Income Inequality, Human Capital Aspirations, and Fertility Decisions: Evidence from China

In the study of why people have children, economists and sociologists have long looked at two main forces: the money in a family's pocket and the society around them. For decades, the standard view held that as people get richer, they tend to have fewer children, trading quantity for quality. Yet, in recent years, China has faced a puzzling reality. Despite a government eager to boost birth rates and a population that is aging rapidly, the number of babies being born has continued to drop to historic lows. This has left researchers asking a difficult question: if money alone does not explain the trend, what does? To answer this, one must look beyond simple bank balances and consider how people feel about their place in the world. When individuals compare their lives to their neighbors, they form a sense of relative standing. If they feel they are falling behind, they experience a psychological state known as relative deprivation. This feeling can reshape how people view their future, their children's potential, and the costs of starting a family. Understanding these hidden psychological currents is essential to grasping why some societies struggle to grow their populations even as their economies evolve.

A team of researchers from Shandong University decided to investigate this specific dynamic in China, focusing on the link between income inequality and the decision to have children. They turned to a massive, detailed survey called the China Family Panel Studies, which tracks thousands of households across the country. By looking at data from 2014, they examined nearly 9,500 people of childbearing age. Their goal was to see if the gap between the rich and the poor in a region, or the feeling of being left behind compared to others, actually changed how many children people had. What they found challenged the common assumption that inequality simply discourages family life. Instead, their analysis revealed a counterintuitive pattern: in areas where the gap between the rich and the poor was wider, or where individuals felt a stronger sense of relative deprivation, people tended to have more children.

The researchers did not stop at observing this pattern; they dug deeper to understand the mechanism behind it. They discovered that the key to this relationship lay in what people expected for their own education and the education of their children. In a society with high income inequality, where the path to getting ahead seems blocked or uncertain, people often lower their educational ambitions. They begin to believe that no matter how hard they study or how much they invest in their children's schooling, the returns will be small. When these educational hopes fade, the perceived cost of having a child also drops. If parents do not expect to spend a fortune on elite schools or worry that their child will need a degree to survive, the financial and emotional weight of raising a child feels lighter. Consequently, the barrier to having more children lowers. The study showed that this drop in educational aspiration acts as a bridge, connecting the feeling of inequality to the decision to have a larger family.

To ensure this finding was not a fluke, the researchers tested their results in several ways. They checked if the results held true for both men and women, for different age groups, and even when they looked at how many children people said they wanted versus how many they actually had. They also used advanced statistical methods to rule out the possibility that having more children caused the inequality, rather than the other way around. In every test, the result remained consistent: higher inequality was linked to lower educational expectations, which in turn was linked to higher fertility. The effect was even stronger in places where people felt education was a serious problem or where public investment in schools was low. In these environments, the sense that education was a dead end was more acute, and the shift toward larger families was more pronounced.

This discovery suggests a complex tension in modern society. While reducing income inequality is a primary goal for creating a fairer world, the study indicates that doing so might inadvertently make people less likely to have children. In more equal societies, where education is seen as a reliable path to success, families often feel pressured to have fewer children so they can invest heavily in each one. In contrast, in unequal societies where that path seems broken, the pressure to invest heavily in a single child diminishes, and the traditional preference for larger families can resurface. The authors suggest that the solution for policymakers is not to choose between equity and population growth, but to focus on the quality and fairness of public education. By ensuring that every child has access to good schools and that the cost of education does not fall entirely on families, the government can maintain high educational aspirations without forcing parents to choose between having a child and securing their future. This approach could help balance the twin challenges of a shrinking population and a widening wealth gap, offering a path forward that respects both the need for a fair society and the desire for a growing one.