Addressing the Social Economic Factors Behind Taiwan’s Fertility Crisis

At the end of 2020, Taiwan’s slow population decline hit a grim milestone: new deaths outpaced births, and the crude birth rate fell to a stunningly low 6.01 births per 1,000 people in the first quarter of 2021. Coupled with declining migration, Taiwan’s population crisis seems all but certain to continue well into this decade. Taiwan’s National Development Council (國家發展委員會) predicts that the island’s current population of 23.5 million will fall to below 20 million by 2056. The consequences of this decline are more immediate than many realize: estimates indicate that the Labor Insurance Fund (勞動基金) and the National Health Insurance (全民健康保險, NHI) program could face financial insolvency, as senior citizens using these programs outnumber workers paying into them. The sustained population decline will likely wreak havoc on Taiwan’s productivity—and by extension, its gross domestic product (GDP) and economic health. To reverse this trend, Taipei must embrace pronatalist policies that could include establishing a robust child tax credit system for new families.

Factors Behind Taiwan’s Declining Birthrate

Taiwan’s population problems began with a sharp decline in marriage rates. According to the Ministry of the Interior (內政部), marriage rates have fallen continuously in the last 10 years. This trend is due in part to shifting attitudes toward marriage. A 2017 poll conducted by Academia Sinica (中央硏究院) found that “self-reliance” took precedence over starting a family among single Taiwanese aged 28-32. Nearly 96 percent of poll participants rated independence as more important than marriage. However, this is not entirely due to disinterest in marriage on the part of young people in Taiwan. Economic factors, including the price tag associated with raising children and urban housing costs, have deterred young people from considering marriage. The disparity in Taiwan’s major urban centers between median household income and average housing costs is one of the most severe in the world. The average household in Taipei pays upwards of two-thirds of its monthly income towards mortgage payments. Stuck between stagnant wages and expensive urban housing, it is not surprising that young Taiwanese do not find the idea of starting a family particularly appealing.

In a 2019 poll conducted by the Ministry of Health and Welfare’s Department of Statistics (衛生部統計處), 56.9 percent of female respondents ranked the “economic burdens” of raising children as the top reason for abstaining from starting a family. On a related note, 80 percent of women surveyed in the poll said they wanted children; however, 39.4 percent said they would not want to change their current lifestyle to have children. Women also face potentially dire consequences for taking maternity leave: specifically, the possibility that they may be passed over for promotions or even let go from their jobs due to their pregnancies.

Consequences of Population Decline

It is clear that a major demographic shift is occurring in Taiwan, even if the long-term economic effects are not yet apparent. However, much like a train that requires a mile to come to a full stop, reversing the drop in fertility will take time, so Taiwan’s population policy will need to shift very soon to avert a major future crisis. According to studies conducted in the United States, a 10-percent increase of the 60 and up age group leads to significantly decreased economic growth. A population structure in which a relatively small group of working age adults supports a large group of children and the elderly, who consume much more than they produce, puts more pressure on the younger people in the working population.

Transfers (between family members or from the government) are the typical measure used to fill gaps in production and consumption. However, consumption by the elderly is increasing, and the burdens of increased use of government services like the National Health Insurance program will fall to the working age population, which already faces economic strain. Innovation in the technology sector could also be hurt; for example, a smaller talent pool operating semiconductor fabs and researching new innovations would decrease Taiwan’s competitiveness in the global economy.

An even more dire situation could emerge in which society-wide low fertility becomes cyclical. According to some demographers, countries with low birth rates could fall into the “low fertility trap.” In this situation, low incomes, desires for a more comfortable material life, and normalized small families of one child or fewer perpetuate a cycle of very low birth rates. Studies have shown this is not the case just yet in Taiwan, as 60 percent of women would like to have two children—but the share of women who want 0-1 children has also risen exponentially. Economically, this situation is unsustainable, and Taiwan’s future will depend largely on which policy interventions are used to reverse the downward trend.

Recommendations

As stated above, the fertility crisis in Taiwan is largely due to individual economic burdens in the housing and childcare sectors. Other countries facing similar falling birthrates have tried to curb the problem with one-time payments for newly married couples (a policy instituted in Japan), or by setting aside housing for couples with children (as Singapore has done). While both of these policies are a step in the right direction, they do not directly address the problem. A bonus for married couples may help, but it is a one-time benefit. Allotted housing also only benefits those who already have multiple children, and it does not directly encourage citizens to start families. In the end, these policies are half-measures that are unlikely to reverse wider downward trends in fertility.

