France: Cutting child benefits reduces births, increases work hours
A 2023 study (Fertility and Labor Supply Responses to Child Allowances: The Introduction of Means-Tested Benefits in France by Nelly Elmallakh) finds that a 2014 reform in France making child allowances for young children means-tested led to fewer births among the wealthiest households and more hours worked by both men and women whose benefits were reduced or eliminated.
Why it matters
Many developed countries are grappling with declining fertility rates well below replacement levels. The findings suggest scaling back child-related benefits can further dampen births, especially for higher-income families while pushing parents to work more to make up for the lost income.
By the numbers:
Completely eliminating benefits for the highest earners reduced their probability of having another child by 2 percentage points (a 38% decline relative to pre-reform mean) after the reform was announced, and by 0.7 points (13%) after implementation, compared to those with full or partial benefits. This implies an elasticity of 0.38-0.13.
The effects were concentrated among second or higher-parity births. There was no impact on initial childbearing.
Receiving half-benefits instead of full increased weekly work hours by 4 for women (10% relative to pre-reform mean) and 2 for men (6%). Zero-benefit households worked 2 more hours (5%) for women and 4 more (10%) for men than those getting benefits.
The effects were driven by increases in overtime hours rather than switching from part-time to full-time work, having multiple jobs, or overall labor force participation.
Back-of-the-envelope calculations suggest the extra earned income from increased work hours roughly offset the value of lost benefits (around €95-113/month for a 50% benefit cut, €190-226/month for losing benefits entirely).
The big picture
France has among Europe's most generous family benefits, spending 2.9% of GDP in 2013. However, fertility rates have declined from 2.0 in 2010 to 1.87 in 2018, coinciding with a decrease in benefit spending as a share of GDP.
How they did it
The researchers used a regression discontinuity design to exploit sharp income cut-offs introduced by the 2014 reform, which suddenly reduced or eliminated benefits for some families based on past income. This allowed for comparing very similar households on either side of the arbitrary thresholds.
The study looked at the "Allocation de base" (basic allowance) component of France's PAJE family benefit scheme for young children, which went from universal to means-tested in 2014. Families under an income threshold got full benefits (€184/month), those somewhat above-got half (€92), and those further above got none.
Yes, but
The 2-year data window couldn't definitively distinguish between fewer total children born vs. delayed births. Effects were concentrated among wealthier households, so results may not generalize to lower-income families. Non-compliance among never-takers likely makes the estimates a lower bound on fertility effects and an upper bound on the labor supply response.
What's next
While specific to France's policy context, the findings imply benefit cuts could impact fertility in other countries where financial incentives are an important factor in child-bearing decisions, especially for higher-earning households.
The bottom line
Child allowances appear to influence fertility and parental labor supply at the intensive margin—key considerations as countries weigh benefit reforms in an era of tight budgets and falling birth rates. Policymakers may face tradeoffs between encouraging work and supporting larger families.