the years?

If yes, how much of this is due to people marrying later (hence shorter time period to pop kids out). If again, a large proportion of the decline in birth rates can be explained by later age of marriage, then possibly baby bonuses are not the right instrument again.

Supposing that baby bonuses are the correct instruments, that the rationale for the decline in birth rates is not due to any of the above, then what we are discussing is like elasticity. what's the price elasticity for a couple to have one more baby. this i imagine is going to be quite the subjective measure since each couple is different and married couples of different income thresholds are going to respond differentially to the price they see. Its like the story you always hear, Bill Gates could see $20 on the road but its not worth his time to pick it up. I lowly, grad student however, see $20 on the road , and I would pick it up.

we'd expect then that the distribution of kids across different income households varies; this in turn implies that a one price baby bonus isn't likely to fit all, and if married couples in higher income groups are the ones having less kids, then the one price baby bonus may not capture this group unless we set it very high.

This comes to my second point. Let's suppose that we have found that baby bonuses do help change women's fertility decision. And let's say we were able to calculate the optimal price for it where optimality is based on maximizing the number of babies in Singapore. Is this necessarily what we want? Essentially, having kids entails time away from work. Even if child care/ day care centres were available, having children still requires quite an investment of family time by the parent (after all, we want to shuttle them to their sports games, make sure they do their homework, bring them for birthday parties and piano lessons..).

Giving a high monetary incentive to having kids will involve some reallocation of labour, be it on the extensive margin (stay in or out of workforce) or on the intensive margin (number of hours worked) . My caution in this matter is on the possible distortion of price signals and reallocation of productive resources in the economy towards (more) childrearing.

Its not that childrearing is inefficient or bad, but if I were thinking about the optimal allocation of labour, we always want our most productive people to be producing/working more since that's welfare improving. The welfare benefit of having a larger future workforce via higher birth rates needs to be balanced against possible loss from reallocation of resources.

Of course, if you wanted to have kids in the first place, but were budget constrained in doing so, then that's fine, the baby bonus is exactly that for you. Again, my concern is more about price distortions stemming from such a government intervention and the resulting reallocation and possible mis-allocation of labour.

Post-note (because this was what first caught my eye): dear MP, if you wish to make your case, you might want to avoid throwing numbers like $500,000 bonus per child. its just not credible and certainly the wrong price signal to send.