Tuesday, 12 July 2011

Births during crisis : Greece and other cases

I had rambled about the Greek crisis and its effect on demographics in an older post. My views on that remain the same.

Available data for births in Greece run up to 2009 so we don’t know yet what happened in 2010. 

source: statistics.gr

As you can see in the chart, after 2000 or so the number of births had started to edge upwards. In 2009 when the international crisis became more than visible, that upward movement was halted. In my humble opinion the overall number of births will keep declining for some time.

My reasoning is simple. People in Greece are used to a certain standard of living which on aggregate was rather high. The crisis is changing that and the worst in that respect are yet to come. With unemployment in an explosive upward path and real disposable income in an abysmal downward path, the standard of living of Greek people is plummeting. No one knows when the bottom will be reached since things are really volatile both economic/financially and socially. In such a low-visibility environment people can’t form some kind of expectations about what’s next and can’t start mapping out the rest of their lives, so household formation and births should, in my humble opinion, be declining fast.

Until, things stabilize and people get used to the new normal and some sort of light at the end of the tunnel becomes visible, the number of births will probably not start rising again.

It is true that in low income countries the number of births is higher and are not declining because of the economic situation. There is a clear difference between the two situations, people there are considering this situation as normal and have not experienced an abrupt drop in their disposable income. If you rise high and then fall back down then the fall and subsequent reality that you have to live in is far more painful than if you had remained down low without rising.

I know that all these sound pretty theoretical and behavioural so here are some examples of the evolution of births in countries that experienced sharp drops in employment and disposable incomes.

source: Czech Statistical Office

Here’s the evolution of births in Czech Republic. After the communist state crumbled, the uncertainty and the fact that people had to adjust to a totally different reality than what they considered normal for a long time, caused the number of births to fall sharply. As unemployment started falling and disposable income rising, births rebounded, to start falling slightly again since the onset of the present crisis. 

Let’s have a look at neighbouring Slovak Republic. The narrative’s the same really so here’s the chart.

source: Statistical Office of the Slovak Republic

Another former communist country that experienced a spectacular drop in births after the fall of communism is Latvia. When unemployment started falling and disposable income rising again births started rising as well until the crisis set in. Fast forward to 2008. Latvia was hit particularly hard from the crisis and enacted draconian austerity measures, the result? Annual births fell to the level that they were before they resumed their upward movement right before the 00s.

source: Latijas Statistika

Finally let’s take a look at Iceland. 

source: Statistics Iceland

For the first time since 2002 births fell in 2010, after the country fell into a particularly deep recession in 2009, the result of a property bubble bursting and the country’s banking system going bust. This could as well be a one-off event but keep in mind that there are heavy negative net migration flows out of Iceland which could very well reduce the young population of the country. It seems (to me) more than possible that household formation and births could keep declining with it. Not only are Icelanders leaving Iceland again but also foreign immigrants are leaving Iceland too. Maybe the large immigration inflows that Iceland experienced during the 00s was the main reason that births rose for the whole decade.

If you want to see some proof of the relationship between disposable income and births here is a simple regression for Czech Republic.

source: Czech Statistical Office, own calculations

All in all, a fall in household formation and births could have both short-term and medium/long term consequences for a country. In the short-term end of the spectrum a select few of these consequences could include a fall in demand for consumer durables and housing along with a fall in potential households’ consumption. In the long-term, it could mean additional strain for a country’s pension system, a fall in the savings rate, potential geopolitical implications along with the short-term consequences magnified, etc.

All the above bear obvious implications for Greece. In my book Greece is in for a serious decline in births, but let’s see what actually happens…

P.S. I  couldn't find annual births data for Slovak Republic, so I don't know whether they are declining or not during the crisis. One thing about the crude birth rate is that it captures changes in raw births data with a lag or one could say that it is slower to react to these changes.

P.S.2. A friend from twitter pointed out that the total fertility rate for Iceland also rose during the 2002-2010 period, so it would very well be that all Icelanders were having more children. Me claiming that immigrants were responsible for the increased births was not based on statistical facts, it was just a personal guess. The total fertility rate is an aggregate measure so one can't discern where the bout of increased births comes from. My reasoning was based on the fact that immigration rose sharply during the same time.

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