FAMILY, ECONOMICS, AND THE INFORMATION SOCIETY
HOW ARE THEY AFFECTING EACH OTHER?
Maria Sophia Aguirre
Associate Professor
Department of Economics
The Catholic University of America
Washington, DC 20064
Paper Presented at the World Conference of Families II
Geneva, November 14-17, 1999
I.
Introduction
In this century the United States, as well as many other developed countries have
gradually moved from being mainly an "agricultural-based industrial society" to an "information
society", or "post-industrial era society." The second part of this century has also been marked
by a serious deterioration of social conditions in a majority of the industrialized countries. The
combination of these two factors has posed to countries both serious challenges and economic
burdens. To these challenges countries have responded in different ways. Some have focused on
welfare issues, some on financial issues, and still others have chosen the route of ignoring this
matter altogether. More recently however some of the developed countries have chosen to
address what is at the heart of both the social deterioration and the economic problems it brings;
that is, they have begun to reevaluate and promote policies that strengthen and support the
family.
Fukuyama (1999) proposes three economic structural characteristics of the post-industrial
era. First, services increasingly displace manufacturing as a source of wealth. As a consequence,
instead of working in a factory the typical worker in the post-industrial society is employed in a
bank, software firm, hospitality carrier, university, or social service companies. Second, the role
of information and intelligence embodied in both people and computerized machinery has
replaced to some extent physical labor with mental labor. Third, the production is globalized as
inexpensive information technology makes it increasingly easier to move information across
international borders. Rapid communication by television, radio, fax, and e-mail erodes the
boundaries of cultures and countries. People tend to associate the information age, as Fukuyama
1
(1999) remarks, with the introduction of the Internet in the 1990s, but the shift away from an
industrial era started more than a generation earlier.
This shift started with the
deindustrialization of the Great Lakes in the United States and with comparable moves away
from manufacturing in other industrialized countries.
During the period from 1960 to the early 1990s, crime and social disorder began to rise,
making inner-city areas a dangerous place to live. Fertility in most developed countries fell
below replacement levels, causing a reversal of the age pyramid; marriage and childbirth were
less frequent while divorce rates soared; and out-of wedlock childbearing affected many. For
instance, one out of every three children born in the United States and over half of all children in
Scandinavia are born out of wedlock1.
significantly declined.
Finally, trust and confidence in institutions have
All of these factors are very relevant for economic growth and
development in any economy since they hinder the most important resource: the economic agent
and with it human capital. Furthermore, trust is a basic condition for any economic activity for
without it, any economic transaction becomes very expensive or is avoided. One can think as an
example of the importance of trust for economic activity, on the capital flight that less developed
countries experienced during the 1980s. Trust on these countries’ capacity to perform was
lacking and the capital flight that followed as a consequence was very harmful for these
economies. Another example would be the problems caused for public health plans by distrust,
on the part of Indian women due to some abuses in the area of reproductive health. This has
often caused mothers to not vaccinate their children and to avoid prenatal care needed for healthy
pregnancies.
Fukuyama (1999) claims that the accumulation of these negative social trends is closely
related to the transition from the industrial to the information era. The relationship is established
by the link that exists between technology, economics, and culture. The changing nature of
work, which substituted mental for physical labor, propelled millions of women into the work
place and undermined the traditional understanding of family roles upon which the family had
been based for centuries. Innovations in medical technology, like contraceptives distorted the
role of reproduction and the family in peoples lives. The culture of individualism, which in the
market place encourages innovation and growth, spilled over into the realm of social life,
2
corroding virtually all forms of authority and weakening the bonds that hold families,
neighborhoods, and nations together. There is a bright side however: social order, once disrupted,
tends to get remade once again, and there are many indications that this is happening today.
Families and governments are reevaluating the role that family plays in the economy and in
society. Working women and men are searching for alternative working arrangements to make
family and work obligations compatible. There is an overall search for moral principles that
could establish some common denominator in an ever-diverse multicultural society. One may
ask why one could have expected this to happen. The answer can be found in human nature.
Men by nature are social creatures and the family is its basic unit and most important
manifestation.
In this paper, I will try to address two questions. First, how can we view the family
within the economic activity?; and second, why are the breakdown of the family and policies that
encourage this breakdown incompatible with sustainable real economic development?
In the
second part of the paper I address the first question and the analysis of the second question
follows in the third section. In the fourth part I refer to some of the positive initiatives being
proposed in developed countries to solve some of the present social conditions and costs. The
paper ends with few conclusions.
II. A View of Family and Economic Activity
When addressing the relationship between family and economics, it is important to
consider the characteristics of the family and how the economy relates to these characteristics.
The first characteristic of the family is that it is the first form of society. A person normally
comes into the world within a family, and it is within a family where the child first develops and
matures as a human person. If life develops within the family, then we can say that a second
characteristic of the family is that it is a "living being", as expressed by the Spanish philosopher
Rafael Alvira (1987). If it lives, then it has a principal of action and a material substance. The
principal of action of the family is love, and the material substance is the economy. Two
important expressions of this love are intimacy (the key to a home atmosphere of respect, trust,
and joy) and education. Nature has given the parents not only the capacity to bring life, but to
3
help each child develop (that is, to help their children with what is in them at first 'capacity' to
becomes 'actuality', i.e. habits and therefore education). In doing so and in providing for the right
atmosphere, they are expressing their love for their children.
