People in Japan are being paid to have babies — and it seems to be working

Assessing the Health of Japan's Economy
Assessing the Health of Japan's Economy

Japan's nationwide fertility rate just hit its highest level in 21 years.

The total rate increased to 1.46 in 2015, slightly up from the previous rate of 1.42 in 2014,according to the health ministry.

The biggest contribution to the increase came from women aged 30 to 34, according to Bloomberg.

This is no doubt a good sign for a country struggling with a looming demographic crisis.

However, what's particularly interesting about this spike in fertility is that there was a correlation with cash incentives for new parents.

Christopher Wood, author of CLSA's weekly GREED & fear newsletter, pointed out in his latest installment that the highest fertility rate among Tokyo's wards was in the Minato ward, where parents get one-time cash payouts of up to ¥180,000 (about $1,684) per birth.

Moreover, he noted that the biggest improvement in fertility in the country was in a town called Ama on the island of Nakanoshima, which has a "leveraged scheme to incentivize mating": parents get ¥100,000 (about $940) for the first baby, but get ¥1 million (about $9,400) for the fourth kid. The town's fertility rate bumped up to 1.80 from 1.66 between 2014 and 2015.

"This fits a point made by GREED & fear before, namely that the best way to deal with Japan's demographic issue is via financial incentives, with ¥10 million per child seeming to [us] about the minimum level of incentive required in central Tokyo given the costs of parenthood, a reality [we are] well aware of," wrote Wood in the note.

Notably, some economists have argued that women who lived in developed economies are dis-incentivized to reproduce precisely because having kids is very expensive. (Or, another possibility here, as one of my economics professors once put it a few years back: "why would a woman choose to have another kid that costs $250,000 per year when she can instead go work in finance and rake in $1 million a year?")

And so, Wood's ideas are quite interesting because it appears that cash incentives at least somewhat address the whole issue of not having kids because they're too expensive.

"Just as higher minimum wages will encourage the acceleration of robot technology, the provision of a meaningful capital sum should encourage child rearing. It is certainly superior to negative rates, and also more reflationary," Wood added in his note.

"In the end nothing can detract from the power of financial incentives."

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