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The Old Age Security Hypothesis and Population Growth


  • Robert J. Willis


In traditional societies it is often argued that parents' desire for old age security in the form of transfers from their children provides an important motive for childbearing. Some doubt has been cast on this "old age security hypothesis" by recent estimates which suggest that the rate of return on investments in children tend to be negative in most developing countries. This paper presents a theoretical model which integrates micro-level decision making about fertility and life cycle consumption into a dynamic macro-level model of overlapping generations in order to investigate the implications of this hypothesis. In this model, observation of a negative rate of return to children and positive population growth in a traditional society may imply (1) that the old age security motive for childbearing is, in fact, very strong; (2) that the rate of population growth is "too high" from a Paretian point of view; and (3) that each individual in current and all future generations could be made better off if the rate of population growth were lower and the level of old age consumption were increased, but that a reduction in population growth alone would reduce welfare. A social security tax and transfer policy could be devised to induce a Pareto optimal rate of population growth and distribution of life cycle consumption only if measures are taken to offset the divergence between the private and social rate of return to children created by the social security scheme.

Suggested Citation

  • Robert J. Willis, 1979. "The Old Age Security Hypothesis and Population Growth," NBER Working Papers 0372, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0372
    Note: AG

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    References listed on IDEAS

    1. Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    3. Lazear, Edward P, 1976. "Age, Experience, and Wage Growth," American Economic Review, American Economic Association, vol. 66(4), pages 548-558, September.
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    5. Robert J. Flanagan, 1978. "Discrimination Theory, Labor Turnover, and Racial Unemployment Differentials," Journal of Human Resources, University of Wisconsin Press, vol. 13(2), pages 187-207.
    6. Pencavel, John H, 1972. "Wages, Specific Training, and Labor Turnover in US Manufacturing Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 53-64, February.
    7. Toikka, Richard S, 1976. "A Markovian Model of Labor Market Decisions by Workers," American Economic Review, American Economic Association, vol. 66(5), pages 821-834, December.
    8. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538-538.
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    Cited by:

    1. Robert Fenge & Beatrice Scheubel, 2017. "Pensions and fertility: back to the roots," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(1), pages 93-139, January.
    2. Herschel I. Grossman, 1981. "Familial Love and Intertemporal Optimality," NBER Working Papers 0695, National Bureau of Economic Research, Inc.
    3. David N. Weil, 1999. "Population Growth, Dependency, and Consumption," American Economic Review, American Economic Association, vol. 89(2), pages 251-255, May.
    4. Hans-Werner Sinn, 1998. "The Pay-as-you-go Pension System as a Fertility Insurance and Enforcement Device," CESifo Working Paper Series 154, CESifo Group Munich.

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