determinants of fertility: implications for the “new” federalism

D E T E R M I N A N T S OF FERTILITY: I M P L I C A T I O N S F OR T H E " N E W " F E D E R A L I S M

by Robert Kirk

There have been major changes in U.S. family patterns. They include delayed marriage, increasing unmarried cohabitation, and unmarried childbearing. These changes have affected fertility rates. The objective of this article is to identify determinants of fertility rates by race. The fertility rate is defined as the total number of children born per 1,000 women, ages 25-34 in 1990. This cohort was born 1956-1965, or during the latter half of the baby boom generation. In the empirical analysis, the unit of observation is the urbanized area. It is used, rather than the metropoli- tan statistical area (MSA), because the black population is more geo- graphically concentrated by housing discrimination, income, and choice.

FERTILITY RATES AND THE NEW FEDERALISM

Why is it important to identify determinants of fertility rates? The "new federalism" calls for block grants as a way to reform the U.S. welfare system. The use of the block grant raises some important issues. First, it will stimulate interstate competition that can be beneficial, as evidenced already by several states seeking waivers from the U.S. De- partment of Health and Human Services to implement their welfare programs in new and creative ways. On the other hand, it could stimulate a "race for the bottom," with states, fearing interstate welfare migration, reducing their income support levels, as evidenced in recent years by the decline in the real value of the AFDC support. Second, the block grant could induce intrastate changes, in which program and funding responsibilities could be devolved to the local level. For example, programs for disadvantaged children may be shifted from welfare to more expensive care arrangements, such as court-mandated child and family services. It is this latter issue--devolution of program and funding responsibilities to the local level--that makes the use of the urbanized area important as the

90 The Review of Black Polilical Economy/Fall 1996

unit of observation to identify determinants of fertility. If the determinants include policy-relevant variables, social service decision-makers need to know. The author takes no normative position on what fertility rates should be. Rather, the role of the analyst is to identify determinants and indicate what strategies might be undertaken if the decision-makers want to achieve a desired objective.

EXTENSIONS

This article extends our understanding about the economic aspects of fertility in several ways. First, a narrower definition of the fertility rate is used. The total fertility rate is the estimated number of children that a woman would have at the end of the childbearing years (15--44) based on current fertility rates. However, interurban differences in the age distri- bution of the group, 15--44, would influence the total fertility rate by urbanized area. In this article, by narrowing the focus to the cohort, 25- 34, the influence of age-distributional differences by urbanized area is reduced. Second, income support programs to mothers with dependent children reduce the cost of children. Other studies have used only AFDC to measure income support. However, AFDC has declined in importance compared to Food Stamps. Therefore, this study includes both AFDC and Food Stamps--a more inclusive definition of support programs. Third, the empirical analysis uses data from the 1990 Census o f Population. 1 Recent data are desirable because there has been growing national attention on the condition of children. Analysis of federal spending on the elderly and children in 1990 indicates that as a percent of total federal outlays, 28.3 percent was spent on the elderly and 5.2 percent on children under age 18. 2 The two major spending categories for the elderly are Social Security and Medicare. On the other hand, a significant fraction of the federal spending for children is based on discretionary spending programs that are vulnerable to the annual appropriations process. 3 There- fore, the use of the most recent data is critical to learn about the impact of the proposed devolution of government functions. Fourth, fertility rates differ by race. Therefore, the empirical analysis will apply the model to data differentiated by race.

In the first part of the article, the motivation for the topic will be presented. In the second part, hypotheses to explain fertility rates will be discussed. In the third part, the hypotheses will be tested empirically using cross-sectional 1990 Census data for blacks and whites from 119 urbanized areas. In the fourth part, conclusions will be drawn with impli-

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TABLE 1 Children under Age 18 Living with One Parent, 1961)-1993,

by Race and in Percent

Year Black White

1960 21.9 7.1 1970 31.8 8.7 1980 45.8 15.1 1990 54.8 19.2 1993 57.0 20.9

cations for welfare policy, as well as other public policies, and directions for future work.