The members of the family are human beings and, therefore, they are in need of material
things to develop. It is the need to obtain and to consume these material things that explains the
reason for economics and the role that the family plays in it. In this sense then, we can say that the
family is the first and most fundamental place where production and spending acquire their
meaning. It is precisely in the ability to foresee both the needs of families and the optimal
allocation of productive factors to satisfy those needs, which constitute an important characteristic
of a well functioning economy. Many goods cannot be adequately produced through the work of an
isolated individual but they require the cooperation of many people working towards a common
goal.
Furthermore, production and spending are neither mere 'individual' things to do nor mere
'social' things, but they are human activity and therefore must be directed towards meeting family
needs.
If they do not, spending leads either to consumerism or to controlled and planned
economies. In summary, consumption and the means necessary for production (such as private
property) are not an end in themselves, but an instrument to provide the family with the means of
subsistence and development. It is within the family domain that private property encounters its
meaning because it is in the family that the economic agent finds motivation to work. At the same
time, it is in the family that pure selfish motives for economic activity are overcome because the
person's work is directed to meet the needs of the other members of that family.
The ground on which capitalist theories have defended private property has been the
economic agent's work. These theorists maintain that a given economic agent carries out work and
therefore he is the owner of it. Thus, he has the right to keep and enjoy it. This justification
however, is incomplete since no one could have worked having not first received an education.
Furthermore, no one can work without the help of others. Thus any product or source of production
to some extent, is not the economic agent's alone, but some other members of that society have
rights upon the same product. This implies that it is possible to find support for the right to private
property in an economic agent's work, but not absolute private property.
4
Private property
encourages production and belongs to someone, but the product of this property transcends the
owner since he does not work in isolation or for himself alone.
Another sign that confirms that the economy goes beyond the needs of a sole individual is
the need to distribute the goods produced in the economy. This need is mainly felt in the family
and it is for this reason that it is through the family that the economy transcends the mere individual
level. This is an important idea when thinking on income distribution theory and policy as well as
on sustainable real economic development. Distribution within the family is carried out usually
through women. It is here that the most important role of women in the economy is found: woman,
because of her characteristics, has the capacity to distribute goods in a just manner, according to the
specific needs of each member of the family.
Using the previous analysis, we can understand why several elements of the economy
degenerate if they are not ordered towards the family: how is a good distribution possible without
reference to the family? What is the point of an economic agent saving or investing beyond
retirement (i.e. future consumption) without the family? What moderation would there be in
consumption and spending if there were no family? What is the motivation to work without a
family? What is the role of government if not to meet, at least in a subsidiary manner, the needs of
the family? An economy that is based on profit and selfish individualism could be successful for a
period of time, but it will not last (among other things because it will not produce enough
population without which no economy is possible). It is the economic agent – man – that works,
and man naturally belongs to a family. Since it is also the case that man develops within the family,
then it follows that the economic agent will contribute the most to society, and vice versa when the
family is being promoted by the economy in which he works.
Gary Becker, in his theory of human capital, when considering investment in human beings
(education) and its effect on real economic growth, points out that "no discussion of human capital
can omit the influence of families on the knowledge, skills, values, and habits of their children.2"
He goes on to say "parents have a large influence on the education, marital stability, and many other
dimensions of their children's lives," and -one can add- therefore on their present and future
productivity.
So far we have seen that family consumption needs give rise to economic activity, and that
5
the families affect the productivity and consumption of the economy by the influence that it
exercises on each of its members. At the same time, as the members of these families contribute to
the economy, private property and other institutions and services such as health services, housing,
education, social securities, national security, etc., develop so as to complement and meet the needs
of these families. Therefore, if we are to understand any economic issue, the way in which that
given issue affects the family as a whole or a given member of it, must be evaluated carefully. This
is directly and indirectly the most important reason for economic activity.
III. The Breakdown of the Family Institution and Sustainable Real Economic Development
From an economic point of view, family is very relevant for several reasons. First, the
breaking down of the family is a symptom of social weakening, which is detrimental to the
economy because of the social cost entailed, especially for government finances.
Second,
children develop better within a well functioning family, that is, with their biological parents in a
stable marriage. Thirdly, a child's academic performance is directly related to family structures,
which is an important aspect of human capital. This section of the paper will address these
points from the dimension of the cost that developed economies have incurred as the breakdown
of the family spread during the second part of this century.
1.
The Break Down of the Family: Divorce and Illegitimacy
The changes that have taken place in Western families are familiar to most people and are
captured in statistics on fertility, marriage, divorce, and out-of-wedlock childbearing. This is
also reflected in the rise of welfare cost to support broken families as well as its side effects:
child re-habilitation, programs to deal with crime, drug abuse, teenage pregnancy, special
education, and aging populations. For example, in the United States, 1998 family assistance
expenditures were 5 times higher than in 1970 in real terms, and health expenditures increased 15
times during the same period. Also in real terms, health expenditures increased by $225 billion
between 1991 and 19963. In addition to the welfare cost incurred, there is also an immense legal
cost involved. Billions of dollars are being wasted at the courts while these funds could be used
in more positive constructive ways. These factors affect social stability and therefore affect the
6
economic development of a country.
Like fertility rates, marriage rates experienced a rise in the 1960s in the US, Netherlands,
Canada and other developed countries. Since the 1970s however, marriage rates have been
falling rapidly while divorce rates have soared. Approximately 50% of the marriages contracted
in 1980s in the U.S. can be expected to end in divorce. The ratio of divorced to married persons
has increased even faster due to the decline in marriage rates. In the case of the US, this increase
has been fourfold in the space of thirty years, and it is the same for Europe4.