Child Subsidies as a Fertility Booster

To avert a population crisis, Taiwan should avoid the well-intentioned half-measures of its regional neighbors. Instead, direct cash transfers to parents on a per-child basis until they hit working age should boost fertility. Combined with a strong paternal and maternal leave policy, subsidies could play a major part in turning the fertility crisis around. Other countries have instituted this policy, including the United States in 2021. The US Child Tax Credit has been touted as a revolution in bringing children out of poverty. Indeed, the subsidies are projected to cut child poverty in half. However, this policy is also incredibly useful in terms of boosting fertility and could be successful if instituted in Taiwan. Direct cash transfers to parents can offset the costs cited by Taiwanese women as barriers to having children. But what evidence is there to support subsidies as a way to boost fertility rates?

Two neighboring European countries, the Czech Republic and Austria, provide success stories in reversing downward fertility trends that bode well for Taiwan. After the dissolution of the Soviet Union, the Czech Republic saw its total fertility rate fall to 1.13 in 1999. This was due mostly to the economic transformation caused by leaving the Eastern Bloc. By 2008, however, the total fertility rate in the Czech Republic had rebounded to 1.5, a modest yet significant reversal driven by expanded family policies. Paid parental leave for each child until age 4 was guaranteed to parents. In addition, Czech families can receive a monthly stipend, although it is modest and mostly reserved for low-income families. Austria’s monthly payments are larger, around 10 percent of a family’s net income. As a result, Austria has kept fertility rates stable over the past few decades.

Clearly, pronatalist, direct transfer policies like these can stabilize or reverse negative fertility trends. In particular, boosting family incomes via subsidies does have a measured effect on fertility. President Tsai Ing-wen’s (蔡英文) administration has already begun using this type of intervention in moderation. Education and childcare subsidies are part of a childcare budget that will reach NTD $85 billion (USD $3 billion) by 2023. However, the current subsidy, which only applies to children under the age of 5, is only NTD $3,500 (USD $125). The expanded subsidies are limited, and are estimated to help 870,000 people, or less than 4 percent of Taiwan’s total population. It would be in the government’s best interest to not simply copy the policies used in Singapore and Japan, which have had little effect. Instead, Taipei should consider instituting a permanent subsidy for each child until age 15 that would provide a strong lifeline for families to grow. Under the Labor Standards Act (勞動基準法), minors can begin working at age 15, so this subsidy would end at that age. If combined with a strong family leave policy, the subsidies could be a boon to Taiwan’s population struggles.

How would this policy look in action? Due to the different nature of housing markets, following the Austrian model of setting the subsidy amount at 10 percent of average yearly income is unlikely to make much of an impact in Taiwan. In 2019, Taiwan’s per capita household income was NTD 401,398 (USD $14,378). Boosting the government subsidy to 20 percent of the yearly income would give families a check of approximately NTD 6,700 (USD $240) per month. Extra money for families could be used how they see fit: for housing, education, necessities, and more. The subsidy system could also be tailored to benefit families who need it most, and exclude wealthier families that make more than three times the average household income.

Challenges

As part of Taiwan’s stimulus response to a recent COVID-19 surge in the island, the government included a one-time version of this idea, giving families NTD $10,000 (USD $358) under a policy called the Epidemic Prevention Subsidy for Families with Children (孩童家庭防疫補貼). A stopgap measure to help families make it through COVID-19 restrictions, this policy has helped up to 2.5 million people. As for making this policy permanent, one of the main roadblocks will be the perceived cost of the measure. However, in looking at Austria’s and the Czech Republic’s spending on family policies as a portion of total GDP, the cost comes in at only 3 percent and 2.6 percent, respectively—which is also the average for high-income Organization for Economic Cooperation and Development (OECD) countries. While not insignificant, these costs are also not overwhelming, and are a worthwhile policy in the long-run.

The main point: Taiwan is inching closer to a demographic disaster, where elderly dependents will far outnumber working age people. Giving young adults financial incentives to start a family, such as child subsidies, could help to reverse this trend.

(Featured Image from Lee Yu Flickr)