Nova workboard

a blog from young economists at Nova SBE

Are children a normal or an inferior good?

In general, we can observe the trend that as people get wealthier they want to have fewer children. Their demand for kids decreases as their income rises. This is the definition of an inferior good in economics. If children were normal goods, then their parents would demand more children when they get richer. This means that richer families would have more children, while poorer families would have fewer children. However, and in general, it´s the opposite that we observe: poor families have a lot of kids, while rich families only have a few. According to studies that have been conducted (in the USA) in the recent past, only every third couple with an annual household income of over $75.000 wished to have three or more children. Compared to this number, 44 per cent of the couples with an income below this amount want to have at least three children. So can we deduct from this that children are an inferior good?

In reality the fact is that as income increases, wages become higher and parents would need to sacrifice more of both, valuable labor and education time. In this way, a rich family would have to give up more money in order to be able stay at home to raise their children. This implies that the opportunity cost of having more children compared to “other” consumer goods or services would be higher for richer families. Although this appears to be an income effect, in reality it is the substitution effect: As the effective price of having and raising children gets up, potential parents rather substitute away from children and at the expense of other goods (travelling, new car, …).

Across the world, we can observe that poorer people have more children than richer people. Some of the reasons for not having kids at all or for only having a few of them are the lack of time, energy, space, money and many more. However, this seems contradictory as yet wealthier people seem to have the resources to raise more children offering all of them a high standard of living. Thus being educated, having a degree and making a career are much more important nowadays. Therefore, rich people want fewer children than poor people do. As income increases, the demand for children decreases. Therefore I agree that in economic terms, this makes children an inferior good. However, the definition of inferior – being lower in status, rank or quality – for sure does not describe children. Children are nothing bad and there is much more that goes into the choice of potential parents to have children than the economics of it.

Magdalena Glanc

 

Sources

http://the-econoclast.blogspot.pt/2005/05/are-children-inferior-good.html
http://modeledbehavior.com/2011/07/04/are-children-inferior-goods/

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Author: studentnovasbe

Master student in Nova Sbe

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