Figure 1 shows the rate of birth to single mothers between 1950-1998. Children born to
unmarried women as a proportion of live births for the US climbed from 5% to 35% from 1940
to 19985. However, illegitimacy ratios vary significantly by race and ethnicity. In 1998, the ratio
for whites was 23.6%, and for African Americans 68.7%6.
Between 1994 and 1997 the
proportion of births to single mothers in the US leveled out. Part of the explanation for this
phenomenon has been the decrease in teenagers’ birth rates. The number of teenagers giving
birth fell from 61.2 per 1000 women to 54.7 in 1991, but significantly increased thereafter. It is
important to notice that the significance of illegitimacy is different in Europe than it is in the
United States, due to the high rate of cohabitation in Europe. For example, between 45% and
90% of people between twenty and twenty five years are cohabiting in Northern European
countries, while at the same time the marriage rate it is very low (about 3.6 per 1000
inhabitants7.) Comparably, in the U.S. 14% of the people between twenty and twenty-five are
cohabiting8. The U.S. still stands out however, for the number of children born to mothers living
alone, or to teenagers9.
The number of children living in single-parent families in any given year is the product of
several factors: the rates of out-of wedlock births, cohabitation, divorce, dissolution of
cohabitation arrangements, and the re-marriage and re-cohabitation rates. The United States has
the highest rate of single-parent families because it has a high illegitimacy rate, a high divorce
rate, and a low cohabitation rate relatively speaking. Co-habitation is more unstable than
marriage. Bumpass and Sweet (1986) find that unions that began by cohabitation are twice as
likely to dissolve after ten years than unions that do not. Also, they report that marriages entered
Figure 1
7
Out of Wedlock as
Percentage of All Births
Births to Single Mothers, 1950-1998
80
70
60
50
40
30
20
10
0
United States
United Kingdom
Japan
Sweden
1 95 0 1 95 6 1 96 2 1 96 8 1 97 4 1 98 0 1 98 6 1 99 2 1 99 8
Year
Sources: National Center for Health Statistics of the Countries Used.
into after a period of cohabitation are less stable than marriages without prior cohabitation. More
recently, Popenoe and Whitehead (1997), Wu (1998), Hoen (1997) and others confirmed these
findings. This contradicts popular assumptions that premarital cohabitation is good for marriage
because couples are able to get to know each other better.
Neither the divorce rate, nor the illegitimacy rate, nor the single parent family rate alone
captures the extent to which children will experience family breakdown and life in a single or no
parent household. Of the 67% of children born to married parents in the United States in 1990s,
it is estimated that 45% will see their parent divorce by the time they are eighteen10. There is
considerable scientific evidence that the psychological damage done by voluntary breakup of the
family is greater than the involuntary breakup caused by death11.
Based on all these facts, we can clearly conclude that the nuclear family has weakened
across the board over the past forty years, and that the functions that these broken families still
perform, like reproduction, are not being performed well. This has an evident impact on human
capital and in the economy as a whole, since the family is both the source and transmitter of
human capital and economic activity.
Analyzing the Causes
At least four arguments have been proposed to explain why the economic developments
8
of the past 40 years have been accompanied by the breakdown of the family. Some point to the
increase of poverty and/or the increase of income inequality. Others blame its opposite, i.e. the
increase in wealth as its cause. Another group charges the welfare state. Finally others see the
cause not in economic variables, but in a broad change in society brought about by a decline in
religion, and the promotion of individualistic self-gratification over community obligations.
It is a well-documented fact that there is a strong correlation between broken families,
poverty, crime, distrust, drug use, low educational performance, and low human capital.
Disagreements arise over causalities. Empirical evidence, however, suggest that the causality
does not go from economics to the family but vice versa12. Today societies are much wealthier
than in previous decades and yet they are more unequal13. In addition, the povertization of
women in most cases is linked to divorce or single motherhood, and not to discrimination, as
radical feminists have claimed in the past. Figure 2 shows that in the U.S. married women,
independent of their ethnic background, are better off than single mothers. It is true however,
that the European countries which have various family support and income maintenance
programs in place, show a less damaging povertization of women as a consequence of family
breakdown.
This indicates the effectiveness of these programs to lighten the effect of
povertization of women and children, but have yet to solve the social problems that the
breakdown of the family brings14. These programs managed to shift parental responsibilities to
individual taxpayers, consumers, and the unemployed.
This past year countries such as Great Britain, France and Germany have started to
actively seek solutions to the family instability prevalent in these countries. In the Green Paper
for example, it is stated that “the government thinks that the defense of marriage and the family
will end the illnesses present in British Society. In particular, it hopes to reduce the divorce rate
– four of every ten marriages- the high proportion of illegitimate births (34% in 1995), and the
damage that divorce causes in the children of divorced couples.” This seems to suggest that
developed countries have come to the realization that the breakdown of the family has more than
public finance effects in their country15, and empirical evidence supports this realization16.
9
Figure 2
Percentage of Women who are in Poverty by Family Structure
and Ethnicity
80
70
60
50
40
30
20
10
0
67
58
43
29
14
9
Married
Single
Married
White
Single
Black
Married
Single
Hispanic
Sources: Research and Statistics on Children and Families, Annual
Report 1997. Child Trends Inc.
The argument that growing individualism and the social problems resulting from it are
the consequence of prosperity is on its surface much more plausible than the opposite argument.
Family breakdown and crime increased over an extended period of time during which the wealth
of developed countries increased steadily. Moreover, there is a broad correlation between value
change and income levels within the OECD were wealthier nations have higher levels of family
disruption than poorer countries such as Portugal and Spain17.
