American Economic Association

Children as Public Goods

Author(s): Nancy Folbre
Source: The American Economic Review, Vol. 84, No. 2, Papers and Proceedings of the
Hundred and Sixth Annual Meeting of the American Economic Association (May, 1994), pp.
86-90
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2117807
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 Children as Public Goods

By NANCY FOLBRE *

Children tumble out of every category work based on individual optimization. This
economists try to put them in. They have framework treats familial altruism, like other
been described as consumer durables pro- tastes and preferences, as exogenously given
viding a flow of utility to their parents, and focuses on household responses to
investment goods providing income, and changes in prices and incomes. Altruism is
public goods with both positive and negative considered rare outside the family, where
externalities. Children are also people, with self-interest undermines the potential for
certain rights to life, liberty, and the pursuit collective action (Gary Becker, 1991).
of happiness. An alternative approach, influenced by
However we categorize children, we know feminist theory, places more emphasis on
that the consequences of raising them are self-interest within the home, and group
changing. Economic development tends to solidarity outside it. Individuals often en-
increase their costs to parents in general, gage in forms of collective action that shape
and mothers in particular. Yet the growth the social institutions that govern the distri-
of transfer payments and taxation of future bution of the costs of children (Folbre,
generations "socialize" many of the benefits 1994). The effects are visible not only in the
of children. All citizens of the United States history of family property rights and law,
enjoy significant claims upon the earnings of but also in public policies with disparate
future working-age adults through Social impacts on old and young, men and women
Security and public debt. But not all citizens (as well as upon groups defined by nation,
contribute equally to the care of these fu- race, and class).
ture adults. Individuals who devote rela- Considerable evidence suggests that par-
tively little time or energy to child-rearing ents in the now-developed countries once
are free-riding on parental labor. enjoyed important economic benefits from
Parents who derive sufficiently high non- child-rearing, not only because children be-
pecuniary benefits from their children may gan to work at an early age, but also be-
not care. Increases in the private costs of cause parental control over assets such as
raising children, however, are exerting family farms gave them leverage over adult
tremendous economic pressure on parents, children. Restrictions on women's ability to
particularly mothers. Economists need to support themselves outside of marriage low-
analyze the contributions of nonmarket la- ered the opportunity costs of children and
bor to the development of human capital: as limited women's ability to exercise repro-
children become increasingly public goods, ductive choice. Similar factors contribute to
parenting becomes an increasingly public high fertility in many developing countries
service. today (John Caldwell, 1982).
The growth of markets for labor, as well
I. Economic Development and the Costs as increased geographic mobility, has weak-
of Children ened patriarchal property rights, raised the
cost of children, and increased women's
Much of the economic literature on fami- economic independence. The imposition of
lies is couched within a neoclassical frame- mandatory education and laws restricting
child labor has improved children's future
productivity but has imposed new costs on
parents. Education has become an increas-
* Department of Economics, University of Mas-
sachnuetts. Amherst MA f10fl0
ingly important determinant of children's
86

