Wednesday, August 30, 2006

Less kids = economic growth?

This may be too early in the year for you guys to talk intelligently about the determinants of economic growth since we have not studied any Macroeconomics, but you can take a stab at it anyway:

On his blog, Economist Tyler Cowen summarizes a debate about whether the strong economic growth that Ireland has been experiencing is due to its "youth dependency ratio" being low. This means that there are less children per each working adult (therefore, there are less children that must be supported). Dr. Cowen explains the reasons why the youth dependency ratio might have an effect on economic growth here.

Also, here is the original article by Malcolm Gladwell in the New Yorker that started the debate, which might give a less techincal explanation and may be a better place to start..

(Source: Marginal Revolution)


Anonymous said...

Well i'm not sure if what i'm about to say is correct or valid, but here goes nothing...

After the 1970's in Ireland there was large fallout in birthrate. Therefore, the government didn't have to spend as much money on education or the raising of this newer generation (90's) because of the population decrease(Women had fewer kids after the 70's creating a smaller 90's generation). Therefore, the government could allocate more of its resources and time to the overall production of everything else. Because there were fewer kids at home, both parents could work and double the income of the family alone, while "the elder child [was] old enough to take care of [their] little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off" (Gladwell).

The above paragraph shows why the youth dependency ratio has everything to do with Ireland's sudden economic growth; however, the problem that faces the country is how will they encounter and deal with the upcoming recession that is bound to happen when you have such a high dependency ratio? When the new generation grows up how will they achieve nearly the amount of production that their parents attained? As Gladwell says, "if your economy benefits by having a big bulge of working-age people, then your economy will have a harder time of it when that bulge generation retires, and there are relatively few workers to take their place."

Ireland may be safe and prosperous now but how will the future bode for this old generation dependent work force?

-john schmidt

Anonymous said...

The growth in Ireland due to there being less kids only accounts for about 15-20% of the total economic growth as estimated by Tyler Cowan. And although this is a lot, it should be taken into account that many other factors led to this growth. First Ireland joined the European Union and then opened its markets for trade which it hadn't been done in its modern history. Also it invested more into its economy and into its education program. The education program is what struck me as being most relevent to the topic. First let me add that since contraception had just been legalized there would obviously be a decrease in the amount of children. In fact the amount of children per Irish women halved. This coupled with the better education system allowed Ireland to produce more productive workers, and mothers that weren't always tied to their families. I think that in Ireland's case they played all their cards at the right time. If they had just stopped having kids and done nothing else their economy would only be marginally better.

This helps to answer the question that John posed at the end of his post. Ireland isn't likely to halve its number of children again so this type of economic growth is limited to once in many generations. In any case Ireland made the right move entering the world market which ultimately made them a new economic power in Europe.

-james c

Anonymous said...

I agree that the economic growth Ireland is experiencing is due in part to the low ‘youth dependency ratio”. There are now a greater number of workers there since the number of children born has been halved. More women have entered the work force. Since there are fewer children, there are less people that have to be supported and less money spent on dependents. Women tend to work more because of extra spare time. People are better educated with more time and money available for education. In Ireland, there used to be only fourteen working people for every ten dependant people that are too old or too young to work. Now, there are twenty-two working people for every ten dependant people. With fewer dependents, wage earners are probably spending more money on themselves which fuels the economy. I agree with John and James that presently Ireland is just seeing the benefits of this low working to dependant people ration, but in the future the large number of working people will retire and the smaller generation will have to now support them. So yes, for now, less kids = economic growth.

Anonymous said...

^ Kate C.