In recent decades, fertility rates have declined globally, dropping in most countries, except for the low-income nations, to levels well below 2—the replacement rate necessary to ensure population stability. However, this phenomenon has not been uniform across countries.
In Europe, for example, Italy and Spain exhibit significantly lower fertility rates than countries like France or the Sweden. Outside of Europe, the lowest rates are observed in Japan and, even more strikingly, in South Korea, which has seen its fertility rate drop from around 6 in the 1950s to less than 1 today.
Economists have attempted to explain this decline in fertility rates by positing a negative relationship between economic development and fertility rates. A key element of this relationship is the increased participation of women in the workforce, suggesting a strong link between labor market dynamics and fertility. However, this straightforward theory does not seem to well align with real-world data. For example, Italy’s lower fertility rate coincides with a much lower female labor force participation rate than in other developed countries.
A more convincing explanation suggests a U-shaped relationship between female labor market participation and fertility rates, with countries like Italy and Japan positioned at the lower end of the “U.” Higher-income countries, such as France, the United States, and Scandinavian nations, exhibit both higher female labor participation and fertility rates.
This U-shaped relationship challenges simple economic theories, suggesting alternative interpretations involving cultural factors. The economist and economic historian Claudia Goldin, recipient of the 2023 Nobel Prize in Economics, recently offered an explanation for the U-shaped relationship that integrates economic reasoning with societal values (Claudia Goldin, “Babies and the Macroeconomy,” NBER WP, December 2024). Goldin’s explanation hinges on the nature of economic development. She categorizes developed countries into two groups (Figure 1):
- Countries with continuous development over time, such as the United States, France, and the United Kingdom, which experienced high economic growth rates in the post-World War II era, as well as in the first 40 years of the 20th century.
- Countries like Italy, Japan, South Korea, and Spain, which saw rapid economic growth after World War II compared to relative stagnation in the early 20th century
This rapid development brought about a dramatic change in living standards. Such a sudden and non-gradual transformation caused societal imbalances, particularly in gender relations. As women gained greater opportunities outside the family due to economic progress, societies struggled to adapt. Men, in particular, were still attached to traditional roles that confined women to motherhood and domestic responsibilities. Goldin argues that in more open societies, the ultimate decision to have children rests with women. Consequently, the abrupt economic changes in certain societies created conflicts between men and women, leading to significant declines in birth rates.
What evidence supports this interpretation? Two datasets can be considered: one cited by Goldin and another from our own study on the relationship between fertility rates and social capital in Italian regions. Goldin highlights that countries with the lowest fertility rates, including Italy, also exhibit low female labor market participation and significant gender disparities in unpaid domestic work.
Women in countries like Italy dedicate twice as many hours to domestic work (subtracting men’s contribution) compared to countries like the United States or France—an average of 3 hours versus 1.5 hours. Similar patterns are observed in Japan, Spain, and South Korea. In these countries women work less in remunerated jobs, work more at home but, somehow paradoxically, have less children.
Figure 1
Source: Goldin (2024)
In summary, women’s participation in the labor market is not the cause of declining fertility rates. Work and childbearing can coexist, particularly in societies with high levels of economic development (high per capita income). In Italy, the lowest rates of female participation in the labor market are found in the southern regions (Figure 2).
“Focusing on comparisons among Italian regions, we find a relationship between low social capital and low fertility rates.”
Figure 2
Consistent with this interpretation, focusing on comparisons among Italian regions, we find a relationship between low social capital and low fertility rates. The hypothesis is that low social capital is closely linked to distrust in others and pessimism about the future.
To analyze this, we constructed a social capital index for Italian regions by aggregating various indicators provided by the Italian National Statistical Institute (ISTAT). We then used this index to
identify the component of regional average fertility explained by social capital through statistical regression analysis. Comparing regional per capita GDP and fertility rates revealed a nonlinear
relationship: positive in regions with high GDP per capita and negative in southern regions with lower
GDP per capita (Figure 3).
Figure 3
In the graph on the left, the non-linear relationship discussed by economists seems to be confirmed.
Starting from the lowest income levels, as per capita income increases, the fertility rate decreases,
reaching a minimum point, as shown in the black circle (below 1, corresponding to a per capita
income approximately 35% lower than the Italian average). From that point onward, an increase in per
capita income is associated with a rise in the fertility rate, which reaches its maximum in the province
of Bolzano (as shown in the red circle). In 2019, Bolzano exhibited a fertility rate close to 2 and a per capita income 40% above the national average. We explore a possible explanation based on the role of social capital. When we consider the role of social capital in affecting fertility rates, we find that economic progress and fertility rates move in tandem (graph on the left of Figure 3). Accordingly, development of social capital would permit to combine higher incomes per capita with higher fertility rates, or, in other words, will permit to combine family development and economic growth.
“Development of social capital would permit to combine higher incomes per capita with higher fertility rates, or, in other words, will permit to combine family development and economic growth.”
Although preliminary, these findings cast doubt on the effectiveness of family policies, such as public transfers or tax relief, especially in southern Italian regions. Policies aimed at improving social capitalare essential to ensuring that economic growth and increased fertility go hand in hand. Understanding the deeper reasons behind these regional differences is complex.
One promising approach is to move beyond frameworks centered solely on the family, market, and state. Values that promote increased social capital and restore trust and optimism may lie in a fourth pillar: the “community.” This concept, championed by economist Raghuram Rajan in his book The Third Pillar: The Community Forgotten by State and Markets, suggests that community can bridge the gap between individual and societal values. Adriano Olivetti’s legacy in Italy exemplifies this idea. His efforts emphasized the importance of grassroots awareness and economic investment to reconcile work and family life, personal growth, and professional development.
Building a community where economic activity and human development align may offer a path to restoring trust in society and overcoming the pessimism that discourages families from having children.
These insights align with Goldin’s observations that rapid economic development often coincides with a decline in social capital. The destruction of community ties in favor of market dynamics has led to widespread societal distrust. Postwar Italy’s economic boom prompted a rapid transition from rural to urban areas, disrupting traditional values. In a society where traditional gender roles persisted, but women’s opportunities expanded, conflict arose, leading to reduced fertility rates.
To address this, social capital both within and outside the workplace is crucial in making parenthood a truly free choice. Encouragingly, improving fertility rates through policies that benefit society at large is possible. Developing social capital in workplaces and communities can enhance overall well-being without relying on divisive financial incentives.