As regular readers know, Andrew Leigh and I have been conducting a research program with the broad theme of ‘unusual days.’ Thus, far we have identified 1st July, 1979, 1st January, 2000, 1st April (every year) and 29th February (when it occurs). But the most unusual day we have found thusfar is 1st July, 2004; the day the Australian government started paying $3,000 for every baby born.

Andrew provides the nicer scholarly exposition of this on his blog. But let me do this as a story. On the evening on 11th May, 2004, I was listening to Peter Costello give the budget speech. There is not much that usually grabs my attention, but this did …

the Government will roll together the existing Maternity Allowance and the Baby Bonus into a new payment, a Maternity Payment, to be paid to all mothers on the birth of a child. The payment will be a lump sum of $3,000 from 1 July and will rise to $5,000 by 1 July 2008. Those who are receiving the current Baby Bonus will keep that entitlement where it is higher than this. The Maternity Payment recognises the cost of a new child and will assist all mothers many of whom leave the workforce and leave paid work at the time of the birth of their child.

‘We’ were 7 months pregnant with our third child and so my reaction was ‘woo hoo, next year I will be watching this speech on a plasma screen TV.’ A few seconds later I ran to check on what the due date of our baby was. By the time you get to a third child you don’t have all of the details at your fingertips and I had a vague notion of July; but was it early or late July? It turned out to be the 24th July. ‘Phew’ that gives us alot of room. My partner was unimpressed though when I strongly suggested that we make sure we reach July. Her preference (quite reasonably) is the sooner the better.

My final immediate reaction was: “there are going to be no babies born on the 30th June, 2004.” My reason for that was purely economic. I figured that it wouldn’t be too hard to alter birth certificates and the like and that that would happen. That is pretty cynical I know but I am an economist. I must admit, given my partner’s preferences on length of pregnancy, that ‘fiddling the books’ was the main thing that might happen as a result of all of this. The powers that be suggested nothing would happen [From the 7:30 Report, 1st July, 2004]

TIM LESTER: Minister, with the benefit of hindsight, would it have been better to have announced and introduced this policy on the same day?
KAY PATTERSON: This policy is a bonus to families.
TIM LESTER: That doesn’t answer my question, though, with respect, Minister.
Would it have been better to have announced and introduced this policy at the same time?
KAY PATTERSON: I believe this is a fantastic policy for mothers, they’re going to get $3,000 —
TIM LESTER: Minister, that still doesn’t answer my question with respect.
Would it have been better to have announced and introduced this policy at the same time?
KAY PATTERSON: Well if I thought that mothers would put their babies at risk, but I don’t believe mothers would put them at risk.

Usually, governments try to avoid giving people big incentives for fraud or to affect medical decisions. This time the Federal government — admittedly to save $100 million — had done the opposite. For nearly two years I wondered what the affect might be.

This year the daily births data became available and we found out. Here is Figure 1 from our paper. (Click here for the paper, “Born on the First of July”):
Baby Bonus Fig 1

The data speaks for itself. Indeed, the 1st July, 2004, had the most number of births in a single day over the entire 30 years of data we had (almost 11,000 days). The 2nd July was no slouch either, being the 7th highest day. This was a big effect. Over 1000 births across the country were shifted obsensively as a result of the introduction of the baby bonus.

Was it ‘fiddling the books’? If it was there wouldn’t be a big worry as real stuff was actually affected. But we don’t think there was any (or much) of this. Instead, births themselves were shifted. Something that is much more worrying. We know this because (1) when we look at the types of procedures, it was all in inducements and cesareans. ‘Normal’ deliveries were unaffected; something that would not be the case if books were fiddled; and (2) June was an unusually low month for births and July (as a whole) was an unusually high month. Indeed, one quarter of all births were shifted by more than two weeks!

When we arrived at hospital on the 25th July, it was still crowded and nursing staff told us that it had been a very busy month. They were using the over-flow wing and the usual eagerness to schedule an inducement for us had been absent. This means that our birthday was disrupted because of the major disruption earlier in the month. A considerable external effect.

Maternity hospitals are a nice planned business. They know who is coming and approximately when. They don’t have to deal with epidemics and accidents. To face such a major disruption across the whole country is worrying. Were staffing levels appropriate? How much can many babies birth dates be shifted? I don’t know the answers to these questions but the disruptive event on 1st July 2004 is an opportunity for health researchers to find out.

But there is more. On 1st July this year, the bonus will increase from $3000 to $4000. Now, a $1000 marginal incentive is not as high but that day is a Saturday (1st July, 2004 was a weekday). That means that the disruption will occur on a day that is normally quiet for hospitals. Dealing with this will require more planning and care. Our hope is that hospitals and parents learn from the 2004 experience and take it into account this time around.

Of course, the better thing would be for the Australian government to take it into account and not introduce policies this way. In my mind, the Baby Bonus has no real economic merit anyway. But to introduce it in this poor way doubles any wrong. And to do it every two years, more and more so. Yes, they saved $100 million in payments from May – June 2004 by doing this but these were payments that they thought had merit afterwards. Was it really worth it?

[Update: thanks to the media attention, some interesting stories are coming out. Here is a link to them.]

