Are kids inferior goods? Fertility and Income



In econs-jargon, as you grow rich, you consume more quantity of a "normal" good and less of "inferior" goods. Take  for instance cheaper cars. Consumers will generally prefer cheaper cars when their income is constricted. As a consumer's income increases the demand for the cheap cars will decrease, while demand for costly cars will increase. So cheap cars are inferior goods.

So are kids normal or inferior goods. Do people prefer to have more kids or less (like cheap cars) when their income increases. Welcome to the cold yet delightful world of economics. Let's find out.
Freakonomics blog has an amazing article on the same. And I can't agree enough.
As intuition suggests, the richer you get, you consumption rises. Either more of the same good, or a shift in your consumption towards goods with higher value (and quality). In this case, with more income, you should be able to afford more kids, or at least spend more on fewer kids.

There is a strong evidence on the inverse relationship between rising income and fertility. Take a look at the gapmider plot. The y-axis is total fertility (children per woman) and x-axis is inflation adjusted GDP per capita. The trails reflect plots from 1940 to 2010.




I took 4 countries, in different stages of economic development. France represents the mature first world, Singapore- the new high income, India- emerging middle income and Kenya, developing low income economy.

France saw a big jump during Europe's baby boom period that followed the World War, after which fertility started declining sharply. Though in recent times, it has picked up and hovers around 2. For Singapore, it has dropped to an alarming 1.1 in recent times. India and Kenya have dropped from their historical highs.

The magic number to remember is 2.1, the replacement fertility rate, which is the bare minimum for a population to replace itself.

So what explains this phenomenon?
The Economist published a great article "Go forth and multiply a lot less -Lower fertility changing world for better",  to understand this trend.

In the initial stages of development, in an agricultural economy, more kids meant more helping hands. In a disease rampant society, the opportunity cost of raising more kids is considerably lower. And when you can no longer work in the fields, your children will be the only ones to look after you. In such a society, all the incentives point to having large families.

Fast forward a few decades of development. A tractor gathers harvest more efficiently. The women can get jobs in factories instead of staying at home raising kids. Education leads to better jobs but is expensive. And now the equation changes. The opportunity cost of having a big family far outweighs everything else. The middle class grows and optimizes the number of kids they want to have, in order to provide them the best education and minimize the women's opportunity cost as she raises them. Spread of female education and accessibility of contraceptives have also helped.

So, are kids inferior goods. Well, the evidence definitely points to that.
But it isn't a bad thing. Lower fertility has helped economies grow. However, for a sustainable growth, there needs a balance. The magic ratio needs to be maintained.