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VOL. 84 NO. 2 THE ECONOMIC SUPPORT OF CHILD-RAISING 87
future earnings. In the long run, all these
factors have encouraged fertility decline.
However, people do not respond instantly
or effortlessly to increases in the cost of
children, which are often difficult to antici-
pate. Furthermore, the motives for raising
children are mediated by values, norms, and
preferences that are resistant to change. As
a result, many families with young children
experience prolonged forms of economic
stress that result in increased susceptibility
to poverty and weakened ability to care for
their dependent members.
The growth of labor markets and geo-
graphic mobility lowers the cost of default-
ing on the implicit contracts of family life.
Towards the end of the 19th century, policy-
makers in both northwestern Europe and
the United States expressed fears that adult
children were taking less responsibility for
the care of their elderly parents. Such fears
provided part of the rationale for the collec-
tive provision of public old-age insurance.
Increases in the cost of children have also
been associated with trends that shift a
greater share of the cost to mothers, such as
new child-custody laws, growth in the pro-
portion of families maintained by women
alone, and poor enforcement of fathers'
child-support responsibilities (Folbre, 1994).
Recognition of the growing economic vul-
nerability of single mothers played an im-
portant role in the development of public
assistance programs in the early 20th
century.
However, public policies have provided
far greater benefits to the elderly than to
mothers and children on their own, particu-
larly in the United States. Social Security
expenditures dramatically reduced poverty
among elderly men and married couples.
Through the end of the 1980's, retirees in
this country received between two and four
times as much from Social Security as they
could have if they had placed their tax con-
tributions in a high-yielding private pension
(Sylvia Ann Hewlett, 1991 p. 140).
Since 1960, public expenditures on adults
have risen far more rapidly than expendi-
tures on children (Victor Fuchs and Diane
Reklis, 1992 p. 3). Both poor child-support
enforcement and the declining adequacy of
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public transfers have contributed to an in-
creased incidence of poverty. Income in-
equality is extreme: among African-Ameri-
can and Latino children in the United
States, the poverty rate is over 40 percent.
Even in northwestern Europe, with more
generous family-support programs, single
mothers and their children remain more
vulnerable to poverty than any other group
(Timothy Smeeding et al., 1988).
In short, public policies have reinforced
and perhaps even augmented income flows
from the young to the old, giving the elderly
formal claims upon the earnings of the
younger generation. At the same time, the
share of fathers' income transferred to
mothers and children has declined, partly as
a result of the growth of families main-
tained by women alone.
II. Public Finance and Unpaid Labor
The public economy of the state is often
conceptualized in terms analogous to the
private economy of the family. Therefore, it
is hardly surprising that most theories of
public finance assume either perfect self-
ishness or perfect altruism and understate
the potential for collective conflict along
lines of age, gender, race, and class. This
problem is exacerbated by a tendency to
underestimate the value of unpaid labor
and a reluctance to consider the incentive
effects of unequal opportunity.
The assumptions of intergenerational al-
truism, formalized by Paul Samuelson (1956)
and Robert Barro (1974), have recently been
challenged by evidence of rent-seeking by
the elderly as a group (Samuel Preston,
1984). Also at stake is the relationship be-
tween present and future generations. If
current fiscal policies persist, the lifetime
net tax burdens of future generations
will likely be about 21-percent larger than
those of young Americans today (Laurence
Kotlikoff, 1992 p. 29).
Those who benefit from children's future
income do so partly at the expense of pre-
sent-day parents. Reduction in children's
future disposable income may lower future
transfers from children to parents, elicit
compensating transfers from parents to chil-
88 AEA PAPERS AND
dren, or lower parents' welfare by lowering
children's welfare. Moreover, there is no
reason to assume that parents are equally
affected: mothers often invest more time,
energy, and affection in their children than
do fathers.
The direction and extent of intergenera-
tional transfers are shaped by many factors
other than public transfers and debt, such
as the composition of investment, the struc-
ture of taxation, and the extent of environ-
mental degradation. Also relevant are pri-
vate parental inputs into children (including
time, expenditures, and bequests) and the
value of "social capital" (the benefits of
living in a safe, healthy community). Class
and race inequalities greatly complicate in-
tergenerational transfers: children from af-
fluent families are far more likely to enjoy
net transfers over their lifetime than are
children from poor families.
Inputs of parental labor are crucial. Yet
estimates of the value of nonmarket work
lump child care in with other tasks and
value it at close to minimum wage (Robert
Eisner, 1989). Recent studies of the accu-
mulation of human capital define it entire-
ly in terms of formal schooling (Dale
Jorgenson and Barbara Fraumeni, 1989).
Official definitions of the poverty line ignore Enormous criticism has been directed to-
nonmarket labor, with perverse results such
as failing to consider the cost of a paid
substitute for a single mother's time when
she works outside the home (Trudi Renwick
and Barbara Bergmann, 1993).
Many economists seem to believe that
time and energy devoted to children reflect
an exogenously given preference that pro-
vides a compensating differential for costs
incurred. For instance, Becker (1991 p. 375)
suggests that divorced fathers pay little child course, the assumption is that social insur-
support because they have less contact with
their children and therefore derive less
pleasure from them. Similarly, Fuchs (1988)
argues that women are more susceptible
than men to poverty because they derive
