Parents are burdened with an invisible 'tax'

You may be familiar with the image of the stork flying in with an infant wrapped in a cloth nappy to symbolise the birth of a new baby.

Newborns are indeed delivered into this world – but not by storks but by their mothers. Then, it takes on average a further twenty-five years to turn a baby into a resource-productive adult.

But how many resources does this childrearing process really require? And who pays for it?

These are questions of primordial importance because they relate to population growth and how societies sustain themselves over time.

Together with colleagues, I have analysed how much it really 'costs' parents to raise a child (who later becomes a resource for the welfare state).

Below you can read about what we found and why we might need to change the way we think about parental labour.

Accounting for all it takes to raise a child

Parents can do three things when raising children.

• · First, they can stay at home to care for their child (giving ‘time’).
• Second, they can buy market goods and services, such as clothes, food, and also nannies, babysitters or private lessons (spending ‘money’).
• Third, they can work and pay higher taxes that will finance state activities, including policies for children and families like subsidized daycares and public schooling and family benefits.

But importantly, these three things are not equally visible in statistics.

Parents do not keep accounts of how much time and money they spend on their child, but taxes and contributions that finance social security programs such as free access to healthcare, unemployment benefits or child allowance, are much better recorded.

In our newly published research, sociologists Róbert Gál, Márton Medgyesi and I argue that this asymmetric statistical visibility matters a great deal, as it hides an important further asymmetry in who shoulders the cost of reproducing society.

Another ‘green moment’?

We have measured all three different options, so we get a clearer picture of what parents actually spend on their children.

This helps us discuss all the valuable resources that flow between generations more clearly and comprehensively.

With our accounting, we’re not just checking out government contributions but also digging into the less obvious ways people, like you and me, pitch in with time and money.

This is already happening within other areas. The famous ‘green moment’ in economics came when more inclusive ways of accounting laid bare the degree to which standard GDP-measured growth tapped into unpriced but valuable environmental resources.

We found out we had been growing GDP often at the expense of depleting and otherwise stressing nature – a cost which had not even been accounted for.

In the same vein, our research aims to shine a wider light on less visible resource flows of time and money between parents and their children, since this can reveal how much we tap into a hidden and undervalued world of transfers within families.

Parents contribute two and a half times more resources than non-parents

A fuller accounting for intergenerational transfers truly shifts perspectives, and not just marginally, as our research shows.

We find that parents in Europe contribute somewhat fewer net taxes than non-parents. Over the working life, parents in Europe contribute on average about one-quarter fewer net taxes than non-parents.

But, away from the statistical limelight, parents additionally provide large transfers of time and money to their own children; so large that they radically change the entire picture.

When we value all flows of private time and money, parents turn out to contribute over two-and-a-half times more resources overall than non-parents.

Shining a wider light really changes our understanding of the cost of children, and who shoulders it.

We don't fully recognise how much parents really contribute when raising a child

Why do such large asymmetries in cost-sharing matter? Rearing children is not just a personal lifestyle choice. Children are also public goods.

As they grow up to become taxpayers, social security contributors, caregivers and parents in their turn, children will finance future public goods and welfare states. All of this will then also benefit non-parents.

Hence childrearing creates positive externalities. To be sure, another part of parental transfers resembles pure consumption by the parents, though precisely how much is hard to pinpoint.

For instance, we can all agree that children need decent, functional clothes and shoes - but probably not that children need multiple sets of expensive, branded clothes or shoes every half a season.

Other types of private transfers by parents are meant to give their own children an extra helping hand in life.

Not valuing the child-rearing costs creates fewer productive adults

A key reason why not fully valuing parental efforts (even though these may well be freely engaged in) matters a lot nevertheless, is that not counting the positive externalities of a good generally leads to a reduction in the quality of that good being produced.

If societies do not fully value the time- and money cost associated with raising children, they risk producing too few productive adults, because then it's less attractive for parents to have children and to spend time and money on parenting.

This puts the intergenerational social contract under severe strain. Ultimately, labour markets and welfare states could not continue to function well without the human capabilities of subsequent generations.

Debunking another ‘stork theory’

Currently, policies don't fully consider how the resources that welfare states and labor markets rely on were generated in the first place. To put it another way, societies adhere to a ‘stork theory’ that needs debunking.

Just as newborn infants are not actually delivered by storks, resource-productive adults do not just drop fully formed out of the sky. Rather, they are delivered to society after a further twenty-five years of child-rearing, financed to some degree by all taxpayers but to a larger degree by their own parents.

Unless immigration on a much larger scale than today somehow becomes politically desirable, the renewal of societies, economies, and welfare states crucially depends on both the size (‘quantity’) and the productivity and capabilities (‘quality’) of successive generations – and therefore on what mainly parents do.

This is why childrearing acquires the deeper status of producing, also, a socially necessary public good.

We tax child-rearing implicitly

Many activities that have a positive impact on our common welfare, such as charitable donations, private savings or investments in green technologies and a more sustainable lifestyle, are awarded tax credits.

But when parents produce a positive impact on society by raising a child who becomes a resource for the labour market and pays taxes to our welfare state, they shoulder a significant extra resource contribution load in terms of the money and time they spend besides their taxes.

To give an impression of how much ‘extra’, we estimated the full ‘tax’ rates, in terms of time, money and taxes combined, which societies implicitly impose on child-rearing in our study.

Though this ‘child tax’ rate is only metaphorical, it gives an idea about current policy priorities.

We find that ‘child tax’ rates are much higher than the 12 percent average value-added tax rates that are actually in place in Europe on consumption goods such as food, clothes and electronics.

Is it really a good policy to tax children more than consumption goods?

We already know the non-valuation from elsewhere…

Most people today agree that there is something quite wrongheaded about two other widespread societal (non-)valuation practices: motherhood penalties and carer penalties in the labor market.

Mothers love their children and carers love their jobs. These, too, are presumably freely chosen pursuits.

Yet paying lower wages to mothers and carers, and thereby imposing an implicit earnings penalty, is akin to freeriding on that love: a form of exploitation.

As care expert Nancy Folbre put it: When societies take prisoners of love, it does not benefit them in the long run. This is an unsustainable policy.

We should discuss the hidden hours of labour and the monetary costs of raising children in the same way.

Neglecting the invisible costs will affect parenting decisions

Better accounting for invisible value production by families substantially changes how we understand, let alone address, families and family policy as a political topic.

When parents contribute over two-and-a-half times more resources than non-parents, this captures the sheer magnitude of the hidden asymmetry in cost-sharing.

The large size of the still-privatised cost of child-rearing will affect parenting decisions and will lower fertility levels.

Across Europe, parents have consistently fewer children than they would like. And European societies have long grappled with fertility rates well below replacement level, high or still-increasing levels of childlessness, and larger, longer-living elderly populations.

Toward a more complete human capability policy paradigm

Yet despite these adverse demographic trends, societies unwittingly and implicitly tax rather than subsidize their own reproduction. In the long run, this is an unsustainable policy.

To secure sustainable future foundations and avoid becoming a continent of gerontocracies, Europe needs to make its currently elderly-oriented welfare states more intergenerationally balanced and still more human capital-oriented.

Aging European countries need to design yet more extensive and holistic policy models to better assist, value and incentivize the work of parents, carers and educators – those who nurture the human capabilities that will later sustain us all.