The Booming Czech Republic

The Czech Republic is booming apparently. Both per-capita GDP and fertility are definitely on an upswing, although surprisingly perhaps, for once I am not going to try and suggest that these are connected:

The Czech republic has joined Slovenia among new member states with higher levels of wealth per capita than old member Portugal, according to European Commission statistics.

This raises interesting questions which I just touch on in this AFEM post here. (Incidentally, you can find a one-page set of economic statistics for the Czech Republic from the OECD here).

What is perhaps most interesting about the Prague Post article is the way they explicitly link the increase in preganancy to a recent reform in maternity provision (due to come into effect in April), and to the fact that the ‘postponement phenomenon‘ often leads to a spike in births as women who have postponed reach the new ‘childbearing age’.

“The Labor and Social Affairs Ministry recently launched its own reforms aimed at encouraging couples to have children. The reforms provide generous benefit packages and require companies to hold the jobs of employees on leave for up to four years, and, as of April, women will begin receiving a state subsidy of 17,500 Kč ($725) for each newborn child — more than double the current amount.”

“The Labor and Social Affairs Ministry recently launched its own reforms aimed at encouraging couples to have children. The reforms provide generous benefit packages and require companies to hold the jobs of employees on leave for up to four years, and, as of April, women will begin receiving a state subsidy of 17,500 Kč ($725) for each newborn child — more than double the current amount.”

Pavlína MatouÅ¡ková, 29, ….works at a large telecommunications company.. MatouÅ¡ková is seeing more women take maternity leave now than ever before in her eight years as a human resources manager. “I am starting to think there is something in the water here,” she says. “It seems like everyone is pregnant, especially in our call center.”….Since the average employee age in MatouÅ¡ková’s company is 29 and the payroll department she runs comprises only women, she has good reason to worry that high pregnancy rates will force her to hire and retrain a brand new team.

“We realize that everyone is hitting their prime age for having children,” she says. “Me included.”

Some Vital Statistics

Czech Republic: Median Age – 38.97, Fertility – 1.2, Life Expectancy 76.02.

As can be seen, the Czech is a lowest-low fertility society (with fertility well inside the 1.5 ‘trap’ level) with a high median age, and a life expectancy which might be expected to improve steadily in the coming years. Thus, there are two ways to maintain that ‘above par’ growth: more immigration, or more births (or of course a combination of the two).

As the OECD article report says – A more open approach to immigration could bring increased benefits – “The Czech Republic has gradually become an immigration country since 1990, but legal immigration from countries other than Slovakia is still low in international comparison”.

In many ways the Czech experience is typical, since a substantial and continuing decline in period fertility occured in the 1990s across all the formerly communist countries of Europe (which now form the global region with lowest fertility, with total fertility rates ranging between 1.1 and 1.4 children per woman), and, as the Prague Post article indicates, one of the principal factors driving this in the Czech case has been the fact that average age at first childbirth there has risen steadily since the early 90s, indeed postponement of first births has been particularly intensive in the Czech Republic, East Germany, Hungary, and Slovenia, where the mean age at first birth generally increased by 2-3 years between 1990 and 2000.

In addition all of this has been fairly dramtic and traumatic since the coming down of the wall, in part because Eastern Europe had barely been affected by the rise in the mean age at childbearing which had been so prevalent so much earlier in other parts of Europe. As the Prague Post indicates: “the average age of a first-time mother was 22.3 in 1984; in 2003, it was 25.9. That trend is continuing, most dramatically in cities”.

How much longer can this ‘displacement effect’ continue? Well the evidence from Western Europe suggests that it may do so for some time to come, since in Spain the median first-birth age is currently 30, and in most other countries it is in the 28/29 region.

Why has the change happened so rapidly happened so rapidly in Eastern and Central Europe? The Czech demographer Tomas Sobotka gives a number of reasons, principally associated with a delayed ‘modernisation process’ in the former communist states, and in particular a more traditional version of the ‘life course’.

Over the 1970s and 1980s trends in fertility, reproduction, and living arrangements in Central and Eastern Europe increasingly contrasted with the dynamic developments taking place in other parts of Europe. This contrast was one of the relative stability, high uniformity, and relatively ordered life courses in the ‘East’ and of the rapid changes and increasing ‘disorder’ in the life courses among the populations in the ‘West.’ Postponement of marriage and childbearing, the rise in non-marital cohabitation, and a significant increase in childlessness.”

Then down came the wall, partnerships became less tradtional, labour market institutions changed, post secondary school education increased, especially for women, and setting up the first stable ‘family home’ went further and further back in the life course.

