How Countries might Reverse Plunging Birth Rates
Nick Redman argues that governments grappling with demographic conundrums would do well to study what Bulgaria did and what it achieved.
Developed and developing countries alike are increasingly alarmed by falling birth rates and their associated economic impact: GDP growth amid population decline is hard to achieve. Few, though, have come up with effective ways of encouraging reluctant adults to have more children. Financial incentives and subsidies alone seem to have little lasting impact, no matter how much is spent to achieve positive outcomes. More promising, new research shows, are measures that enable rather than change what people want -- IVF, statutory parental-support provisions, eliminating a real or perceived choice between work and family.
The world Total Fertility Rate (TFR), or the average number of children a woman has in her lifetime, has declined sharply from 4.7 in 1950 to 2.2 in 2024. To sustain a population, a country needs a ‘replacement’ TFR of 2.1 children per woman. South Korea, the country with the world’s lowest birth rate, is projected to halve in population every 50 years and reach a median age of 56 by 2044.
The combination of falling fertility and ageing populations, particularly in western countries, is exercising many governments. Shrinking tax bases and ballooning state pension commitments are likely to ramp up debt in countries already borrowing too much. Inward migration might ease the problem but for many that’s not a long-term solution, fraught as it is with political and social tensions. For some of those particularly concerned about ethnic and cultural uniformity, immigration as a means of addressing fertility challenges is a non-starter, anyway.
Comparing successful and failed fertility policies
Most attention has focused on plunging fertility and its implications; country efforts to counter the decline have been considered in isolation. New research by Oxford Analytica compares the success stories with the failures. Some countries, notably South Korea and Japan, whose birth rate has also been in freefall, have thrown billions of dollars at the crisis to little avail, despite parents in both countries expressing a desire to have more children. A handful of countries, notably Bulgaria and Hungary, have not spent as much yet achieved positive outcomes, reversing falling birth-rate trends.
So what accounts for the contrasting outcomes? Japan and South Korea have favoured multiple pro-natal inducements, in the form of subsidies, loans, tax breaks. Bulgaria and Hungary have adopted structured interventions to varying degrees. Bulgaria has concentrated fully on statutory leave and public childcare provision. Hungary has done so to a degree, though not gone far enough. Over time, it has switched its priorities to generous financial incentives, largely for reasons of political expediency. However, like Bulgaria, Hungary does offer publicly-funded IVF and other reproductive services.
Monetary inducements ease the financial burden of parenthood but may be transitory and also have strings attached, such as steep loan repayments and explicit commitments to have more children. Statutory support provision offers parents assurances that they will be able to work, or otherwise not lose out financially, in the first most challenging years of child-raising. For working people planning families in our straitened economic times, the evidence suggests that such structured interventions have significant traction.
South Korea and Japan’s overemphasis on subsidies
South Korea has poured more than 270 billion US dollars into pro-natal policies since 2005, yet it had the lowest TFR in the world at 0.72 in 2023 – down 40% in the last 10 years. Parental leave has been short and poorly compensated, both only very recently enhanced. Yet, average leave length is still only 9 months and most childcare provision is privatised, costs offset through fee subsidies and vouchers. Japan launched pro-natal policies earlier and it has seen a less precipitous TFR fall. Like South Korea, leave has been short and poorly paid, also until very recently. And as with Japan, private childcare fees are subsidised. Both countries have, however, successfully developed IVF and medically- assisted reproduction industries. Over 85,000 babies in Japan were born through IVF in 2023, about 1 in every 8 children.
Hungary’s incentive-dominated hybrid system
Turning to Hungary, from 2010, the government of Viktor Orban introduced waves of pro-natal policies, TFR rising nearly 28% to 1.6 in 2021. It has slowed lately, however. Initially, statutory parental leave and childcare provision did expand markedly but this wasn’t sustained sufficiently – though recently IVF clinics have been nationalised. Financial incentives moved centre-stage as Orban sought to strengthen his party’s countryside base. Promising cash transfers to rural Hungarians in the run-up to an election is a potential vote-winner. Pledging to fix the public childcare system is not.
Hungary now spends upwards of 5% of its GDP on a complex system of subsidies, loans, tax breaks, and other such fertility-boosting schemes – some novel, some bizarre. For instance, women with four or more children have been exempt from income tax for life; and parents with large families are entitled to subsidies for seven-seat vehicles.
Bulgaria’s statutory model offers parents certainty
Bulgaria, however, has firmly focused on statutory parental leave and childcare, eschewing the more costly and complex tax and transfer systems. Its TFR rose by 18% from 2013 to 1.75 in 2023, the highest in the European Union. Parents are entitled to up to 3 years of leave, the first 410 days compensated at 90% of salary, one of the most generous schemes in the world. Pre-primary school childcare is free. IVF cycles are publicly funded, at a lower cost than the rest of Europe. While expenditure seems high, Bulgaria ranks among the lowest in the EU on family benefit spending.
Analysing approaches
On the face of it, Bulgaria’s structured interventions, helping parents achieve a desired work-life balance, have clearly been the most effective of the national policies we have analysed. Hungary adopted more of a hybrid approach over the years, with much greater attention given to costly subsidies and other incentives. It has, however, achieved significant outcomes. But too much reliance on tax and transfer systems has meant pro-natal policy expenditure has far exceeded that of Bulgaria, with not-as-impressive results. The experience of South Korea and Japan suggests that subsidies and incentives alone will not work in the long run, no matter how much resource is allocated. They might give you short-term fertility boosts but these will likely peter out, the evidence suggests.
Aligning policies to what parents want
So, put simply, pro-natal policies that relieve the tensions between work and family life are more effective, and less expensive long-term than essentially bribing parents to have more children. In other words, better to align policies to what people actually want. Quite why governments opt for incentives and subsidies over more structured interventions is not entirely clear. One reason, seemingly, is there are more upfront costs – such as building a childcare infrastructure and negotiating with unions over parental leave. It’s also much more complicated than simply transferring money to parents every month.
Statutory parental support needs to be robust
While structured interventions can be effective, they need to be well-resourced, with a big upfront input from the state. Japan and South Korea’s childcare is private and expensive, the state having to send parents money every month so that they can afford fees. Under their leave regimes, you are reasonably well compensated for loss of salary. For Japanese and South Koreans it is, apparently, not enough to justify taking the time off work, especially given the strong work culture in both societies.
Interestingly, Bulgaria opted for thoroughgoing structured interventions not because it understood them to be the best way of boosting fertility but because it felt family cash transfers were too expensive and was reluctant for political reasons to expand social welfare. Bulgaria arrived at what looks to be an optimal solution, seemingly almost by chance. Yet governments grappling with demographic conundrums would do well to study what Bulgaria did and what it achieved. That may have been more by accident than design, but it appears to have worked.
Nick Redman is the Director of Analysis at Oxford Analytica and Editor in Chief of the Daily Brief.
The research on which this article is based was funded and conducted by Oxford Analytica
Photo by Sümeyye