It makes sense to think that as
income levels rise, the bonds of interdependence that tie people together in families and
communities will weaken, because they are now better able to get along without one another.
But although there is a great deal of truth in this train of thought, the answer is neither completely
satisfactory nor is there enough empirical evidence supporting this position.
If anything,
evidence points to a different direction. Those most afflicted by the breakdown of the family and
high levels of crime tend to be the least wealthy members of society18.
Not much support is found regarding the charges being made against the influence of the
welfare state on the family either. Developed countries show no positive correlation between
levels of welfare benefits and family stability. Indeed, there is a weak correlation –never mind
causality- between high-welfare level benefits and illegitimacy, which tend to support the
10
argument that the welfare state is not the cure for family breakdown. Furthermore, the highest
levels of illegitimacy are found in the Scandinavian countries of Sweden and Denmark, where
redistribution of income is quite high due to their socialist economic structure. In the face of
such a social problem coupled with an aging population, it is not an accident that European
welfare states have run into serious economic problems in the 1990s, producing high levels of
unemployment and financial instability.
Those who have set the responsibility for family breakdown in mistaken government
policies maintain that perverse incentives created by the welfare state itself explain present
family problems. For example, the Aid to Families with Dependent Children, the primary
American welfare program targeted at poor women, provided welfare programs only to single
mothers and thereby penalized women who married the fathers of their children19. Similarly,
Alm et al (1999) show that the present tax structure in the U.S. penalizes married couples more
than cohabiting couples. The percentage of penalty to pre-tax income is between 4.5% and
10.1% higher for the first group. Also the rising rate of crime is seen as the result of the
weakening of criminal sanctions that have also occurred over the past forty years20.
The
empirical evidence supporting this position is not very conclusive, however. While it is true that
the percentage of illegitimate children is higher in countries where the welfare state is far
reaching, as is the case in Europe, and low where benefits are low as in the case of Japan, United
States and other developed countries. Yet, this last group does not show the same behavior. In
fact, econometric studies indicate that while welfare benefits have stabilized and even
deteriorated in real terms during the 1980s in some countries, family breakdown has continued
increasing through the 1990s21. In addition, it has to be taken into account that illegitimacy is
only one of the elements in the weakening of the family. Others include divorce, declining
fertility, and cohabitation, all of which are more prevalent among middle and upper class
individuals.
Working Women
In the past three decades, many have declared that with the advent of two-income families
11
the work of the home is something of the past22. In fact, housework continues to consume a
substantial amount of time for working mothers. While estimates vary widely depending on the
sample examined and on the methods used to generate this information, housework time ranges
from 20-30 hours of work at home in addition to a full time job23. A growing awareness has
arisen of the presence of women in the work place along with the consequences that this presence
has on the parental obligations shared by both men and women. Among the problems germane
to this issue, two have been a matter of particular concern: the problem of supervision for
children both below school-age, and school-age children who are dismissed from school before
their parents finish work (‘latchkey children’), and also the difficulty of employer retention of
valuable working women.
It is clear that the family as an institution exists to give legal protection to the motherchild unit and to ensure that adequate economic resources are passed from the parents to allow
the children to grow up to be viable adults.
Fukuyama (1999) proposes two causes that
contribute to the breakdown of the family. First, the development of contraceptives, and second
the movement of women into the paid labor force. It is important to note that the significance of
contraceptives cannot be reduced to the decline in fertility. Fertility had already fallen in some
societies before the pill’s invention. In addition, an explosion in illegitimacy and a rise in the
rate of abortions have accompanied the spread of contraceptives since the 1970s24. Both facts
tend to suggest that contraceptives have effects other than the decline of fertility; it also
influences the stability of the relationship between men and women within marriage and outside
marriage by encouraging promiscuity25.
In recent years, the rise of females’ income has also been related to the breakdown of the
family26. The assumption behind this relationship is that many marriage contracts are entered
into with imperfect information: husbands and wives discover that once married, life is not a
perpetual honeymoon, and that their spouse's behavior changes from what it was before marriage.
As some economists suggest, trading one husband for another when they have discovered this
reality was impossible for women before because they depended on their husbands economically.
As female earning began to rise however, women became better able to support themselves and
to raise children without husbands. At the same time these economists argue that rising female
12
income also increases the opportunity cost of having children and therefore lowers fertility27.
Fewer children mean less of what Becker characterizes as joint capital in the marriage, and hence
makes divorce more likely28. It is not clear however that working women who divorce follow
this rationale necessarily. Perhaps it might apply to those cases where the parties enter marriage
for its pleasures. Another plausible reason is the fact that the entering of women into the labor
force puts on them an additional burden when it comes to meeting the needs of both work and
family. It is empirically proven that the work structure is male oriented and that it does not
provide the flexibility that mothers of families need to meet their family obligations. Therefore,
their work becomes a source of tension in the marital relationship and it affects their work
performance as well as the care of their husband and children.
Empirical evidence links higher female earnings to both divorce and extramarital
childbearing29. Figures 3 and 4 plot divorce versus female participation in the labor force and
female participation in the labor force respectively.
The first graph supports a positive
relationship between divorce and female participation in the labor force in most cases. Japan and
Italy have both low females labor participation and low divorce rates. On the other extreme we
find the United States, Sweden, and the United Kingdom. Notwithstanding, in a study on
divorce undertaken by Sullerot (1997), she reports that in Europe of the number of divorces
initiated by women, between 33% and 75% suffered a significant decline in their income. This is
consistent with the povertization of women in the last forty years, which was mentioned before
and shown in figure 2.
