Wednesday, December 27, 2006

Tuesday column: Births, conceptions and deaths. Money changes everything.

If you’ve got a birthday around now, my commiserations.

If you haven’t, you probably know someone who has and you are familiar with their pitiful refrain: people born late in December miss out on presents and recognition - their birthday celebrations get caught up in Christmas.

Think how much worse it would be if you lived in the United States.

According to the New York Times most years nowadays the biggest single day for birthdays lies between Christmas Day and New Years Day.

It didn’t used to be the case. Until around 15 years ago the busiest days for American births were always in September, nine months after the cold winter...

Around 15 years ago two things changed. One is that it became easier for parents and their doctors to manipulate the date on which their child was born. Births can now easily be brought forward with drugs or brought on early with caesareans.

The other was a steady escalation in the size of US federal government tax breaks to families that had a child. A quirk in the design of the US system means that parents can claim a full year’s tax break (worth more than $1,000) even if their child is alive for just one day or one minute of that calendar year. As a result a baby born before 11.59pm on December 31 is always worth $1,000 more than a baby born a few minutes or days later.

It is hard to imagine that anyone would deliberately bring forward the birth of their baby, possibly endangering its health, in order to earn an $1,000.

Certainly our own Treasurer Peter Costello laughed at the suggestion that such of thing would happen here as a result of the introduction of his baby bonus.

And yet according to Assistant Professor Amitabh Chandra of Harvard University each year some 5,000 American babies are born in the last week of December that would normally have been born in the first week of January.

This doesn’t mean that every parent who has a baby in the last week of December chooses that week for the money. 70,000 babies are born each week at around that time of year.

But it does mean that money has a subtle often-unseen effect on the most private of our decisions.

Many years ago Paul Hogan was hailed as the saviour of Australian tourism for his “throw another saviour on the Barbie” TV ads. And it is true that the number of visitors from North America did jump dramatically at that time. But Geoff Carmody of Access Economics took me aside and showed me a graph tracking Australia’s tourist numbers against the value of the Australian dollar. I was astounded to see how closely the two moved in tandem. When the Aussie rose, tourist numbers dropped, when it dived, as it did at about the time the Hogan ads were said to be working, the number of US tourists soared.

This doesn’t mean that each extra American tourist who came here consciously decided to do so because they knew it would be cheaper. Many would have thought they were influenced by the ads, and would certainly have been more likely to say so.

But somewhere inside some of them money was making the difference.

Australian mothers seem just as receptive to money as do mothers in the US.

As it happens Australia leads the world in researching the effect of money on the timing of births, conceptions and deaths. Economists Andrew Leigh from the ANU and Joshua Gans from the University of Melbourne have been on the Treasurer’s case for some time now.

When Peter Costello joked on budget night in May 2004 “you should have, if you can, one for your husband, one for your wife and one for the country” he would not have imagined that the $3,000 Baby Bonus he was introducing would be so effective. It was due to come into effect ten weeks later, on July 1 2004.

July 1 turned out not only to be the biggest day for births that year, but also the biggest day for births in any of the previous three decades. The second–biggest day for births in those three decades was July 2, 2004.

Day-by-day birth numbers give a good indication. On Wednesday June 30, a total of 490 births were recorded. On the next day, the first day of the baby bonus, the number of recorded births jumped to 978.

Dr Leigh believes that in total some 1,000 births were moved from one financial year to the next.

He says where this involved the falsification of hospital records it would have done no harm. Where a baby was induced to come a day or two earlier it probably would have done little harm. But he says at least 170 mothers appeared to moved their birth dates by more than seven days, potentially exposing themselves and their children to considerable risk.

It’s not only mothers who move births. Doctors Leigh and Gans examined what happened to births during obstetricians and gynecologists’ conferences. They found that in Australia and the US the number of births fell by 4 per cent and 2 per cent during the days the conferences took place.

Biology appears to be more malleable than many of us think.

I doubt whether Peter Costello really expected a jump in the birth rate when he made that joke about having one for the country. He generally sold the policy in terms of rewarding parents rather than creating them. After all, who would have an extra child in order to earn an extra $3,000?

And yet, in the winter months immediately following the Treasurer’s announcement more Australians conceived than at any time in the previous ten years.

They didn’t create their children in order to earn $3,000 (now $4,000 and set to rise to $5,000 in 2008). That isn’t how financial incentives work. What did happen was that enough people who were considering having children anyway took the extra money into account just enough to make their calculation different enough to push them over the line.

It can happen when we die as well. In mid 1979 Australia abolished federal death duties.

Doctors Gans and Leigh have found that about 50 Australians appeared to will themselves to live just a few weeks longer at around that time in order to take advantage of the change.

As a proportion of the small number of Australians who faced death duties it is a very large effect. Gans and Leigh find that over half of the Australians who were due to pay the death duty in its final week of operation managed to escape it.

Money effects the most intimate of our decisions far more than we realise. I am told it even helps some people decide whom they will marry. But most of the time we don’t admit it, even to ourselves. It is only when economists look at graphs or dig through statistics that they can see decisions being swayed. And even then, it is always someone else who is turned by the money, never you or me.

UPDATE: Joshua Gans and Andrew Leigh write about their work here.