Too Early Or Too Late: What Do We Learn from a 30-Year Two-Child Policy Experiment
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Too Early or Too Late: What Do We Learn from a 30-Year Two-child Policy Experiment Preliminary Version: Sep 24, 2015 Yu Qin [email protected] Department of Real Estate National University of Singapore Fei Wang [email protected] School of Labor and Human Resources Renmin University of China Abstract There have been heated debates as to whether China should replace One Child Policy with two-child policy to push up the fertility level in the country. However, concerns on the overgrowth of population slow down the pace of One Child Policy relaxation. In this paper, we look into a 30-year two-child policy experiment in Yicheng, Shanxi to examine its impact on crude birth rate. We adopt a synthetic control approach which allows us to conduct a rigorous counterfactual analysis. We fail to find any short-term impact of two-child policy in Yicheng before the 1990s. In the long run, our estimation suggests that the two-child policy may bring around 3 million newborns to China every year, which is significantly lower than the official prediction. JEL Code: J13, J18 1 1. Introduction China’s One Child Policy (OCP) is accompanied by low fertility rates after its implementation for more than 30 years. According to the most recent 2010 population census, the total fertility rate (TFR) in China has dropped to 1.18, far below the replacement level. The low fertility level has been accelerating China’s movement towards a challenging aging society. In response to the declining fertility rate, Chinese government took steps to gradually loosen the OCP. For example, the Government announced in November of 2013 that couples can have two children if one parent is an only child. However, China has not yet completely replaced OCP with two-child policy possibly due to concern that population may over-grow upon full relaxation of OCP. Therefore, it is of great policy interest to understand the impact of replacing OCP with two-child policy on population growth. Predictions made by Zhai, Zhang and Jin (2014) suggest that if there was an immediate transition to a universal two-child policy, the number of annual births would sharply increase with the peak value up to nearly 50 million and a total fertility rate of about 4.5 due to the sudden release of their unrealized demand of the second child. These predictions are based on the population size of the only child below age 30 calculated from the census, and their mothers’ fertility desires collected from different surveys. They also predict that the fertility peak will last for four to five years. In addition, total population will reach around 1.5 billion at the peak, and then gradually decline. However, fertility desires often fail to predict actual fertility behaviors (e.g. Adsera 2006). Among all these discussions on the potential impact of OCP relaxation, Wu (2014) and Wei and Zhang (2014) look into a unique policy experiment implemented in Yicheng, Shanxi Province 30 years ago. Since 1985, Yicheng, a rural county in the south of Shanxi, was granted with an exception of OCP. It was designated as an experiment locality for two-child policy, where almost all couples had the option to have two children. This unique experiment provides a great opportunity for scholars to investigate the potential consequences of two-child policy from historical data. By comparing the demographics in Yicheng before and after the experiment, the two papers mentioned above conclude that replacing OCP with two-child policy had little impact on crude birth rate. However, it is statistically challenging to estimate the impact of two-child policy in Yicheng in an unbiased way. On the one hand, the before and after comparison of Yicheng’s birth rate may not be able to generate the pure effects of the changing population policy due to possible impact of changes in other determinants of fertility. On the other hand, it is also not easy to carry out a traditional difference-in-difference (diff-in-diff) analysis, which accounts for the before-after differences in the jurisdictions serving as a control group to Yicheng, mainly for two reasons. First, inference on diff-in-diff is likely to be biased if the number of treatment units is small. 2 Second, the control and treatment units must hold parallel growth trend in terms of the outcome variables before the policy experiment, which is referred to as the “parallel trend assumption” in the diff-in-diff framework. However, as suggested in our data, the birth rates in Yicheng and other control counties had significantly different growth patterns, which violates the assumption. In this paper, we adopt the synthetic control approach to re-examine Yicheng’s two-child policy experiment. The synthetic control method is most suitable for comparative case studies, where there is only one or a few treated units. Positive weights are assigned to a number of control units from a donor pool of counties in the same province, such that the weighted average birth rates of the selected control counties can best mirror Yicheng’s