So despite the local fertility peak, it seems unrealistic in the short term to expect any dramatic increase in the numbers of children born in the Czech Republic, which means, if they want to keep that growth ‘advantage’, they need to take – as the OECD suggests – a long hard look at their ‘immigrant friendly’ policies.

10 thoughts on “The Booming Czech Republic

  1. Edward,

    In purely economic terms, I would liken low fertility to a low savings rate. In such an environment, an influx of foreign capital is needed to maintain growth.

    In monetary terms, this can take the form of FDI or foreign equity investment (“hot money”). Now, when people talk about immigration (human capital inflows) as one way to compensate for low birth rates, a similar distinction has to be made between immigrants who become integrated on the one hand, and what I call “hot labour” inflows on the other.

    Spain, I think, faces a double whammy. I think there is a lot of “hot money” right now from eurozone investors seeking relatively high returns without the exchange-rate risk (FDI, in contrast, is shrinking dramatically).

    Similarly, there is a lot of “hot labour” in the country, mostly in construction. When the tide turns (upturn in the eurozone, downturn in Spain), a lot of this “capital” will take flight, with the money going back to Europe (due to diminishing yields), and immigrant workers (facing unemployment) cashing out and either going home or moving on to greener pastures elsewhere in the “single market”.

  2. “In purely economic terms, I would liken low fertility to a low savings rate.”

    Pepe, what a very interesting analogy. Thank you. Please note, of course, that if savings are in some fashion related to life cycle phenomena, and therefore indirectly to the age structure of the population, then there is a long-term delayed-action chain mechanism between the two.

    “Spain, I think, faces a double whammy.”

    I couldn’t agree more.

    “Similarly, there is a lot of “hot labour” in the country, mostly in construction.”

    Yes, I would say in agriculture too, even if to a lesser extent. I did some research on Bulgarian migrants in rural Valencia, and it was clear to me that much of the work existed because the sons of the people with the land were working in construction.

    Incidentally if you look at Argentina, something very similar happened to your hot money outflow after the crash there, with domestic workers from Paraguay, Peru etc, returning home.

    Essentially all of this depends on the value of Spain’s currency after the crash, since what many of the migrants are interested in is the value of remittances.

    Also, please note the implicit comparison I am making about economic management issues in Portugal and the Czech Republic.

  3. Great post, Edward, thanks!

    It’s interesting to note that Slovenia’s attempts to artificially pump up (forgive me) the fertility rate aren’t working. Despite generous maternity leaves, the fertility rate here is the lowest in the EU, and in about 50 years there will be drastically fewer Slovenes. Even worse: 30% of the ones remaining will be over 60. But while the Czech Republic has 10 million people, Slovenia barely has two. (Less than Kosovo) In other words, relying on immigration will be problematic and tricky to do. It will be interesting (or perhaps scary) to see how it plays out.

  4. “what I call “hot labour” inflows on the other.”

    The more I think about this, the more I like it. In the first place it fits in with an argument made by Dallas Federal Reserve President Richard Fisher recently that the output gap ‘yardstick’ isn’t as useful as it once was.

    Basically Fisher is right since ‘hot’ flows of capital, labour and ‘information’ (raw materials) means that the old idea of capacity is completely out of date.

    All this also makes me start thinking of what we could now do with the ‘death of distance’ argument.

    Morgan Stanley economist Andy Xie proposed at one stage that we should begin thinking of the global economy as one single developing economy (one large economy with lots of internal imperfections, rather than a lot of open economies with friction). The difference could be important as a way of thinking about things, doing a complete ‘gestalt’ on the traditional view.

    I think at some stage I’ll put together a post on this. Thanks again.

  5. A Fertility of 1.2 and a aging of
    first birth of (25.9-22.3=) 3.6 years in 14 years.

    So if i calculates this right they would have a fertility rate of 1.6 when women stop having kids at a later age. That doesn’t sound so bad. Especially considering that the last 14 years were really turbulant.

    ps. At what age are women at getting their first baby in slovenia because that could explain a lot. Also Motown East has a lot of car manufactory which is a magnet for immigrants.

  6. “So if i calculates this right they would have a fertility rate of 1.6 when women stop having kids at a later age.”

    Charly, this is a hellishly complicated topic about which there is no agreement even among demograohers themselves. I f you really want some idea you can take a look at this presentation:

    http://www.oeaw.ac.at/vid/download/pce/dec01/am/PCB05-Bongaarts.pdf

    This piece, from the Uk statistical office:

    “Replacement fertility, what has it been and what does it mean?”
    Steve Smallwood and Jessica Chamberlain

    which can be found in this document:

    http://www.statistics.gov.uk/downloads/theme_population/PT119v2.pdf

    gives a reasonably striaghtforward account of the issues.