MOTIVATION

The total fertility rate has changed over time. It reached a peak of 3.6 in the late 1950s, dropped to a low of 1.8 in 1974, and has risen slightly to 2.1 in 1990. 4 It is influenced by the median age at first marriage. This age has increased. For women, it was 23.9 in 1990, which was the highest median since data were first collected in 1890; for men it was 26.1 in 1990, which equaled that in 1890. 5 Over the past thirty years, the percentages of men and women who have never married, aged 20-34, have increased .6

The living arrangements of children have changed over time. Children under the age of 18 are increasingly living with one parent, as Table 1 indicates .7

In the early 1990s there have been increases in numbers of children under 18 years of age living in families that are in poverty, as shown in Table 2. 8

The effect of the recessions, 1980-82 and 1990-91, was to increase the poverty rates. There are large racial differences, as shown in Tables 1 and 2.

Poverty rates of children under the age of 18 years and of the elderly over 65 years are compared in Table 3. 9 Progress has been made in reducing poverty among the elderly due, in part, to the indexing of Social Security benefits. The track record for children is mixed, with the black rate remaining high.

The above data have implications for fertility. For example, children who experience poverty have lower probabilities of graduating from high

92 The Review of Black Political Economy/Fall 1996

TABLE 2 Poverty Status of Families by Type of Family, with Children under Age 18,

by Race and Year, in Percentages

Year

Married Couple Families Female Householder (no husband present)

Black White Black White

1980 15.5 6.8 56.0 35.9 1982 17.2 9.0 63.7 39.3 1990 14.3 7.1 56.1 37.9 1992 15.4 7.6 57.2 39.1

school and higher probabilities of having out-of-wedlock births. 1~ Pov- erty, schooling, and out-of-wedlock births are areas of concern for the social science policy analyst.

HYPOTHESES

The fertility rate is determined by a variety of social and economic factors. There has been a transition to childbearing at later ages among women born during the Baby Boom years. Factors that have contributed to this postponement are: 1) greater educational attainment, 2) delay in first marriage, and 3) increased labor force participation. 11

The evidence on greater educational attainment is provided by the increasing number of bachelor' s degrees conferred to women. It has been increasing faster than that for men. Based on an index number (1986- 87= 100), the index for bachelor's degrees for men in all disciplines in 1992-93 was 110.8, while for women it was 123.9.12 The returns to investment in higher education for women are indicated by the rates of change in real average earnings by demographic group in Table 4.13

Women's level of educational aspiration is increasing. According to a national survey of freshmen (men and women) in 1993, "a record 65 percent said that they were interested in attending graduate school. ''14 However, the same survey found that for the first time in the twenty- eight-year history of the survey, women planned to pursue advanced degrees at a greater rate than men. These trends will be examined within the context of the economics of the family, as initiated by Becker. 15

Consider the household as a multiperson producing-and-consuming unit consisting of adult(s) and children. The household purchases market goods for consumption and market goods to be used as intermediate goods in

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TABLE 3 Poverty Rates for Children and the Elderly (percent of relevant population

in poverty) by Race and Year

Children under 18 Elderly-65 and over Year Black White Black White

1983 46.7 17.5 36.0 11.7 1988 44.2 14.6 32.2 10.0 1993 46.1 13.6 28.0 10.1

household production. These intermediate goods are combined with a household capital good endowment in producing the household production. The household production consists of outputs in the form of both household private goods and public goods, as well as child care output.

The time of the adults is an input in the household production function in which time is spent in production of household private goods and child care. The adults derive utility from market goods, household private and public goods, child services, and leisure. The adult allocates his(her) time to market labor supply, general household production, child care, and pure leisure.

The household faces a budget constraint in the sense that there are prices associated with market goods and children. Given the prices of market goods, children, and income, the optimal quantities of market goods and children are determined. The demand for children will depend on the relative price of children, the household's income, the price of related goods, and preferences. For example, if the relative price of children increases compared to the price of market goods, the quantity demanded of children will be expected to decrease and the demand for market goods to increase. In this framework, the cost (price) of children is considered as arising from the economics of the family rather than as measured by surveys of expenditures on food, clothing, shelter, and so on. This micro-based framework is used as a guide to form hypotheses about the determinants of fertility rates. The unit of observation is the urbanized area, so each area is characterized by its aggregation of households.

