Economics of having children!

B. Venkatesh

THE July edition of the The Regional Economist, a publication of the Federal Reserve Bank of St Louis, carried an interesting article on the fertility choices of parents.

What has that got to do with economics ? Everything, because the basic principle of demand-and-supply holds good in such decisions as well. Here is how.

The demand for children depends on the amount spent on the child for food, clothing and education. It is not as if parents work out such costs before deciding to have a child, but such costs do have a bearing on their fertility choices.

Does this mean rich people have more children as they can afford to spend more? Not really. Economists argue rich people have fewer children because of the opportunity cost principle. This is the cost of a working parent spending time on a child's upbringing.

Suppose a parent earns Rs 50,000 a month, but has to quit work to take care of the child. The opportunity cost of the parent is Rs 50,000 per month, which is the income lost due to spending time with the child. Since the opportunity cost rises as the ability to earn increases, this principle may explain for the rich not having more children as the pure cost-side economics suggests.

And what about the supply-side? The supply of children depends on the cost of birth control measures -- lower, the cost of such measures, lower the supply of children.

But why are economists bothered about demand-supply of children? The reason is that the study of fertility decisions of parents could have policy implications for the government.

A study on the effects of legalising abortion, for instance, concludes that such a measure actually lowers the crime rate in the country. How? Because the supply of children is low, parents tend to spend quality time with their children, and such upbringing is likely to result in low crime rate.

And all the while, you thought economics was all about the study of demand and supply of commodities!