Re-Linking Fertility Behavior and Economic Security in Old Age: A Pronatalist Reform

This note discusses the case for and outlines the broad contours of an institutional innovation that developed countries might wish to consider if they are confronted with the prospect of sustained below-replacement level fertility. The proposed institutional reform stays within the frame of reference of the armamentarium of pronatalist policies now applied or contemplated in highly developed countries with below-replacement fertility insofar as it relies upon harnessing material incentives to induce an increase in aggregate parental propensity to have children. The reform however breaks away from the focus of the familiar pronatalist policy package on modifying the current or near-term economic status of families. Its objective instead is to reestablish the direct relationship that existed between individual fertility behavior and individual prospects for old-age economic security before modern economic advances and concomitant cultural changes decisively weakened that linkage. To achieve that objective the reform would earmark a socially agreed-upon fraction of the compulsory contribution from earnings that flows into the common pool from which pay-as-you-go national social security schemes are now financed and transfer that fraction to individual contributors live parents as an additional entitlement. The rules governing the distribution of receipts from the common pool would not be affected by this transfer.