The second graph shows an increase of female participation since the 1970s. The rate at
which the increase participation has taken place however, has leveled out since 1990. A recent
study of the Families and Work Institute (1995) reports that in the US, women 's income is
becoming necessary for the sustenance of the family. Women contribute at least 45% of the
family income of married parents. The contribution is even higher in single parent households,
mainly headed by women, where their contribution is of 90% or more30. The study also reports
13
Figure 3
Divorce Rate
Divorce versus Female Labor Force Participations
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
United States
UK
Australia
Sweden
Netherlands
Germany
Italy
Japan
0
10
20
30
France
40
50
60
70
Female Labor Force Participation
Sources: International Labor Organization
Figure 4
Percent
Female Participation, Ages 20-39, 1950-2000
100
90
80
70
60
50
40
30
20
10
0
Japan
Sweden
UK
United States
1950
1960
1970
1980
1990
Year
1995
2000
Sources: International Labor Organization
that only 15% of all women would like to work full time was even if this was not necessary to
maintain the family, 33% would like to work part-time; and 31% would prefer not to work
outside their homes. Therefore it is not surprising that in more recent years we have seen an
14
explosion of innovations in this front, ranging from flextime working hours to job-sharing
positions, or companies that professional women support so they are able to work from their
homes31.
So far, the solutions proposed to meet parental responsibilities regarding supervision have
included child care oriented policies and income tax credits at the governmental level. Private
initiatives such as a system of flexible working hours and more recently, on-site day-care or other
childcare support provided by employers have been developed32. As was previously mentioned,
governments, especially in Europe, are introducing more incentives for women to continue
working while having a family. Developed countries are now concerned not only with the effect
on children and the family, but also with their current low fertility rates.
2. Children and the importance of human Capital
There is a strong relationship between family and human capital. Families constitute the
most basic cooperative social unit, one in which husband and wife meet to work together to
socialize, to beget, and to educate their children. The family in the past typically educated its
children at home, took care of the elderly, and in view of the physical isolation and/or lack of
transportation as it occurred with families working in farms for instance, was also its own main
source of entertainment. Today, these functions have been separated from the family. As men
and women started working outside the home, children were sent to public schools for education;
grandparents moved to retirement or nursing homes; and entertainment was provided by TV and
other means of mass communication. The movements of these functions outside the family unit
has had a deleterious effect seen most markedly when reproduction was separated from marriage.
A growing concern of the past decade has been a decline in the academic performance of
American students at large who have done poorly on standardized tests compared with their peers
abroad, especially in Asia. On average, American students read less, have weaker analytical
skills, a declining command of their language, and in general are less well rounded. They tend to
watch more television and videos, and spend more time playing computers games than their
peers in other countries do33. Faced with this reality, several studies have sought causes and
solutions to these growing educational problems. Both school and family input as well as social
15
conditions are relevant in this area. The 1966 Coleman report commissioned by the U.S.
Department of Health, Education and Welfare, found that after controlling for family background
in student achievement, there is little evidence that the level of school resources has a statistically
significant effect on student test scores34. Furthermore, the report emphasized that family and
peers have a much greater impact on educational outcomes than the inputs over which public
policy has control. Lack of parental support and involvement, as well as the absence of early
stimulation, together with the breakdown of the family structure have been found to be important
factors affecting children’s performances35.
Empirical evidence on the impact of school
resources on student outcomes continues to be ambiguous.
Divorce, out-of-wedlock birth, and single-parenthood are shown to be very detrimental to
the affected children's development. Children that come from broken families or raised by single
mothers tend to have more problems related to drug abuse, alcoholism, violence, and academic
performance. They also have more health problems, depression, and higher suicide rates than
those proceeding from stable families. These results are independent of the income level of these
children, thus suggesting that income is not the major variable in children’s development
health36. Blum (1997) has shown that the closer the relationship and the trust between parents
and children, the better is their academic performance and the lower is the risk of their getting
involved in unhealthy activities. Finally, studies show that it is important that parents be present
at key times during the day, for instance after school and at dinnertime37.
Not only parents, but employees and society as a whole are concerned with a widespread
lack of child supervision that result in poor academic performance, as well as the needs of
working parents. In a 1994 study, the Carnegie Foundation reported that in the U.S. the breakup
of the family is primarily responsible for poor childcare. Almost 40% of children under three
years old live with one parent, more than 50% of women with children under one year work full
time outside the home – in most cases due to economic needs- and are either single mothers or
divorced. Malkin and Lamb (1994) report that child abuse in single parents’ homes is four times
higher than child abuse in households with both parents. This risk increases to six folds for
children living in cohabitational households.
Childcare has shown to be a solution with many risks, at least for the United States. A
16
study of the National Institute of Child Health and Development reported last year that 80% of
children under one year, are habitually supervised by an adult other than the mother for at least
thirty hours a week. The same report points out that child care facilities do not provide the
quality of service required by the child to develop well, and between 15-20% of these services
are detrimental to children. In response to this report, the US government created a committee of
private businesses to seek solutions to these problems. The conclusions of their study were that
“policies that favor the family were profitable for business.” Johnson & Johnson reported that
for every dollar allocated to subsidize maternal leave or childcare, it was earning $4 in increased
productivity.
Eli Lilly, reported that granting leave of absence to parents to take care of
children’s needs or family illnesses was facilitating the motivation and retention of more
dedicated, innovative, and productive workers. The same parental support is not found in small
or mid size business. On the contrary, workers that try to attend to the needs of their children
often find their promotion is jeopardized38.
