Published by EH.NET (May 2003)

Diane J. Macunovich, Birth Quake: The Baby Boom and Its Aftershocks. Chicago: University of Chicago Press, 2002. xiii + 314 pp. $37.50 (hardback), ISBN: 0-226-50083-7.

Reviewed for EH.NET by Randall J. Olsen, Department of Economics, Ohio State University.

Beginning with The Wealth of Nations the importance of the population and its skills to the economy have been a staple of economics. In this book Professor Macunovich presents an excellent, lucid, and non-technical narrative that applies the Easterlin hypothesis to economic movements over the past century. The Easterlin hypothesis focuses on the role of the relative income between a cohort and its parents’ income in determining aspirations for a standard of living and hence for fertility. Relative income for a cohort is held to be powerfully affected by the size of cohort relative to the surrounding birth cohorts. The role of relative cohort size is unquestionably important to an understanding of labor market dynamics, but we will turn to some reservations below. This treatise is accessible to just about everyone who has taken a year of economics and stayed awake. The lively writing style, succinct chapters, and wide range of areas to which she applies an examination of the impacts on relative cohort income and size engage the reader in a way most of us can only admire. She scatters a large number of insights throughout the book — treats the reader can uncover one at a time.

The Easterlin hypothesis has a powerful advantage over other economic theories when it comes to explaining the data series on fertility. Once a country has gone through the demographic transition to fertility rates near the replacement rate (a bit over two births), the fertility rate tends to stabilize. Any theory of fertility that looks at income effects or substitution effects (in the form of the value of women’s time as measured by the wage) as a driver of fertility must contend with the secular trend in these variables. Over the long term, trended variables must have problems explaining untrended variables. On the other hand, Macunovich measures relative income as the income of young men relative to the income they saw their parents generate, and this is a measure that is far less likely to have a substantial secular trend. In any long data series (and most of the data movements in fertility are manifested over fairly long time periods) the secular trend in income and wages are unlikely to match the fairly stationary (i.e. trendless) fluctuations in fertility.

The weakness in relating so many major, aggregate, demographic movements to relative income and relative cohort size is that in so doing, Macunovich deals with fairly short time series and tends to exclude an examination of competing time series as explanatory factors. A great many societal changes since World War II are competing claimants for explanatory power, yet most are credited with supporting roles at best. For example, we are eight pages into the chapter on women’s roles and labor force participation before the pill is explicitly mentioned. Likewise, the Vietnam War and international trade are brought in to help explain perturbations in demographic processes that appear unexplained by relative cohort size and relative income. The non-technical nature of the book precludes a detailed examination of co-movements among a wide variety of time series, but by providing little back-up to the proposition that data series other than relative income and relative cohort size have minor impacts on twentieth century demographic developments, some readers may wonder if there might not be more to the story. Any time one sees a claim that a time-series variable explains 99 percent of the variation in some other time-series variable (p. 157), skepticism is definitely in order.

I have a few minor quibbles with the text. First, the author displays fertility rates either for wide or narrow ranges of ages. This can conceal shifts in fertility timing over the life cycle and provide misleading evidence of shifts in fertility. For example, it is fairly well known that the post-war baby boom produced large aggregate shocks due to the imposition of catching up for postponed fertility during the war and a movement toward more fertility at younger ages. Looking at successive birth cohorts of women reveals a more attenuated baby boom than aggregate birth rates suggest.

Second, the book could pay more attention to developments that threaten the Easterlin hypothesis. Easterlin assumes an economy closed to migration. The substantial immigration in the past quarter century along with a very recent and growing trend toward business process outsourcing, which opens up a service sector previously immune to international competition, argue in favor of a great deal more attention being paid to international aspects. The sharp decline in the price of international bandwidth opens more businesses to opening virtual branch offices overseas that are connected to the US by telephone connections and Web-based office procedures. Suddenly a lot of economic activity that used to be internationally untraded becomes a traded service. The relevant labor market is increasingly global, reducing the potential impact of what the book comfortably measures as relative cohort size.

Third, the relative income construct on p. 74 operationalizes the Easterlin hypothesis in terms of the income of young adults relative to prime aged adults. Framed in this way, as opposed to life-cycle permanent income, one is likely to come to a rather discouraging variant of what relative incomes look like of late. Were the focus on permanent income, we would be more likely to conclude young couples see themselves as relatively prosperous, not deprived.

Finally, (and related to the previous point) the Easterlin hypothesis deserves a careful examination through the lens of micro data. Looking at relative income across cohorts based on aggregate data is less satisfying than an examination that builds on long-running panels for which the history of an individual’s parental income is readily available. Direct measures on parental income would make many of the relative income relationships less speculative and questionable. Demography as a field has become more likely to cross-examine theories with the large, powerful, multi-generational data sets in current use. The Easterlin hypothesis offers plenty of testable hypotheses for publishable work.

Nonetheless, this is a wonderful book to present the ideas of one strand of economic demography to a general readership. It would be an excellent vehicle to seed advanced undergraduates with ideas for senior theses and projects. Being less technical, the book allows the reader to wonder how various propositions could be subjected to independent scrutiny and testing. In places the text stretches the limits a bit, such as the brief foray into stock prices and relative cohort size, but anyone who believes that section deserves the fate that awaits them in the market. Overall this is an excellent book, although certainly not beach reading except for those with peculiar leisure time tastes.

Randall J. Olsen is Professor of Economics and Director, Center for Human Resource Research at Ohio State University. Among his publications are “Fertility and the Size of the U.S. Labor Force,” Journal of Economic Literature (March 1994).