18 Responses to The most unusual day

  1. Matthew Kwan says:

    Since the intention of the baby bonus was to increase the birthrate, the sensible approach would have been to schedule its introduction nine months in the future. Although that may have resulted in a brief spike in abortions, the government would have avoided paying for seven months worth of births that would have occurred anyway.

  2. [...] First to the presses on the baby bonus story, AAP on The Australian website and Fairfax; just with the press release. [...]

  3. [...] [Cross posted at Game Theorist] With all of this baby bonus stuff, I thought I would recount how all this looked to my 7 year old. Back in 2004 (when she was 5), I explained to her that the government was going to give us “$3000 for her baby sister.” I remember that she was horrified. “I don’t think we should give her away for that.” I guess I needed to choose my words more carefully. I tried to explain that they were just giving us the money and we could keep the baby which is why they called it a ‘baby bonus.’ [...]

  4. [...] While it may have had some media attention in Australia, the baby bonus paper has also drawn the attention of bloggers. [...]

  5. [...] Brandon Fuller at the News for Econ Students blog has provided a thoughtful write-up about the baby bonus. He puts it in the context of policies designed to increase fertility and the demographic issues associated with fiscal management. Of course, in my opinion, the association is an extremely kind one for the Australian government. The baby bonus may be rationalised as some fertility drive although, as I have already noted, it is a dubious one relative to other options. Me thinks all this had much less to do with future demographics than a future election later in 2004. [...]

  6. [...] Yesterday was the 1st July, 2006. It was also the day that Australia’s baby bonus rose by $834. But was this enough to cause the kind of disruption that we saw on 1st July, 2004, when the $3000 baby bonus was introduced? [...]

  7. Kwanghui says:

    Hi Joshua and Andrew,

    Sometime back I mentioned to you that Singapore has had a “baby bonus” program for some time now. A key feature is the non-linear pricing scheme: 1st child = $3k, 2nd child=$9k, 3rd & 4th child = $18k (not a typo!). Plus the govt will match each dollar put into a savings acct under the child’s name.
    –> http://www.babybonus.gov.sg/

    Well, last week the Singapore Prime Minister announced that these schemes have not pushed up the bithrate by much.
    So they are turning to immigration instead.
    http://www.channelnewsasia.com/stories/singaporelocalnews/view/226434/1/.html

    From what I know, the baby bonus does have a positive incentive effect (several more couples are having babies), but supply is quite inelastic.

  8. [...] Perhaps the most significant finding of the unusual days project by Andrew Leigh and myself was the massive disruption to maternity hospitals due to the introduction of the baby bonus (click here). This interesting article from The New Yorker outlines the history of innovations in managing the risks associated with childbirth. It is readily apparent that the one thing that maternity hospitals cannot really tolerate would be congestion. [...]

  9. [...] In this light, it is fascinating to read the work of Australian economists Joshua Gans & Andrew Leigh on unusual days, which showed the way that one-off changes by government in the prices of death and birth had significant effects on social behaviour as individuals altered their choices in order to maximise their wealth (or, in the circumstance of the 1979 abolition of inheritance taxes, the wealth of their beneficiaries). In summary, Gans & Leigh found that half of those eligible to pay inheritance taxes in the week before their abolition delayed their deaths until after their abolition; and that up to 1,000 couples delayed the births of their children in order to be eligible for the baby bonus when it came into effect in 2004. [...]

  10. fisher says:

    The gender wage gap has been converging since the ’70s and with this baby bonus maybe more females will step down from their positions of power and instead change nappies for the rest of their lives. Then us men can take over the world again, or at least Australia.

  11. [...] The idea that people time births will be no surprise to readers of this blog. Indeed, in the US, July used to be the big month. “But July lost the honor as the tax code became ever kinder to families with children. The child tax credit, now worth up to $1,000, made its debut in 1998, and the earned-income tax credit, an anti-poverty policy that’s more generous to families with at least two kids, became much larger in the 90s. The personal exemption, for its part, has risen along with inflation, reaching $3,300 this year. [...]

  12. [...] We know what happens when you give parents a $3000 incentive to delay their births. But what about $39000? [...]

  13. [...] those subscribing to the email list. On a big day that could move to the thousands as it did when Andrew Leigh and I released our baby bonus paper or I wondered about how fair Starbucks was. I was also one of the few sources of information about [...]

  14. [...] readers know the disruption poorly implemented policies to stimulate birth rates can cause (click here). But those lessons do not seem to stop governments from continuing on with the practice (Germany [...]

  15. [...] was a bump in viewers when Andrew Leigh and I released our baby bonus research in June last year, and another one in November when Dan Drezner referred to my Fairtrade post. But [...]

  16. [...] that time and so that month will likely be a high birth rate month. So it ads that dimension to the issues we saw in Australia. A bad policy, indeed, for any beleaguered maternity wards [...]

  17. [...] births were moved from the last week of June to the first week of July. This is compared with 1167 moved back in 2004. The movement was expected but the magnitude has surprised me. That said, $834 tax free is no small [...]

  18. [...] the issue is dead. These words echo those of the 2004 Minister, Kay Patterson. Of course, Patterson was speaking with the lense of ignorance and that isn’t the case [...]

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