Price of Female's Time Spent in Domestic Production

Historically, in western societies the time spent in child care has been greater for the woman than for the man. Therefore, attention will be


TABLE 4 Real Average Earnings within Demographic Groups, 1979-1988

Demographic Group Annual Growth Rate

White females less than high school -0.3% high school 0.3 college graduate 1.4

Black females less than high school -0.5 high school -0.2 college graduate 0.5

White males less than high school -1.8 high school -1.1 college graduate 0.3

Black males less than high school -0.3 high school -1.2 college graduate 0.2

given to the price of the woman's time. It will be measured in an opportunity cost sense by the educational attainment level--the percentage of women, aged 25-34, with a bachelor's degree or higher, by race. Hy- pothesis #1 is that an inverse relation exists between the educational attainment of women and the fertility rate--the higher the attainment, the greater the price of time in production of child care services and the lower the fertility rate.

Income of the Household

According to the literature, the income effect may be either positive if demand for child services is a normal good, or negative, if inferior. Historically, based on the male's earnings, the relation was hypothesized to be positive. Empirical work by De Tray, 16 Gardner, 17 and Joerding, 18 supports this hypothesis. However, Becker suggests that part of this cau- sation may be from children to wage rates--given the presence of children to support, men invest more in market activity. 19

Theoretical support for demand for child services being an inferior good--the income effect being negative--is associated with the hypoth-

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esis of positive assortative mating. Assortative mating refers to the match- ing of traits. Positive assortative mating occurs when spouses mate whose traits are similar. An urbanized area exhibiting high positive mating would be one in which the marriages would have a high positive correlation for some trait, such as educational attainment. What is the evidence on assortative mating? Mare finds an increase in mating based on the educational attainment of the spouses from 1940--1987. 20 This implies that the wives of men with higher income potential tend to have greater potential earnings from market activity. The increase in household income contributed by the wife's market activity increases the price of child services and therefore, the fertility rate falls. 21

Becker adds another dimension to the hypothesized negative relation between income and fertility by focusing on the interaction between quantity and quality of child services. If the income elasticity of demand for quality is positive, then by increasing the amount spent on each child the effect is to raise the cost (price) of each child. Thus, the quantity demanded will decrease and result in a decrease in fertility. Based on this brief literature review, there may be either a direct or inverse relation between income and fertility. Thus, hypothesis #2 is that a direct or an inverse relation may exist between income and fertility. We will look to the empirical analysis to determine which relation is stronger.

A distinctive contribution of this study is the use of a broader definition of income than in previous studies. The income measure used is from the U.S. Census and is the median income in 1989 for married couples with children younger than 18. Income data were available for female-headed households with children younger than 18, too. However, these two income measures were highly correlated. Thus, only the one for married couples was used in the empirical analysis. In terms of age co- horts, couples with children younger than 18 captures a good proportion of the women in the dependent variable--children ever born to women 25-34 years of age.

The Census measure of income includes wage and salary earnings, nonfarm self-employment, farm self-employment, interest, dividends, and net rental, Social Security benefits, public assistance, retirement or dis- ability payments, and all other sources, such as unemployment compen- sation, alimony, and child support. The public assistance includes Supple- mental Social Security, Aid to Families with Dependent Children, and general assistance. Although the Census definition of income is broad, it does not include food stamps, which has become increasingly important as a source of income support. A separate measure of access to Food


Stamps in the state will be used in addition to the Census income variable above. 22 It is hypothesized that food stamps provides purchasing power in the same way that a male's earnings would. Therefore, follow- ing De Tray, Gardner, and Joerding above, hypothesis #3 is that there is a direct relation between access to food stamps and fertility.