The development of human capital requires close involvement of parents, especially
during the child's early years. This has been overlooked until recently by the information society
and consequently it has imposed additional social costs to society as a whole and has hampered
economic development. The introduction of innovative ways to facilitate making family
responsibilities compatible with work outside the home has increased worker performance,
productivity and profitability.
3. A side effect with great risks: An Aging Society
Human capital, as was previously mentioned, could not exist without people.
The
generation that grew during the 1960s and 1970s continually heard of the population explosion
and the global environmental crisis. By the 1980s all developed countries had undergone a
demographic transition in which the total fertility rate (average number of children per women
per lifetime) fell below replacement levels.
The decline in fertility follows an aging society. A growing proportion of the retired to
active population characterizes an aging society. Unlike other issues such as the effects of
population growth on the environment or resources, there can be little debate over if or when an
17
aging population will manifest itself. These predictions are not based on hypotheses but on facts.
This is the case for two reasons: First the population we are referring to are living people who
are already here, and whose average life expectancy has increased between 1950 and today from
46 to 66 years old today in less developed countries and to 70 in developed countries39. The
second reason is that the increase of life expectancy is happening while there is a reduction in the
number of young people because of the fall in fertility rates. The UN defines an aging society as
having 7% or more of the population at 65+ years. From 2000 to 2025, the number of people
above 65 will double while the number of youngsters under 15 will increase by 6% only. The
reversal of the age pyramid affects virtually all societies today, and more markedly affects the
industrialized countries. In Europe it is estimated that by 2025, 31.2% of the population will be
65+. In addition, the dependency ratio (typically defined as the percentage of the population aged
65+ over the percentage of the population aged 15-64) is expected to increase from an average of
50% in 1995, to an average of 85%-90% by the year 2050.
The causes of the aging of population are complex. Some factors are found in the living
conditions and socio-cultural changes which countries have faced in the past 30 years. The infant
mortality rate has decreased while the fertility rate (the number of children born to each woman)
has fallen below the replacement levels of 1.7 - 1 in the EU and East Asian countries. Moreover,
the marriage rate has declined in an environment that is hostile to matrimony; this is coupled
with a sharp increase in the mean age at which women first give birth. This phenomenon is
exacerbated by labor codes that do not facilitate women's desire to harmoniously integrate their
family life and professional activity. Some developed countries are trying to reverse the trend in
fertility rates by implementing policies that facilitate child-bearing through flexible hours
arrangements, work sharing, and alternative leaves of absence. These symptoms suggest that the
lack of supportive family policies in the past decades have not allowed families to have the
number of children they prefer.
Another important factor, especially in developed economies, is the widespread belief
that keeping a certain quality of life is more important than having several children.
People
assume that population control is a necessary antecedent to development. Ben Wattenberg, in his
book The Birth Dearth, has observed that "in the wealthiest age of history many youth say that
18
they cannot afford to have more than two children." Such a rationale holds that if there are fewer
children, better investments can be made for each one and greater savings will take place, thus
leading to an overall increase in the standard of living. Ironically, studies show that despite the
higher standard of living, wealthier populations experience a greater amount of pessimism. In an
age of many comforts, depression and a general loss of a sense of meaning in life (remarkably
manifested by youth violence and suicide) have increased.
Despite the sharp fall in fertility rates, overall savings are very low, and in those countries
where savings are positive, it tends to be highly concentrated. Many economists contend that
private saving rates are affected by a society's age structure, mirroring the change in an
individual's saving rate over the life cycle. This being the case, in an aging population context
one can expect even a greater deterioration of national saving rates. Heller (1997) estimates that
by 2010, Europe and East Asia will experience a near 10% decline of their GDP and 13% decline
by 2025. These numbers, however, are sensitive to the econometric estimates used and should be
taken as lower bounds; in fact, the deterioration might be greater.
In the face of this reality, governments and international organizations have become
concerned because implosion and the consequent aging population have serious consequences for
countries. One of the clearly predictable burdens will be presented by social security systems. A
smaller population will need to support an aging population that is less active and has a greater
need of healthcare and medical services. If one adds to this the fact that most social security
systems are predominantly of the pay-as-you-go type, the absence of younger generations
endangers the possibility of supporting the older population.
Many of the solutions proposed include tax increases of different forms. Other solutions
advanced include radical reforms of the retirement benefit systems such as tight limits on public
health spending, modest pension benefits formulas, and new personally owned savings programs
that allow future public benefits to shrink as a share of average wages. Of course, this requires
that governments undertake serious budgetary adjustments and find solutions that might not be
optimal to meet the needs of the elderly. However, there are other issues related to meeting the
needs of the elderly. Heller points out that "there are other concomitant effects of
epidemiological developments, changes in prevailing medical technologies, upgrading of
19
educational systems, and social pressures to provide broader social safety net coverage for elderly
persons living outside the formal urban sector. Each of these developments may result in
important national policy developments (...) [which] will create significant fiscal pressures.
Furthermore, the security of elderly retirement becomes ever more necessary as traditional
extended family support systems weaken.40"
Often overlooked are other economic burdens, such as the effect on the education of
youth and the competition between the younger and older people as the latter try to protect their
jobs while younger generations enter into reduced job markets. At times, people are forced to
retire from active employment, while they still have great inner resources and are still able to
contribute to the common good. Initially, the increase of early retirement as well as the reduction
of young people forming the labor force can seem to alleviate unemployment - especially in
European countries where unemployment has become a chronic problem. Later on, the reduction
of the labor force favors immigration. In fact, immigration has increased. It is calculated that
about 120 million persons -about 2% of the world's population- have emigrated to other
countries. An increase of urbanization is also expected. Since 1967, the number of people that
live in urban areas has increased by 40%, but this urbanization is often not accompanied by the
expansion of infrastructures needed, thus opening the way to poor and ill-equipped living
conditions.
