Does it make sense to pay people to have kids?

Across Europe, birth rates are dropping. Some countries are introducing financial measures to fight the phenomenon – but can money alone make a difference?

Since 2013, every new-born baby in Lestijärvi, one of the smallest municipalities in Finland, has been ‘worth’ €10,000.

That’s when Lestijärvi’s administrators decided to fight back against the declining birth rate and shrinking population in the village, in which only one child had been born the previous year. The municipality introduced an incentive called the ‘baby bonus’: any resident who gave birth would be entitled to €10,000, paid over 10 years.

It’s taken off: nearly 60 children have since been born in the municipality. Compared to the prior seven years in which only 38 children were born, the new babies are a big boost to this village of fewer than 800 people.

Baby bonus recipients Jukka-Pekka Tuikka, 50, and his wife Janika, 48, work as entrepreneurs in the agricultural industry. Their second daughter, Janette, was born in 2013, just in time to earn herself a playful nickname: ‘ten-thousand-euro girl’.

“We had been planning a second child for some time and were getting older,” Tuikka explains, “so I can’t say that money really influenced our decision to have a baby.” Still, Tuikka considers the incentive an important measure which shows that local leaders are interested in offering a helping hand to families. Tuikka has saved most of the €6,000 his family has received so far, and plans to use it in a way that benefits them all in the future.

Video by Tom Bateman.

Now several other Finnish municipalities have also introduced baby bonuses ranging from a couple of hundred euros to €10,000.

Still, despite these local incentives, Finland’s national birth rate is struggling. As in many other European countries, it has decreased significantly in the last decade: in 2018, it hit a record low of 1.4 children per woman, compared to the ‘replacement rate’ of 2.1. Ten years before that, it stood at 1.85.

Finland does have many strong family benefit programmes – among them the world-famous baby-box starter kit for expecting families, a monthly child benefit of around €100 per child and shared parental leave that lasts up to nine months with 70% of salary paid.

But even though it spends more public money on family benefits than the EU average, Ritva Nätkin, a lecturer in social sciences at Tampere University, believes that family policies lag behind the other Nordic countries, such as Sweden with its more generous parental leave. She cites financial provisions like child benefit and child home-care allowance that have either lost value because they haven’t increased or been cut, as well as economic and climate uncertainty, as reasons behind the declining birth rate.

So is Lestijärvi’s policy of paying new parents an effective way to get the birth rate booming? Nätkin says that strengthening financial incentives for families would probably help raise birth rates to some extent. However, it is unlikely that financial inducements alone would start a baby boom, she says, particularly because people’s attitudes to having children at all have changed over time.

In Lestijärvi, Tuikka believes the stipend has had a positive impact on some residents’ decisions to have children – but he also doubts whether the measure alone would make people reproduce. “More importantly, it has attracted families to stay in the village instead of moving away,” he says.

The ‘third-baby boom’

The picture is somewhat different across the Gulf of Finland, where the Baltic nation of Estonia has managed to boost its birth rate during the last decade and a half.

The upturn can at least to some extent be attributed to government decisions to invest in family policies, mostly in the form of increased financial support for large families.

In addition to the generous family leave policy introduced in 2004 – which provides a year and a half of fully paid benefits – in 2017 the country launched a monthly child benefit: €60 for the first child, €60 for the second and €100 for the third child. The state also rewards families for having three or more children: they receive a monthly bonus of €300 euros. In total an Estonian family with three children receives €520 euros per month in family benefits.

Considering Estonia’s relatively affordable cost of living and low average income, these benefits certainly represent generous financial help. And the programmes seem to have worked – the birth rate has increased from 1.32 in the early 2000s to 1.67 in 2018 – albeit with small declines in the early 2010s.

Allan Puur, a professor of demography at Tallinn University, confirms that the financial incentives seem to have had a positive impact. He particularly highlights the 2017 incentive, which led to what is being called a small-scale ‘third-baby boom’.

But, again, there’s more to the story. Puur also cites improved access to affordable public day-care facilities and Estonia’s relatively stable economic growth as factors which may have influenced the birth rate positively. “Fertility is often pro-cyclical, meaning that birth rates tend to increase when economic opportunities are good and vice versa,” he says.

In other words, financial incentives provide the foundation to keep birth rates climbing – but more general economic factors play a substantial role, too.

Laurent Toulemon, senior researcher at the French Institute for Demographic Studies, thinks that attitudes around families matter, too. In France citizens know that the state loves families and trust that the government will help them financially, he says. Although the birth rate has dropped slightly over the last four years, France still has the highest birth rate in the EU, up at 1.84 in 2018.

France is known for its stable pro-natalist policies and for spending more public money on families than any other OECD country. It provides multiple types of benefits and allowances including a ‘birth grant’ of around €950, followed by monthly child benefit and diverse family allowances. Many of them increase with the number of children. French families also receive income tax reductions and state-subsidised day-care.

Still, Toulemon is reluctant to call financial incentives the reason behind France’s high birth rate. There are other factors that may also play a big role, such as the strong, positive French sentiment towards starting a family and against childlessness and single-child families, he says.

Money, and then some

Yes, money seems to help – but spurring a meaningful increase in birth rates is more a matter of a complex combination of social attitudes, pro-family policies and financial support, too.

An interesting case study in Italy shows how this ‘perfect storm’ of factors can make a difference. In Italy the birth rate has been low for decades and in decline for years. In 2018 it hit a new record low at around 1.3. But there’s one Italian province that bucks the trend: Bolzano, situated on the border with Switzerland and Austria, has a birth rate of 1.67 – higher than the EU average of 1.60.

The province, also known as South Tyrol, has autonomous status and more freedom to set its own policies. Family policies are more generous than elsewhere in Italy and families receive more financial support. The monthly child benefit is around €200 euros – more than double the national level. There are also special subsidies for those with low incomes.

But Bolzano also beats many other cities in Italy for family-friendly services such as childcare, explains Mirco Tonin, a professor of economic policy at the Free University of Bolzano. Elsewhere in Italy, grandparents are often responsible for looking after young children, but in Bolzano it is easier to find local childcare facilities. 

Stronger financial support to families is helpful, Tonin says, but he thinks that the key to Bolzano’s higher birth rate is women’s labour market participation. In Bolzano, 73% of women aged 20 to 64 work, compared to a figure of 53% for Italy, where conservative attitudes about gender roles remain in southern areas. Employers in Bolzano (including a large public sector) offer flexible working hours as well as part-time and remote work, he adds, making it easier for women to combine motherhood and work.

Bolzano is an interesting case study that shows that increasing birth rates doesn’t have an easy solution, but rather a holistic one. As Europe’s population continues to fall, many small villages and big cities alike will continue to try to implement programmes to bolster their birth rates. But it’s not all about the money after all. Data from experts and citizens alike suggests that getting people to procreate is a complex matter that won’t simply be solved with a cheque alone.