birth rate trend prior to the two-child policy, and the weighted averages of fertility’s determinants from the control counties are also be able to match the counterparts in Yicheng before the treatment. The construction of synthetic control units to the treatment group provides rigorous counterfactual analysis to evaluate policy effectiveness. Comparing the crude birth rate in Yicheng to a “synthetic Yicheng”, we find that during 1985-1990, the first six years’ implementation of the two-child policy, the birth rate in Yicheng was not significantly different from other counties and districts within the same province, which is likely to be attributed to the weak enforcement of two-child policy in Yicheng and OCP in other counties during that time. However, the impact unveils in the long run with strictly enforced policies, as revealed from the inference using the 2000 and 2010 population census. It is estimated that the two-child policy may bring around 3 million newborns to China every year in the long term, as an upper bound. This paper is among the first to conduct rigorous counterfactual analysis on the potential impact of OCP relaxation on birth rate using a two-child policy experiment, and is likely to provide important policy reference for the further relaxation of OCP nationwide. Our analysis suggests that replacing OCP with two-child policy may have little impact on crude birth rate in the short run. The long run impact, if there is any, is also rather limited comparing to the prevailing estimated magnitude. Considering that our estimation is likely to be an upper bound of the true impact, the relaxation of OCP may have very limited impact on China’s birth rate and fertility level. The rest of the paper is organized as follows. Section 2 introduces the background of Yicheng’s two-child policy experiment; Section 3 provides a conceptual framework to think through the potential impact of OCP relaxation; Section 4 describes the data used in this paper; Section 5 introduces the empirical strategy; Section 6 presents the main findings; Section 7 conducts a few robustness checks; Section 8 concludes. 2. Policy Background 3 China began to implement OCP in 1980. A married couple could generally have at most one child.1 However, OCP was difficult to enforce nationwide, especially in rural areas, as the policy significantly reduced household labor force for agricultural production. In addition, son preference was more prevalent in rural areas. Birth controls consequently reduced their chances of having a son. Observing the realities of OCP implementation in rural areas, Chinese authorities relaxed OCP in the mid-1980s, allowing a rural married couple to have a second child if the first child is a daughter, on the premise of a sufficiently long spacing between the two births (Yang 2004, pp. 136-137).2 Some scholars proposed alternative solutions. In the spring of 1984, Liang Zhongtang, who was at that time a demographer at the Shanxi Province People’s Government Economic Research Center, proposed a two-child policy with certain restrictions, including late marriage and increased birth spacing. With his effort on advocating for the policy, the provincial government allowed Yicheng, a county in Linfen prefecture city to replace OCP in 1985 with the two-child policy proposed by Liang. Figure 1 shows the location of Shanxi province in China and the location of Yicheng in Shanxi. Shanxi is in the middle of North China, and Yicheng locates in South Shanxi. In fact, Yicheng was not chosen at random. In an interview,3 Liang summarized three reasons for selecting Yicheng as a pilot for the experiment. First, it was more difficult to enforce OCP in the rural areas as compared to cities. Therefore, it made more sense to implement the two-child policy in a county with a large share of rural population. Back to 1985, over 90% of Yicheng’s population lived in rural areas. Second, Yicheng had railroad access, therefore it would provide more convenience for the implementation of the program. Lastly, Yicheng’s cadres and rural residents welcomed and supported the pilot experiment. The two-child policy in Yicheng includes the following measures: 1) all couples are encouraged to delay marriage, to postpone parenthood and to have fewer children; 2) the “one-child-per couple” norm should be enthusiastically promoted; 3) rural one child families will be offered financial incentives (financial rewards and preferential access to education and health services); 4) state employees and urban couples are limited to one child only, except under special circumstances; and 5) rural couples fulfilling these requirements can have two children: a) they should marry three years later than the minimum age at marriage as specified in The Law of Marriage (men at 22 and women at 20); (b) the wife should have a first birth at 24 and have a second birth at 304 (the requirement of birth spacing was adjusted from 6 years to 4 years in 2007); (c) the wife should apply for a birth permit for her second birth and wait for a 1 Wang (2014) introduces more about OCP and its earlier policy versions, as well as their effects on fertility.