Are children really inferior goods?

It’s widely believed that children are inferior goods.

No, not that they are somehow defective or sub-par. And yes, I know it sounds horrible to call children a “good.” But they are goods, nonetheless—or they can at least be analyzed as such. A good is scarce and valuable. Children are scarce and valuable.

By inferior, I mean that demand for them falls as income rises. As a society becomes wealthier, people want and have less children, just like they want and have less outhouses, for example.

This is different than what economists call a “normal” good. Demand for normal goods increases as income rises. Think cars, vacations, designer sunglasses.

But I’m here to tell you that despite the evidence, children are not an inferior good. This has to do with two related and unique characteristics of children—ways they differ from most other economic goods.

1. Children aren’t always acquired on purpose.

This isn’t true of most other goods. When it is, we don’t call the proliferation of those goods evidence of “increased demand.”

Just because adults in poor societies have more children than adults in wealthy societies does not mean poor adults want more children. As you know, acquiring children can happen by “accident”—more often in poor countries, actually. Therefore, higher fertility rates in poorer countries does not necessarily mean higher demand for children. It may be that most adults ideally want no more than, say,  three children, but numbers four and five (or one and three, or two and four, or three and five, etc.) were not planned.

2. Children can’t easily be given up.

They can’t be sold (legally). They can’t be left on the roadside. This means that diminished demand for children would not necessarily manifest in lower numbers of children.

I can’t think of another good with this characteristic. Yes, diminished demand for children likely would manifest in lower fertility rates in countries where contraception is readily accessible. But in light of my point above, even falling fertility rates don’t necessarily mean lower demand for children. The fact that adults are legally obligated to keep and provide for their children (or find someone who will) means that the quantity of children in existence is no proxy for demand for children.

Here’s a helpful way to think about it…

Mr. and Mrs. Smith are wealthy Americans and want two children. They have two children exactly when they planned, unlike their parents who each had two more than they planned. Mr. and Mrs. Osunbor are poor Nigerians and want two children. They have four—two more than they planned, but less than the extra three each of their parents had.

An economist might look at the numbers and conclude that demand for children is higher in poor countries, and that fertility rates fall as countries become wealthier. Therefore, children are an inferior good.

But in this case, the numbers alone don’t tell the whole story. The Osunbors didn’t want all those children. They would have had only two if they had access to the same birth control as the Smiths. In most cases, it wouldn’t matter how much of a good people say they wanted—for purposes of doing economics, preferences are demonstrated. But in the case of children, they 1) can be acquired by accident, and 2) cannot easily be given up once acquired. Working together, these two characteristics make children almost impossible to analyze as economic goods. I don’t think we can know with current data whether demand for children truly falls as income rises, so we can’t quite call children an inferior good.

So I think I’ve figured this one out. Calling children an inferior good has always rubbed me the wrong way. I didn’t know why until these past few days. But now I’m all confused about normal vs. inferior goods. It’s always been explained to me in very simple terms: demand for normal goods rise with income, demand for inferior goods falls with income. Ramen noodles are a go-to example of an inferior good. Designer sunglasses are undoubtedly an example of a normal good.

But I’m sure demand for Ramen noodles is higher in the U.S. now than it was thirty years ago. Americans wealthier on average, yes, but there’s more poor Americans than before—they’re just smaller as a percentage of the total population (perhaps this isn’t true, but I’m just trying to make a point). So is Ramen a normal or inferior good? On an individual level, I’d bet it’s more often an inferior good, but I’m sure societal consumption increases as societal wealth grows.

It’s all relative, I guess.

Leave a Reply

Your email address will not be published. Required fields are marked *