    Bsically we don’t know what the finally completed cohort figures will be, but since the registered TFR is only at just below 26, and the first birth age can certainly rise to the 30-32 range, we won’t be seeing any big change in the situation anytime soon.

    On Slovenia I don’t have much specific information to hand. This page seems useful:

    http://www.stat.si/eng/novice_poglej.asp?ID=666

    There you will find:

    Girls are more successful in their studies than boys

    Among young people about 21,000 boys have at least short-term tertiary education, while the number for the girls is over 37,000. Girls are 12% more successful in their studies than boys. As regards the number of post-graduate students girls prevail as well. However, in the transition to post-graduate studies, which includes more than 5,300 young people, boys do relatively better than girls. A quarter of boys and a fifth of girls with higher undergraduate level continue their studies at post-graduate level.”

    This is certainly an important part of the picture

  7. @ Charly

    Rooting around a bit I found this for Slovenia:

    According to 2003 statistics on births, 8,676 women gave birth for the first time. They were on average 27.3 years old. In 2003, 6,281 women gave birth for the second time, 1,800 for the third time and 12 for at least the ninth time. In total, 17,321 live births were registered, which is much fewer than thirty years ago when 28,625 children were born. Two mothers were under 15 years old and 10 were over 45. Ever more mothers have twins or triplets; their share was 1.8%.

    This is part of a stats piece for Mothers Day:

    http://www.stat.si/eng/novice_poglej.asp?ID=494

    There is quite a good selection of data here:

    http://www.stat.si/eng/tema_demografsko_prebivalstvo.asp

  8. The Czech fertility boomlet is just an echo of the early 1970’s big baby boom. It is only surprising that the echo is so small and that it arrived so late.

    As to the GDP growth, it’s being driven by the baby boom generation, too. Czech males aged 30-35 show a 93% labour participation rate. They take lots of mortgages as interest rates on the CZK have negative spread vs. the euro. The credit and real estate boom is a powerful GDP booster.

    As to achieving a higher level of wealth than Portugal, it was only possible on the PPP basis, thanks to the fact that most products and services are dirt cheap in the Czech Republic. In the nominal GDP terms we are still some 40% below Portugal’s GDP per capita.

    Don’t tell me anything about FDIs. Too often they do little more than guzzling government subsidies and spoiling the landscape with plant facilities. Little or no technology transfers. Lots of heavy traffic. Negligible or even negative net contribution to employment. Crowding out domestic capital. Incredibly arrogant managers who seem to believe that we just recently went out of our caves. We’d be better off with half the amount of FDIs.

    Pity that there’s no overall low taxation instead of selective investment incentives. (You know why? Selective incentives allow for corruption. Lots of it.) Our government is a bunch of corrupt incompetent socialists who are just able to pluck taxpayers and give away the money to suckers of all kinds.

  9. Edward,

    I’m glad you find the analogy interesting. Please note that I am approaching all of this from a microeconomic perspective. Therefore, when I say savings, I mean it in the broad sense of “storing up part of an income stream into wealth”

    “if savings are in some fashion related to life cycle phenomena, and therefore indirectly to the age structure of the population, then there is a long-term delayed-action chain mechanism between the two.”

    As for aging as a purely economic parameter, I would regard it as the “depreciation of a capital asset”. Therefore, saving vis-à-vis aging would be “using part of an income stream to replenish one’s capital base”.

    Note that the value, and also the rate of depreciation of this capital asset (one’s body/brain)depends on the income stream it can generate, which in turn depends on the capital structure/division of labour that exists in one’s environment.

    Traditionally, the capital base of the family unit was replenished partly through having children. The child-rearer (usually the mother) foregoes a potential income strean in order to “grow” this new capital (which in the future will provide an income to the economic unit, the family).

    Now, extrapolating this microeconomic dynamic in order to explain macroeconomic phenomena is another matter entirely. I’m afraid ne’er the twain shall meet. However, I think it is a stimulating exercise that can lead to new ways of looking at things.

  10. @ Pavel

    “As to the GDP growth, it’s being driven by the baby boom generation, too. Czech males aged 30-35 show a 93% labour participation rate. They take lots of mortgages as interest rates on the CZK have negative spread vs. the euro. The credit and real estate boom is a powerful GDP booster.”

    Thanks for this. I had noticed something similar to this in the OECD material, and very low participation and education rates in the older age groups.

    This all fits in perfectly with demographic dividend and prime-age-worker productivity theory.

    “As to achieving a higher level of wealth than Portugal, it was only possible on the PPP basis, thanks to the fact that most products and services are dirt cheap in the Czech Republic. In the nominal GDP terms we are still some 40% below Portugal’s GDP per capita.”

    Ok, thanks for clarifying this, again it is important.

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