more utility from children and are therefore
more likely to assume responsibility for
them.
However, parents act out of a moral com-
mitment and sense of responsibility as well
as altruistic feelings toward their offspring. away from family commitments. Many
When an infant cries in the middle of the
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PROCEEDINGS MAY 1994
night, why does a mother drag herself out of
bed to feed it? If she doesn't act from
altruism alone, then the utility gains from
children don't fully "compensate" her for
the costs she pays (Julie Nelson, 1992).
Both moral commitments and social
norms are subject to erosion as the price of
satisfying them increases, and even altruistic
preferences may be endogenous. In the long
run, failure to remunerate commitments to
parental labor may weaken the values,
norms, and preferences that supply it. Most
economists ridicule the utopian socialist vi-
sion of a society based entirely on altruism.
Is a utopian vision of a family sustained by
love alone any more realistic?
However significant the disincentives now
facing prospective parents, they may exert
less influence than disincentives imposed on
children who lack anything resembling equal
access to education and income. Large per
capita differences in public educational in-
vestments, social capital, and parental
transfers result in very different rates of
return to individual children's efforts to de-
velop their own capacities. Those who per-
ceive a very poor chance of success have
less incentive to try hard and greater incen-
tive to subvert the rules.
ward social programs aimed at indigent
families. Yet the Social Security system
transfers almost as much money to children
of dead or disabled workers as the AFDC
program to children of divorced or deserted
mothers (Social Security Administration,
1992 p. 57). Average survivors' and disabil-
ity benefits are more than 2.3 times higher
than average AFDC benefits; no work re-
quirements or time limits are imposed. Of
ance against death or disability is unlikely to
prompt individuals to murder or maim a
spouse, while social insurance against deser-
tion or divorce may create perverse incen-
tives.
While this may be true to some extent,
the incidence of desertion and divorce has
increased rapidly among all families, partly
because men's values and preferences seem
to have shifted more rapidly than women's
mothers are just as powerless to avoid de-
VOL. 84 NO. 2 THE ECONOMIC SUPPORT OF CHILD-RAISING 89
sertion or divorce as to avoid the death or
disability of their childrens' father. Children
are certainly not to blame.
Public transfers to children are extremely
unequal, as well as small. And public policy
literally transfers resources from parents to
nonparents by providing social insurance
based on participation in paid employment
without explicitly valuing time, effort, or
money devoted to children. In an economy
increasingly based on individual careers,
parenthood seems to promise moral and
cultural rewards but no economic rewards.
III. New Directions for Family Policy
Family policy has important macroeco-
nomic implications. In fiscal terms, children
represent a positive externality. There are
good reasons to believe that we are cur-
rently underinvesting in human capital as
well as flouting our collective moral obliga-
tion for children's welfare.
Those who believe that commitments to
children can be efficiently sustained by pure
parental (or maternal) altruism may simply
call for the reinforcement of traditional
family values (particularly for women).
Those with less confidence in altruism may
put their faith in immigration: the United
States can probably rely on imports of skilled
labor from other countries, thus exporting
the problem of nonsupport for family labor.
The simplest though most extreme way to
remove the externality would be to elimi-
nate all taxation of future generations, out
lawing all debt-financing as well as pay-as-
you-go social-security funding. While non-
parents would no longer be able to bene-
fit from unpaid parental labor, this would
impose stringent and inefficient limits on
macroeconomic and social policy.
Another alternative would be "re-privati-
zation" of the economic benefits of chil-
dren. Shirley Burggraf (1993) proposes
converting Social Security to a parents'
dividend. Deductions from workers' pay-
checks could be sent to parents, rather than
to the older generation as a whole. This
would provide less income security, but
would certainly reward parental labor.
The form of the reward, however, might
encourage parents to treat their children in
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instrumental terms. In the United States, as
well as in other countries, parental control
over adult children's income has been asso-
ciated with child abuse, forced marriages,
and a preference for male children (who
tend to earn more). Such personal forms of
control are inconsistent with liberal princi-
ples of individual autonomy and modern
family values. Furthermore, re-privatization
ignores the issue of equal opportunity for
children.
The same objections apply to a proposal
by James Coleman (1993) for an even more
incentive-based system, designed less to re-
munerate parents than to encourage greater
private investments in children: the state
would pay a "bounty" to anyone who in-
creased children's contributions to society
beyond their expected level. It is not clear
what incentives children would have to take
responsibility for themselves, particularly if
their parents or communities lack the re-
sources necessary to invest in them.
The best alternative is to promote more
equal distribution of the costs of children
as well as more equal opportunity for chil-
dren themselves. Improved child-support
enforcement would help, as would in-
creased public subsidies for child care. But
however necessary, these are not sufficient.
Parents should be compensated for their
efforts through a greater tax exemption or
credit for raising children. And families with
children should be guaranteed the means to
obtain a minimum income above the poverty
line.
While there are good reasons to encour-
age all capable adults to engage in job train-
ing or paid employment, it is important to
remember that nonmarket work is still work.
In fact, it is probably the most important
work we do.
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