Even something as personal as the choice of having another child can be heavily influenced by economic incentives. Analysing a unique social experiment from the Israeli kibbutz, Avraham Ebenstein, Moshe Hazan and Avi Simhon find that a change of practice that made parents bear the cost of additional children had a massive effect on their fertility decisions.

The research, which is published in the Economic Journal, shows that the average kibbutz family had 0.65 fewer children in the wake of the change, a roughly 20% drop from a three-child average. This indicates that parents are very sensitive to the ”price” of children.

The study also examines which couples are more likely to leave the kibbutz as well as broader question of which Israeli-born couples are more likely to emigrate. In both cases, it is the more highly educated and lower fertility couples that are most likely to leave.

In the traditional Israeli kibbutz, all income and all expenses were shared equally across members. But financial difficulties in the kibbutz movement led to widespread ”privatisation”, in which members were allowed to keep more of their income but no longer received total protection from the costs of children.

The new study finds that this led to a decline in fertility – and the greatest declines were observed among members of the less wealthy kibbutz, where the costs of children were raised most aggressively.

A second key finding from the study is that the choice to live on the kibbutz is also related to desired fertility. The researchers find that fertility was higher among those who stayed on a kibbutz than those who left on reaching adulthood. This was true at both the privatised kibbutz and the sharing kibbutz. But the gap in fertility was larger among those who left a sharing kibbutz.

The likely explanation is that prospective parents were taking their desired fertility into consideration when deciding whether to stay at the kibbutz or to leave. Leaving a sharing kibbutz meant the individual didn”t want a large family.

This finding is striking; people”s choice of staying on the kibbutz or leaving was partly related to their desired fertility and the knowledge of the subsidy they would receive. This is further evidence to suggest that parents are very sensitive to the costs of children.

Finally, the authors examine the ”stay versus leave” decision more deeply in terms of how the two groups differed terms of their potential income and fertility. The ”amenity” of the kibbutz was that the costs of children (and other things) were covered by the kibbutz but the ”dis-amenity” was the near full income sharing.

As might be expected, the study finds that those who left the kibbutz were the highest wage and lowest fertility members – and those who stayed were the lowest wage and highest fertility members. This provides an insight into why the kibbutz collapsed: the extreme socialist model was most attractive to ”expensive” members and least attractive to ”productive” members.

Struck by this result, the authors then examine this issue in a broader context. They analyse the famous ”brain drain” from Israel to the United States by comparing Israel-born Jews who stay in Israel versus those who emigrate. The comparison with the kibbutz is apt, because relative to the United States, Israel remains a more socialist country with high taxes and large subsidies available for the costs of children.

Again, there is the same pattern where those who stay have lower potential income (proxied by education) and higher fertility than those who leave.

These results highlight a challenge facing the traditional kibbutz and Israel as a whole. Maintaining a socialist system when people can migrate freely and there is a less socialist system available is challenging.

The traditional kibbutz and its ultimate collapse present a vivid example of why this represents a serious challenge for policy-makers in Israel today, and more generally, for other countries competing with the United States for high-skill labour.

”Changing the Cost of Children and Fertility: Evidence from the Israeli Kibbutz” by Avraham Ebenstein, Moshe Hazan and Avi Simhon is published in the November 2016 issue of the Economic Journal. Avraham Ebenstein and Avi Simhon are at the Hebrew University of Jerusalem. Moshe Hazan is at Tel Aviv University.

Avraham Ebenstein