3. Basic economic arguments for family policy and basic
decisions in designing family policy
Reviewing the economic arguments for measures in favour of families there are in particular
two lines of argument based on allocation and distribution:
Allocation: Families contribute to the creation and improvement of human capital in a society
as a whole as well as for specific institutions like social insurance. This is an argument for
rewarding what families do, for an allocative family policy. This argument is not based on the
burden of caring for children etc. but on the welfare gains a society has by participating in the
existence of children and the education children receive within the family.
Distribution: To raise children is not without costs. There are direct costs for caring for
children etc., but also costs like foregone wages in case of not being employed or only
employed part-time instead of full-time. Some equalisation measures are needed to
compensate at least partially for these costs families have to bear.
Both types of argument are often used together when proposing specific measures. But there
is also a third type of argument.
Population Policy: A further argument is not only to reward the contribution of families for
society or social insurance by raising children but to give incentives for increasing the number
of children. This pro-natalist argument was not much used directly in Germany for a long
time.4 However, some demographers and persons very much engaged in family policy argue
in favour of a population policy pointing at the challenges arising from a reduction in the
number of people and from demographic ageing as well as from problems to compensate (at
least part) of the deficit in the number of births by importing people, that means by an active
immigration policy. The costs of integrating immigrants can be high because it must be
expected that a great number of immigrants will come from countries with quite different
cultural heritage. The reason for this is that most of our neighbour countries and highly
industrialised countries in general are more or less facing a similar demographic development
and therefore will not be a remarkable source of immigrants for Germany.
In economic literature the argument based on allocation is a prominent one. It is also
important in the debate on social security and family policy. Raising children has positive
externalities for the whole society and especially for those who did not raise children.
Families therefore should be compensated in general and in particular within social insurance
schemes.
4 After the Second World War it was a taboo for many years to argue along this line because of
the negative experience made in Germany during the Nazi period with a „population policy“.