Price of Related Goods

The quantity demanded of child services depends not only on its price and household income, but on the prices of related goods. In the theoretical development above, the household was viewed as both a consuming and producing unit. Adults in the household derive utility from child services, household private and public goods, leisure, and market goods. A survey of American young adults (mostly 18-year-olds) over the de- cade, 1976-1986, exhibited a trend toward greater aspirations for goods accumulation. 23 Both men and women exhibited this trend. The variables included "a home of my own, at least two cars, a high-quality stereo, and major labor-saving devices." Crimmins et al. indicate that "some of the items were complementary to having children and a family, while others were luxury items that compete with rather than complement the finan- cial and time demands of family life. ''24

If the fulfillment of these aspirations for goods competes with children, then marriage and family formation would be delayed. Delay would reduce fertility compared to what it would have been. The proxy used to measure the degree of delay is a price index--the state cost-of-living index. 25 The higher the index is, the greater the price to fulfill the goods aspirations is, and the longer the delay to initiate a family. The result would be to lower the fertility rate compared to what it would be. There- fore, hypothesis #4 is an inverse relation between the state cost-of-living index and fertility.

Preferences for Children

In the neoclassical model of consumer choice, it is assumed that con- sumers have preferences and that they are fixed and immutable. The neoclassical model focuses on variables, such as relative prices and income, that are measurable.

Religious values play a role in household fertility decisions. For example, the highest state fertility rate is Utah, which reflects the effect of the Mormon Church's religious teachings. Also, nationally, the rural farm fertility rate is higher than that of urban areas. In an agrarian-oriented,

Kirk 97

less developed economy, children have been viewed as a private insur- ance policy and a form of labor supply. Although this study is focused on the urbanized area as the unit of observation, preferences for child services could be affected by the proportion of the population that is nonnative. The nonnative population could bring with it another perspective toward fertility.

Assume that the migrant decides to migrate by comparing benefits and costs. The benefit of migration is measured by the present value of the wage differential between the origin and destination. The cost of migration is the sum of explicit and implicit costs. The explicit costs are the market-measured costs of the move; the implicit costs are the value placed on the loss of a "sense of place." This cost is directly related to the network of family and friends and the sense of identify left behind. It is assumed that this implicit cost includes and is directly related to a preference for fertility at the point of origin. A person or family migrates when the benefits exceed the costs. This could imply that those who do migrate place a lower value on that collection of preferences--including fertil- i t y - t h a n those who do not. Therefore, hypothesis #5 is an inverse relation between the proportion of the urbanized area's population that was born elsewhere and the fertili ty rate. This hypothesis will be operationalized in two forms: 1) persons born in a different state--namely one in the South--to capture the shift in the industrial composition of the labor force from agriculture to manufacturing and services as well as a reflection of the racial composition of the sample, and 2) foreign born.

EMPIRICAL ANALYSIS

The hypotheses are tested using cross-sectional 1990 U.S. Census data from 119 urbanized areas. The basis for selection of the urbanized area was a minimum of 25,000 blacks in total population.

The dependent variable is defined as the fertility rate, the number of children ever born per 1,000 women, ages 25-34, by race. An OLS multiple regression model is used to test the hypotheses. The hypotheses are summarized by variable, measure, data source, hypothesized sign, and mnemonic name:

Dependent Variable

Fertility rate, number of children ever born per 1,000 women, 25-34, for ith racial group in jth urbanized area (U.S. Bureau of the Census, 1993, 1990 Census of Population), FERTij.


Independent Variables

1. Price of female's time, educational attainment rate--percent of females, ages 25-34, with bachelor's degree or higher by race (U.S. Bureau of the Census, 1993, 1990 Census of Population), (-), PRICEij;

2. Median income in 1989, married with children under 18 by race (U.S. Bureau of the Census, 1993, 1990 Census of Population), adjusted by state cost of living index, U.S.=100 (McMahon, pp. 442-43), (-) or (+) INCMARCHij;

3. Access to nonlabor income, percent of population receiving Food Stamps for the kth state in 1990, (U.S. House of Representatives, pp. 1634-36), (-) or (+), FOODSTPk;

4. Price of related goods, state cost-of-living index, U.S.=100 (McMahon, pp. 442-43), (-), COLINDEXk;

5. Preference for child services a) persons born in a different state, namely one in the South di-

vided by all persons by race, (U.S. Bureau of the Census, 1993, 1990 Census of Population), (-), MIGRANTij, and

b) foreign bom divided by all persons by race, (U.S. Bureau of the Census, 1993, 1990 Census of Population), (-), FOREIGNij.

