COVID-19’s Baby Bust

Disasters usually come with falling birth rates. But this time, they might not recover unless governments take action now.

By Dimitris Valatsas, chief economist at Greenmantle, and Patrycja Koszykowska, a research analyst at Greenmantle.
A nurse holds a newborn baby wearing a face shield in an effort to halt the spread of COVID-19, at Praram 9 Hospital in Bangkok, on April 9, 2020.
A nurse holds a newborn baby wearing a face shield in an effort to halt the spread of COVID-19 at Praram 9 Hospital in Bangkok, on April 9, 2020. Lillian Suwanrumpha/AFP/Getty Images

P.D. James’s 1992 dystopian novel, The Children of Men, imagines a world where a rapidly ageing human race has become infertile. Coincidentally, the novel begins in 2021 with the death of the last human to be born on Earth. Although the real 2021 is not quite as dramatic, the number of births is plummeting around the world. A COVID-19 baby bust is underway.

A year into the pandemic, it is clear that being quarantined at home has not resulted in more pregnancies—despite having all the time in the world for Netflix and chill. In fact, the COVID-19 pandemic seems to have had the opposite effect: Provisional data coming nine months after most countries locked down last March suggest a steep fall in births across the developed world and in some emerging markets.

In the United States, for example, there were 7.7 percent fewer births in December 2020 than during the same period in 2019. This January, Arizona, Iowa, Ohio, and Florida all recorded declines of roughly 9 percent on an annual basis. While in February, California saw a dramatic 19 percent drop, in part due to families leaving the state.

It’s a similar picture across the Atlantic Ocean, as January birth reports suggest that Europe is faring no better. Hungary is down 9.4 percent on an annual basis. Russia saw a drop of 10.3 percent, France of 13.2 percent, Spain of 20 percent, and Poland a whopping 24.7 percent. Even Sweden, which enforced less severe restrictions on mobility last year, recorded a 6.4 percent drop. All told, if this trend continues, there could be 400,000 fewer Europeans by the end of 2021.

In Asia, too, a baby bust is underway. Births in Japan and South Korea, which are already home to some of the oldest societies in the world, plunged almost 8 percent in December 2020. Meanwhile in China, the first country to be hit by the pandemic, cities like Guangzhou and Wenzhou reported declines of between 19 percent and almost 33 percent.

Although it flies in the face of most jokes, the baby bust is in line with historical evidence. High-fatality events like pandemics and economic crises both tend to be followed by a decline in natality.

At the height of the influenza pandemic in 1919 in the United States, for example, the number of births dropped by 7.1 percent on an annual basis compared with 3.8 percent in 2020. Unlike today, most fatalities during the Spanish flu were adults of child-bearing age, which in part explains why the decline was so steep.

And when Hurricane Katrina struck Louisiana in 2005, it caused more than 1,800 deaths and $125 billion in damage. Then, too, the number of births dropped in the immediate aftermath. A year after the hurricane hit, births had fallen 19 percent in Federal Emergency Management Agency (FEMA)-designated disaster counties.

Though acute, the effects of high-fatality events on natality tend to quickly reverse. By 1921, two years after the peak of the Spanish flu, the United States had returned to its prior level of annual births. Similarly, after Hurricane Katrina, in the Orleans Parish, the most populated of the six Louisiana disaster counties in 2005, the birth rate returned to pre-hurricane levels two years later.

In that sense, the COVID-19 baby bust might not be so worrying, except that it has come during the prolonged slowdown in birth rates that have haunted the West since the postwar baby boom ended in the 1960s. The resulting aging population has hampered growth, increased debt, and put social security systems on an ever more precarious footing. Needless to say, none of these are developments we need more of.

What can policymakers do to combat this decline? Fiscal support is one option. In the United States, the most recent COVID-19 relief package includes sizeable child tax credits. Parents of children ages 5 and under will be granted $3,600; those with children ages 6 to 17 will receive $3,000. Both are a substantial increase on the past $2,000 per child. Democrats in Congress are pushing to make these tax changes permanent. Republicans such as Sens. Mitt Romney and Marco Rubio have also been vocal about the benefits of increasing tax credits.

But tax incentives are only one way to combat the demographic decline, and it’s far from clear if it’s the most efficient one. In fact, recent evidence from Eastern Europe suggests pro-natality fiscal transfers are expensive—and on average only mildly effective.

In 2015, the Hungarian government implemented interest-free housing loans and tax breaks for families. More recently, Prime Minister Viktor Orban has announced free IVF treatments and a personal income tax waiver for women with at least four children. And in Poland, the ruling Law and Justice party kept its flagship campaign promise and rolled out the Family 500+ program that gives families monthly allowances of roughly $127 per child.

Roughly 4 to 5 percent of Hungary’s annual GDP is now spent on pro-natalist policies; in Poland it ranges between 3 and 4 percent. Since the announcement of pro-natality programs, birth rates have barely increased: from 9.2 to 9.4 percent in Hungary and from 9.6 to 9.8 percent in Poland. The countries’ fiscal foundation, however, has been permanently altered: It would be nearly impossible politically to roll back these family benefits.

Structural policies that help parents better integrate childbearing into their careers are another solution to the demographic decline. As any working parent juggling newborns and Zoom calls can attest, the pandemic brought these conflicting demands into sharp relief. For those who could not work from home, the impact has been devastating: Closed schools meant that many parents—particularly women—had to leave their jobs to take care of their children. A March survey by Kaiser Family Foundation found that half of mothers who quit their jobs because of COVID-19 said one reason was school or day care closures.

Mandatory economy-wide provisions of paid leave would be a long-awaited first step in making childbearing more attractive. The United States is the only country in the Organisation for Economic Cooperation and Development that does not have mandatory paid maternity leave. In a recent letter to Congress, more than 200 companies urged legislators to improve family and medical paid-leave policies. This seems to be a more effective way to incentivize childbearing—not to mention being lighter on already overburdened taxpayers than direct subsidies. It is also more likely to work: Since 2007, when Germany implemented its parental leave benefit scheme alongside child care benefits, the country’s birth rate increased from 8.3 to 9.4 percent.

Indeed, maternity and paternity paid leave alone may not be enough if child care costs keep mounting. In New York, care for one infant takes 22.1 percent of a median family’s income. The U.S. Department of Health and Human Services defines child care as affordable if it takes, at most, 7 percent of a family’s income. Under this metric, only 9.4 percent of New York families and 6.5 percent of families in Wisconsin can afford infant care. Even though the Biden administration’s $1.9 trillion stimulus plan includes funds for “child care deserts,” long-term initiatives (like the Child Care for Working Families Act) will be needed to tackle this crisis.

In developed economies, healthy demographics will depend on making childbearing economic trade-offs more attractive. COVID-19 has delivered yet another blow to a long-run depression in birth rates. Historical experience suggests a mini-birth boom will likely follow the 2020 and 2021 baby bust. Yet, over the longer term, more creative fiscal and structural incentives will need to be deployed to avoid James’s dystopian novel becoming the Western reality.

Dimitris Valatsas is chief economist at Greenmantle, a macroeconomic advisory firm. He specializes in European macro- and energy economics. Prior to joining Greenmantle, he worked as an economist for FTI Consulting.

Patrycja Koszykowska is a research analyst at Greenmantle, a macroeconomic advisory firm. She has prior work experience at BlackRock and other financial institutions.