TCS Daily

Allowing Families vs. Family Allowances

By Kamila Pajer - February 17, 2005 12:00 AM

In Belgium resident parents receive family allowances: age supplements, sick or disabled child supplements and birth grants. In Denmark a protection scheme based on residency grants family allowances and supplements for full and half-orphans. Similar grants exist in Germany, Ireland, the Netherlands, Italy and many other EU countries. In France residents get even more. Apart from benefits for young children and birth grants they also receive income supplements for reduced work, supplements for child care, allowances for a parent who has fully or partially ceased employment to care for a seriously sick, injured, or disabled child, special education allowances for children up to age 20 with at least a 50 percent disability, single-parent allowances to guarantee a minimum family income for a single parent who has at least one child or is pregnant, new school year allowances awarded to children between ages 6 and 18, supplements awarded to families with at least three children over age 3 but younger than age 21 and - catch your breath here - a housing allowance.

But here's the thing. Even though these countries introduced such grants to give people incentives for having children, their fertility rates have continued to fall and remain below replacement level.

According to the British Office for National Statistics, between 1970 and 2000 the total fertility rate for 15 EU countries fell from 2.38 children per woman to 1.48 - or by 38 percent. Belgium, where family allowances were first introduced in 1939, experienced a fall in fertility level of 26 percent. France, so generous in giving all kinds of allowances, has a fertility level 24 percent lower than 30 years earlier. In Germany the drop was 33 percent, in Ireland 52 percent, in the Netherlands 33 percent, and in Spain 58 percent, to a fertility level of 1.23 which is the lowest ever recorded in Europe and causes great concern.

In new member countries the rate is also low. In Poland it is 1.37 and due to a high emigration rate the population is decreasing. To remedy the situation the Polish state follows the mistakes of old EU members and introduces new family allowances. There is already a birth supplement, a single parent's young child supplement, education and rehabilitation supplements and beginning of school year and school travel and board supplements. Soon there will be a special birth grant paid to parents by local municipalities.

Supporters of European family allowances and the welfare state believe the system of grants is a good solution even though in some countries where it could be said to be working the fertility rate is still below the replacement level. They argue that Italy and Spain have alarmingly low rates because the family allowances there are too low. And since the evidence shows young Spaniards and Italians live with their parents and seem reluctant to leave home, some supporters of the present welfare state solution claim "the negative correlation between co-residence and fertility suggests that the stronger the traditional family ties, the lower the fertility rate" (European Commission "Policy Relevance of 'Family and Welfare' Research", 2003).

Such "negative correlation" one can easily observe also in Poland. Here, also, young people who live with their parents often do not have children. However, this is attributable to the high unemployment rate among youth and their lack of means to start family life. This is also the case with Italians. Today, the 15-24-year-old age group in Poland constitutes about 42 percent of all unemployed, compared to 28 percent in Italy, 19 percent in France and 11 percent in Germany. In countries where youth unemployment is much lower, as in Ireland, the fertility rate is higher.

Unemployment and youth unemployment are big problems in Europe. According to studies by David Blanchflower and Richard Freeman, "an increase in aggregate unemployment by one percentage point reduces the employment rate of youths by 1.13 percentage points. This implies that a one percentage point increase in unemployment reduces the probability that a young person is employed by more than one point." Young people are thus more vulnerable than their older counterparts to changes on the job market.

In their paper "The European Unemployment Dilemma," Lars Ljungqvist and Thomas J. Sargent state clearly what they find as a main reason for high rate of unemployment in Europe: the "smooth performance of the welfare states in the 1950s and 1960s concealed an inherent instability in these economies. In our model, a welfare state with a very generous entitlement program is a virtual 'time bomb' waiting to explode."

Today EU countries worry about low fertility rates because they see in them a threat to the system of pensions and allowances and to their dream of a "social paradise". Therefore they speak of making the elderly work longer or letting immigrants in. They do not perceive a real problem behind the current decrease in population. But it is of no importance that the pensions system will collapse, nor that the welfare state will have problems - in fact, all the better, for it will end sooner rather than later.

The real problem is that too few people mean slower development, fewer inventions, lower economic growth and poorer living conditions. For it is thanks to human beings that we have the internet and computers, washing machines and hair dryers, planes and cars, new and better drugs. Most of the things that make our life comfortable and long were invented at a time when population growth in Europe was at its fastest. Unfortunately, all those who - even in good will - support the family benefit philosophy act against the family itself. They act to the detriment of their own children, however few they will ever have.


1 Comment

Family Allowances
Very pleased with the research mentioned on the article, but it was my impression from a recent Washington post piece (last fall) that France had experienced increased fertility and decreased unemployment in part because of the generous family allowances. From other sources I have also heard that Germany had recently imitated the French system. It is in discussion in Greece, where some allowances exist but are not generous enough.

I object to the unwarranted value judgments made by the author(s). Voting for a well structured welfare system is not necessarily voting to hurt one’s offspring as long as society still retains incentives for the young to seek new ideas and forms of employment. A well structured welfare system does not preclude innovation and enterprise. Countries like Ireland and Sweden seek a middle ground.

I am just beginning my research in this area however and would appreciate any additional references.

Plato Rigos

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