Table 5 provides summary statistics for the variables. Table 6 provides the parameter estimates. Based on the adjusted R 2, the model explains a significant amount of

variation. In both models, the PRICE and one of the income variables' (FOODSTP) estimates are significant at the 5 percent level and have the hypothesized signs; PRICE is the most important independent variable while FOODSTP is the second as measured by the standardized estimate. The positive sign for FOODSTP is the same as the earlier work that showed a positive sign for male earnings. Therefore, one interpretation could be that food stamps substitute for income support from male earnings. The estimate for the broader income variable (INCMARCH) is significant for the white model, but not the black. The sign in the white model is negative, which is consistent with the hypothesis that quality is substituted for quantity of child services.

The other significant estimates are for the preference variables (MI- GRANT and FOREIGN) in the white model. The negative sign is as hypothesized--migration tends to be a selective process in which those not native to the area have a lower preference for fertility. The estimate

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TABLE 5 The Summary Statistics

Variable N Mean Standard Deviation Minimum Maximum

bERT Black 119 1952.4 204.3 1459.0 2502.0 White 119 1390.4 162.3 945.0 1766.0

PRICE Black 119 13.3 4.7 4.3 29.3 White 119 29.0 9.0 12.9 65.7

INCMARCH Black 119 296.6 35.8 206.9 423.3 White 119 374.9 43.5 220.3 478.7

FOODSTP 119 8.7 3.3 4.0 19.4 COLINDEX 119 120.0 11.7 104.6 148.6 MIGRANT

Black 119 0.21 0.10 0.01 0.46 White 119 0.13 0.08 0.02 0.33

FOREIGN Black 119 0.03 0.05 0.01 0.28 White 119 0.04 0.05 0.01 0.48

for the price-of-related-goods variable (COLINDEX) was not significant. Multicollinearity was examined and was not a problem.

CONCLUSIONS

Determinants of fertility rates by race have been identified. What are policy implications? As the "new" federalism involving block grants for welfare is implemented, intrastate dynamics could shift funding and ad- ministration of welfare programs to the local level. The results indicate the major determinant of fertility to be the woman's educational attainment (PRICE). Women's educational attainment is based on opportuni- ties and the local and state-financed educational system. In terms of higher education, financing has shifted increasingly to the student in the form of loans. This effect has major implications for the ability of the low-income student to pursue higher education. The second major determinant was access to the Food Stamp program. As Congress, in its budget-cutting efforts, reduces projected federal spending on food stamps over the next six years, these results predict that the fertility rate could be


Table 6 The Parameter Estimates

Variable Parameter T for Ho: Prob> T Standardized estimate param. =0 estimate

for blacks INTERCEPT 2448.92 10.93 .0001 0.00 PRICE -28.40 -8.92 .0001 * -0.66 INCMARCH -0.04 -0.09 .9258 -0.01 FOODSTP 11.14 2.23 .0278* 0.18 COLINDEX - 1.59 - 1.07 .2858 -0.09 MIGRANT -55.12 -0.33 .7432 -0.03 FOREIGN -92.59 -0.34 .7364 -0.02 Adjusted R2=0.50

for whites INTERCEPT 1883.91 10.39 .0001 0.00 PRICE -12.09 -8.65 .0001" -0.67 INCMARCH -0.52 -1.79 .0767* -0.14 FOODSTP 14.25 4.99 .0001 0.29 COLINDEX -0.18 -0.18 .8539 -0.01 MIGRANT -297.72 -2.62 .0100" -0.15 FOREIGN -302.01 -1.80 .0747* -0.10 Adjusted R2=0.71

affected ceteris paribus. Households that cont inue to depend on food stamps would be negatively affected. This analysis has focused on the 25-34 age cohort. With delayed marriage, and delayed childbearing, future work will apply the model to the 35--44 age cohort and will compare results.