In the area of education, one can predict another conflict. In order to provide for the
economic needs of the elderly, there is a great temptation to cut down on money allocated for the
training of new generations. Consequently, the transmission of cultural, scientific, technical,
artistic, moral and religious goods is endangered. This poses the danger of "moroseness," that is,
the lack of intellectual, economic, scientific, and social dynamism with the attendant reduction of
creativity. Population growth expands the market and facilitates creativity and dynamism.
Thus an important question arises as to whether it is possible to maintain economic
growth with implosion. Some economists argue that economic growth can be sustained even
under a declining population, if it is supported by an endogenously induced technological
progress in the market (i.e., if tightening labor-market conditions stimulate better utilization of
resources.)
The rationale is that accumulation of human capital and decline in the labor force
20
would raise real wages faster than societies are aging. It would also increase the return from
utilizing human capital and would thereby stimulate innovation. This line of argument ignores
precisely the last two problems mentioned. Thus, Malthus and his followers are mistaken on
both the demand and the supply side: on the demand side, because population does not follow a
geometric growth as Malthus predicted and on the supply side, because the resources are not
easily extinguished since they are created and expanded by the people who are born, live, and
work.
In summary, population growth expands markets and facilitates creativity and dynamism.
It is impossible to maintain economic growth with population implosion and the need to support
an aging population. Population control policies more than facilitating economic development
hampers it in several ways.
It weakens the family structure, which in turn leads to the
povertization of women and children as well as to the reduction of human capital. Both of these
elements are essential for a lasting real economic development. It also inverts the population
pyramid leading to an aging population problem and to the countries' public finances burden that
follows.
IV. Towards the Protection of the Family: An Economic Sound Choice
The breakdown of the family social cost has been very high. Figure 5 shows social
welfare cost as a percentage of GDP between 1972 and 1998 of major developed countries. It is
clear that for all countries, the family breakdown has been accompanied by a significantly
increase of social welfare costs during the 1970s which continued until 1992. At this time, the
social welfare cost rate of growth slowed down with the exception of Germany. The anomaly
observed in 1992 for this country, corresponds to its unification and thus is not very significant.
It is interesting to consider that the combination of social security plus family and health
welfare expenditures for developed countries were on the order of $1,216 billion dollars for the
US, $354 billion for France, $258 billion for the UK, and $266 billion for Germany in 1996.
These numbers are bigger than any of the less developed countries foreign debt. For example, US
expenditures are seven times the debt of Brazil, the largest debtor, and in 1996 it was 20% bigger
than Brazil's GDP. By contrast, if we take Nigeria as an example of a Sub-Sahara country, we
21
Figure 5
Social Welfare Government Expenditures
35
Social Government
Expenditure/GDP
30
25
20
15
10
5
US
Germany
1980
1989
France
UK
Sweden
0
1972
1992
1995
Year
1996
1997
1998
Sources: World Development Report, 1991, 1994, and 1998. The World Bank
find that US social welfare expenditures in 1996 were 40 times Nigeria's foreign debt and about
10 times its GDP. Even UK social welfare expenditures, which are the lowest of all the countries
included in figure 5, were 8.6 times Nigeria's debt and double its GDP for the same year. These
numbers underlined why it is very important for developing countries to protect its family and its
population.
Their present economic situation does not allow for the same mistakes that
developed countries made and now are trying to repair. If these countries are to experience real
economic growth, both their family and their population ought to be protected from its
breakdown and its implosion respectively.
Developed countries seem to be realizing the
consequences that the breakdown of the family has had in their society. Therefore they are
seeking out policies that will help reverse this trend. They seem to know that redistribution of
income towards the victims of such disruption is not enough. Great Britain for example, in the
report entitled Supporting Families, has advanced a proposal to create an Institute for Family and
Parenthood to advise parents in matters regarding the education of children. It also proposes the
elimination of 24 hour-noticed civil marriages and the introduction of preparatory classes so as to
encourage couples to become aware of their right and duties in marriage.
France in the last year has also shown a significant shift in family policies, which are
directed, to reinforcing family supports. For example and among others, as of 1999, once again
22
all families with at least two children receive family subsidies independently of their income
level. The family subsidies had been cut in 1997 for high-income families. It also extends childsupport to parents to 19 years old or 20 if the dependent is a student, and it expands credits and
subsidies for family housing. Holland and the United States have introduced as a labor right,
parental leave for family needs, thus giving rise to ‘family days’ benefits. The goal is to facilitate
parents meeting their family, as well as their work, obligations. Child-care has been the focus of
some family policies. The extent of this last benefit varies from country to country. Germany
provides 100% coverage while Finland and Sweden cover between 80 and 90%.
In summary, we can say that industrialized economies have experience significant
increases in welfare cost expenditures as their family institution has undergone a serious crisis.
As a consequence new efforts are being taken to reverse this effect and reinforce this basic unit
of society.
V. Conclusion
A family’s consumption needs give rise to economic activity. In educating its children it
influences what is produced in the economy. As the members of these families contribute to the
economy, private property and other institutions and services such as health services, housing,
education, social securities, national security, etc, develop so as to complement and meet the
needs of these families. If we are to understand any economic issue the way in which the given
issue affects the family as a whole or a given member of it, must be evaluated carefully. For this
is directly and indirectly the most important reason for economic activity: the good of the family.
