Germany: Cutting Child-Related Benefits Cuts Birth Rates
A 2023 study (The Fertility Response to Cutting Child-Related Welfare Benefits by Malte Sandner and Frederik Wiynck) investigates the effect of a 2011 reform in Germany that made parental leave benefits (PLB) deductible from welfare payments for low-income families. The reform effectively reduced the household income of welfare recipients with a newborn child by 18% on average during the first year after birth. Using detailed administrative data on over 460,000 welfare-receiving women, the authors find this substantial benefit cut led to a significant 6.8% reduction in fertility.
Key Findings
The reform reduced fertility by 6.8% for welfare-receiving mothers with at least one previous child. This implies an income elasticity of fertility of 0.38.
The effect was strongest for higher-parity births and women with low education levels. The birth rate dropped by 8.7% for third and higher-order children and 13% for women without a secondary school degree.
The fertility reduction was sustained in the long run, with birth rates remaining lower for at least 5 years after the reform. Analysis of birth timing and spacing suggests the reform reduced completed fertility, not just delayed childbearing.
Placebo tests and extensive robustness checks, such as varying bandwidth and functional form, support the validity of the results.
Data and Methods
To identify the causal effect, the authors leverage the unanticipated nature of the reform and test for a structural break in fertility among women who received welfare before and after the cutoff date. The analysis draws on administrative data that tracks fertility and welfare receipt at the individual level for over 7 million German women aged 18-45 between 2005-2017.
The estimation sample is restricted to the 463,000 women who were on welfare before the reform announcement in 2010, continued to receive welfare through at least 2016, and had at least one previous child. This ensures a consistent sample of women whose fertility incentives were altered by the reform.
Conclusions
The 0.38 income elasticity of fertility found for welfare recipients is considerably smaller than elasticities of 0.7 to 3.9 reported in previous studies of general populations. This suggests that low-income families' fertility may be less responsive to financial incentives than is sometimes assumed.
With one of the first large-scale administrative data analyses of welfare reform and fertility, this study provides robust evidence that benefit cuts reduce childbearing among recipient families. However, the smaller magnitude compared to other income-based fertility elasticities indicates financial concerns may be a less dominant driver of fertility decisions for this population than is often believed.