N O T E S

1. U.S. Bureau of the Census, 1990 Census of Population, Social and Economic Characteristics, Urbanized Areas (Washington, D.C.: U.S. Government Printing Of- rice, 1993).

2. U.S. House of Representatives, Committee on Ways and Means, Overview of Entitlement Programs: 1992, Green Book (Washington, D.C.: U.S. Government Printing Office, 1992), Appendix M.

3. U.S. House of Representatives, Committee on Ways and Means, p. 1580. 4. U.S. Bureau of the Census, Households, Families, and ChiMren: A 30-Year

Perspective, Current Population Reports, Series P23-181 (Washington, D.C.: U.S. Government Printing Office, 1992).

Kirk 101

5. U.S. Bureau of the Census, 1992, p. 6. 6. U.S. Bureau of the Census, 1992, p. 7. 7. A.F. Saluter, Marital Status and Living Arrangements: March 1993, Series

P20--478 (Washington, D.C.: U.S. Government Printing Office, 1994). 8. U.S. Bureau of the Census, Poverty in the United States; 1992, Current

Population Reports, Series P60--185 (Washington, D.C.: U.S. Government Print- ing Office, 1993).

9. U.S. Bureau of the Census, Money Income and Poverty Status in the United States: 1998, Current Population Reports, Series P60-166 (Washington, D.C.: U.S. Government Printing Office, 1989).

10. Robert Haveman and Barbara Wolfe, Succeeding Generations: On the Effects oflnvestments in Children (New York: Russell Sage Foundation, 1994); Claudette Bennett, The Black Population in the United States: March 1994 and 1993, U.S. Bureau of the Census, Current Population Reports, Series P20-480 (Washington, D.C.: U.S. Government Printing Office 1991).

11. U.S. Bureau of the Census, Marital Status and Living Arrangements: March 1990, Current Population Reports, Series P20--450 (Washington, D.C.: U.S. Government Printing Office, 1991).

12. U.S. Department of Education, National Center for Education Statistics, Digest of Education Statistics (Washington, D.C.: U.S. Government Printing Office, various annuals).

13. M. Blackburn, D. Bloom, and R. Freeman, Changes in Earnings Differ- entials in the 1980s: A Concordance, Convergence, Causes and Consequences, NBER working Paper No. 3901 (New York: National Bureau for Economic Research, 1991).

14. M. Cage, "Beyond the B.A." Chronicle of Higher Education (January 26, 1994):A29-A31.

15. Gary Becker, "A Theory of the Allocation of Time," Economic Journal 75 (1965):493-515.

16. D. De Tray, "Child Quality and the Demand for Children," Journal of Political Economy 81 (1973):$70-$95.

17. B. Gardner, "Economics of the Size of North Carolina Rural Families," Journal of Political Economy 81 (1993):$99-S122.

18. M. Joerding, "Lifetime Consumption, Labor Supply, and Fertility: A Com- plete Demand System," Economic Inquiry 20 (1982):255-76.

19. Gary Becker, A Treatise on the Family (Cambridge, MA: Harvard Uni- versity Press, 1981).

20. Robert Mare, "Five Decades of Educational Assortative Mating," Ameri- can Sociological Review 56 (1991): 15-32.

21. Jacob Mincer, "Market Prices, Opportunity Costs, and Income Effects." In Measurement in Economics, ed. Carl Christ et al. (Stanford, CA: Stanford University Press, 1963).

22. U.S. House of Representatives, 1992, pp. 1634-36.


23. E.M. Crimmins, Richard Easterlin, and Y. Saito, "Preference Changes among American Youth; Family, Work, and Goods Aspirations, 1976--86," Popu- lation and Development Review 17 (1991): 115-33.

24. E.M. Crimmins (1991). 25. Walter McMahon, "Geographical Cost of Living Differences: An Up-

date," AREURA: Journal of the American Real Estate & Urban Economics Association 19 (1991):426-50.

determinants of fertility: implications for the “new” federalism

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