We cannot forget that any task carried out for mainly selfish motives (i.e., individualistic) still
cannot be obtained without someone else serving that economic agent or institution. In this case
"someone" is being used. This utilitarian approach eventually destroys the motivation to work
and, thus affects directly or indirectly the family.
The disruption of the family has had serious and high social welfare costs for societies, as
we have seen occur in developed countries. Furthermore, the size of such costs indicate that
were this to happen in less developed countries, these group of countries would not be able to
afford them. It would, instead further hamper their efforts to develop. In addition, population
23
control policies as those being implemented in developed countries do not contribute to their real
economic development but on the contrary, it contributes to the deterioration of the family. The
results therefore suggest by contrast, that when family is considered as a fundamental good and
defended, sound economic policy is developed and real economic growth is possible. This is so
because a well functioning family is essential for economic activity.
It is important at the same time, to keep in mind that macroeconomic policy making (such
as health care, taxes, minimum wage, population policies, etc.), although important because of the
extent of its impact, is not the only aspect to be considered in economic activity. Policies at state
and local levels, such as education programs, sanitation, property taxes, sale taxes, and at the
private corporation level, such as maternity leave, stock share, flexible hours, family benefits, etc.,
are extremely important as well and, many times are more sensitive to individual family decision
making.
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ENDNOTES
1. Fukuyama (1999), p.4.
2
. Becker (1991), p. 55.
3
. These numbers have been obtained from the Economic Report of the President of 1999 and Handbook of
International Economic Statistics of 1991 and 1998.
4
. Statistical Abstract of the United Sates (1998).
5. Ibid. 3.
6. ibid 3.
7. McLanahan and Sanderfur (1994).
8. U.S. Department of Health and Human Services (1995).
9. Jones (1986).
10. McLanahan and Sanderfur (1994).
11. Wallerstein (1993) and Popenoe, (1996) provide a review and analysis of this evidence.
12
. See Putman (1995), Garasky (1995), and Grissmer et all (1994) for views on this matter.
13
. See Wolff (1998).
14
. Farley (1995) presents detailed data.
15
. This realization varies from country to country however. Some countries such as Australia, do not refer to
marriage per see, but to the stability of couples in general, others make clear the differentiation between marriage
and other unions, supporting clearly the first one. I am grateful to Wade Horn for bringing this point to my attention.
16
. See Fukuyama (1999) for an analysis and review of the literature on this subject.
17
. See Aaron and Mann (1994) for a review of this position and some empirical support.
18
. Rosenzweig and Wolpin (1994).
19
. For a description of the welfare reform measure see Black (1996).
20
. See Becker (1997).
21
. Murray (1993) and Moffitt (1990) present interesting evidence.
22
. Ehrenreich(1993), Friedan (1963), and Green (1989) are some examples of this position.
23
. Waldfogel (1998).
24
. U.S. Department of Health and Human Services (1995), p.72.
25
. It is interesting to notice that the very same Malthus had warned of this danger. In his 1824 essay he states:
"Moral restraint, in application to the present subject, may be defined to be abstinence from marriage, either for a
time or permanently, from prudential considerations, with a strictly moral conduct towards sex in the interval. And
this is the only mode of keeping population on a level with the means of subsistence which is perfectly consistent
with virtue and happiness. All other checks, whether of the preventive or the positive kind, though they greatly vary
in degree, resolve themselves into some form of vice or misery. (p.38)"
26
. Becker (1991).
27
. For an example of this view see the early works of Becker and Lundberg and Pollak (1996).
28
. Becher (1991).
29
. Becker and Landes (1977).
30
. Aceprensa (1995).
31
. Alvarez (1996) points out five key areas that firms need to address to help women overcome the tension between
family and professional life. These are: a. Maternity leaves and benefits. b. Flexibility, which will allow to address
varied family circumstances which often contrast the rigidity of the corporate organization. Most corporate jobs are
set in terms of fixed schedules and place of work. A mother of a family often needs flexibility in these two fronts. c.
Other family supports such as childcare, elderly assistance, moving expenses, direct or indirect subsidies for
housing, etc. d. Alternative models to the linear professional carrier and e. Mentoring in the area of professional
development.
28
32
. See Halcrow (1986) and Marler and Enz (1993) for more details on these initiatives.
. Schwartz and Stevenson (1990).
34
. After this report, a debate originated. As the original Coleman report noted, if researches do not control for
family background, then, when analyzing a data set in which children from wealthier families attend schools with
smaller class size and better-paid teachers, the results will find a positive correlation between student outcomes and
school resources. But this correlation might simply mean that students from better families are primed to do better in
school. Conversely, the extent to which students from poor families are more likely to be assigned to remedial
schools with higher resources per students supports the result that, with greater school resources, reduced students
outcomes will be found. A good review of the first debate is contained in Hanushek (1986). Hedges, Line,
Greenwald (1994), Datcher-Loury (1988), and Card and Krueger (1992) present some reviews of the opposing side
of the discussion.
35
. Fuerst and Petty (1996), US Department of Education (1994, 1996), and Grissmer et al (1994) are some studies
dealing with these factors.
36
. Bethke (1995).
37
. Blum (1997).
38
. The Economist, 1998.
39. The data has been taken from 6 Tousand Million. Is time to Contribute, a UN Report published with the
Occasion of the 6 billion people mark to be celebrated on October 12, 1999 and the 1998 Human Development
Report published by the United Nations Fund for Population Activities (UNFPA).
40
. Heller (1997), p. 15.
33
29