The Empty Playground and the Welfare State

June 7, 2012

In centuries past, the traditional method for workers to prepare for retirement and ensure that their needs would be met was to have children.  Ideally, parents would invest time and resources into raising their children, who would then care for their elderly parents in their retirement, says Ramesh Ponnuru, a senior editor for the National Review.

This process has changed, but less than one might think.  The relationship between the younger and older generation remains the same (the prior financially provides for the latter) -- the primary difference is that the system is socialized.  All younger citizens pay in, and all older citizens receive.

Interestingly, the hidden effect of the socialization of this relationship is that it has created a widespread free rider problem, pitting those with children against those without them.

  • Parents must invest in their children in order to turn them into productive workers, capable of caring for themselves and contributing to government programs for the elderly.
  • Parents will then receive outlays from these programs later in life, which are presumably the fruits of their children's labor.
  • However, non-parents will have the same retirement security provided by Social Security without having to raise their own children.
  • In short, non-parents are given a free ride off of the efforts and sacrifices of parents.

This is not to say that there are no other reasons for having children than retirement security; of course, many parents gain joy from raising children while others see it as an expression of gratitude for the life they have been given.  Nevertheless, the presence of this free rider problem should, theoretically, result in people having fewer children in countries with developed Social Security programs.

  • In a 2005 paper by economists at the National Bureau of Economic Research, they found that fertility rates dropped rapidly just after World War II, just when socialized retirement security programs were expanded.
  • Additionally, fertility rates fell further in Europe, where entitlements were expanded more than they were in the United States.
  • In their model, entitlements account for roughly half of the decline in fertility.
  • They found that when a pension system expands by 10 percent of gross domestic product, the average number of children per woman drops by 0.7 to 1.6.

Source: Ramesh Ponnuru, "The Empty Playground and the Welfare State," National Review, May 28, 2012.

For text:

http://www.nationalreview.com/articles/301108/empty-playground-and-welfare-state-ramesh-ponnuru#

 

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