TALLINN, Estonia — Pia Kurro sat cross-legged on her bed in a drab, Soviet-era maternity ward that smelled of detergent and old linoleum and breast-fed her two-day-old daughter, Syria, who owes her existence to state subsidies.

In return for having the child, Ms. Kurro will receive the equivalent of $1,560 a month from her government for over a year, a lot of money in a country where the average monthly salary is $650.

“I would not have had a baby without the support,” said the 39-year-old business consultant.

Ms. Kurro embodies an increasingly urgent question: Can government policies aimed at raising a nation’s birthrate actually work? The answer is vital to the future of the global economy. Like most developed countries around the world, Estonia has a critical shortfall of children that, if not reversed, will lead to a sharply aging and shrinking population. That will undermine economic growth and public finances as a dwindling work force struggles to support a growing pool of retirees who are living longer.

A handful of developed countries, including the Nordic nations and France, have stable populations thanks to a long tradition of financial support for families. But for other countries in Europe and Asia that have already seen steep falls in birthrates, demographers have doubted there was much that could be done. Governments agreed, making little serious attempt to boost their birthrates. Estonia stands out because it has made a dramatic shift, from laissez-faire to aggressive activism, in an attempt to alter its future. And as other nations slowly start to address the risk of declining birthrates, the effort there is being closely watched around the world.

Estonia’s wake-up call came in 2001, when the United Nations’ annual world-population report showed that Estonia was one of the fastest-shrinking nations on earth, at risk of losing nearly half its 1.4 million people by mid-century. Estonia’s fertility rate — the average number of children a woman bears — had collapsed to 1.3 in the late 1990s, down from 2.2 under communism only a decade earlier.

In an attempt to stop that downward spiral, Estonia took a bold step: In 2004 it began paying women to have babies. Working women who take time off after giving birth get their entire monthly income for up to 15 months, up to a ceiling of $1,560. Non-wage-earners get $200 a month. The welfare perk — known locally as the “mother’s salary” — was a sharp about-face for the radically free-market government.

“Step by step, [the declining birthrate] became a danger to the survival of the nation, so we had to do something,” says Paul-Eerik Rummo, minister for population affairs and a member of the Reform Party in Estonia’s ruling coalition.

Tentative Results
Now, two years into the program, the government is seeing some of the first tentative results. Since the adoption of the new benefits, Estonia’s fertility rate has improved to 1.5. That’s still below the 2.1 children needed to stop the population from shrinking (one child to replace each parent, plus some room to allow for child mortality). And it will take years to see the full impact of the mother’s salary. But the apparent early success has inspired the government to look at other ways of getting people to have more children — everything from subsidies for nannies to linking pension payments to the number of children one has.

Many countries once loath to meddle in matters of fertility are looking at their numbers and concluding that they must take similar steps. “Governments may not achieve their aim, but the competing risk of doing nothing is too great for many countries — their future young labor supplies are going to be decimated,” says Peter McDonald, professor of demography at the Australian National University in Canberra.

The fertility rate in the 30 countries of the Organization for Economic Cooperation and Development, the club of the world’s leading industrialized democracies, was only 1.6 in 2005, down from 2.4 in 1970. Mexico, at 2.4, is the highest, with South Korea the lowest at 1.1. Demographers say the decline is due to fundamental changes in society. They include: greater economic opportunities for women; advances in birth control that have made reproduction a matter of choice rather than accident; and the spread of ideas about individual freedom and happiness that are hard to reconcile with caring for a large family.

Some European countries are experimenting with monthly cash compensation to women who leave work to have babies, including Lithuania, Austria and Slovenia. Starting next year, Germany and Bulgaria plan to pay new mothers benefits linked to their previous earnings. Russian President Vladimir Putin, who bemoaned his country’s lack of children in his last state-of-the-nation speech in May, has also promised more aid to parents.

Elsewhere, Australia introduced in 2004 a one-time bonus per baby, currently worth about $3,000. The fertility rate is believed to have risen slightly thanks to a combination of the incentive and a booming economy, but is still around 1.8. Australia’s finance minister has even exhorted parents to “do your patriotic duty tonight,” echoing similar campaigns in the city-state of Singapore, which is still struggling with a fertility rate that hovers barely above 1.2. South Korea has introduced several policies this year, including more financial aid for day care and for fertility treatment.

Payments such as Estonia’s are predictably controversial. Some demographers argue that paying people to have a baby simply makes them have one earlier; it doesn’t necessarily make them have more. That point is tough to prove for now: Only after the current generation of young women passes menopause will it be clear whether they had more children in their fertile years than women of an earlier age group.

But the experience in places such as France and the Nordic countries suggests that incentives can have an impact. For example, women in Sweden and Norway, which support families with generous benefits, labor laws and child care, have close to two children on average. “Where there are consistent family-oriented policies in place for a long time, people have more children,” says Tomas Sobotka of the Vienna Institute of Demography.

The main exception to the rule is the U.S., where the average woman has two children, despite only modest public support for families, largely via tax breaks. Demographers say America’s tradition of mass immigration and its large minority populations make it unusual among developed nations. Hispanics, in particular, boost national fertility, with more than three children per woman. The U.S.’s population passed 300 million this week, according to the Census Bureau’s estimate. About 55% of America’s population growth is due to legal and illegal immigrants and their children, according to the Population Reference Bureau in Washington.

Estonia’s experience shows what may lie ahead for many countries. Since it regained its independence from the Soviet Union in 1991, the small Baltic country has emerged as one of the fastest-growing economies in the world and is now a member of the European Union. Along the way, family dynamics in Estonia raced through a transformation in 15 years that took a century in many other countries.

For many, a spartan but stable lifestyle under communism preserved traditional family customs longer than in the West. Estonians tended to marry young and have two or more children despite hardship and little help from the state.

Different World
The world looked very different to many young, educated Estonians only a few years later. Miina Puusepp and Aive Levandi, both age 36 now, were 21 when Estonia broke from the Soviet Union, offering up new opportunities that pushed having children into the background. “After independence, the world was suddenly open,” said Ms. Puusepp, sitting with her friend in a Tallinn cafe.

The two young women worked and studied around Europe during the 1990s, eventually building careers in marketing and tourism. Ms. Levandi has had one boyfriend for the past 12 years. They didn’t want to start a family because it would have cramped the couple’s lifestyle. “We are living a full life, traveling a lot,” Ms. Levandi said.

Meanwhile, many working-class Estonians were putting off thoughts of childbearing, too, but for different reasons: They saw their real incomes and job security eroded.

The Estonian government had dismantled welfare provisions — even closing many kindergartens — and pursued some of the most radically free-market policies in Europe. The country became a model for light business regulation. It encouraged investment and entrepreneurship with flat-rate income taxes and no tax on reinvested corporate profits. Economic growth soared, topping 10% in 1997. But the benefits flowed more to newer service industries and entrepreneurs — and less to the old-line heavy industries that nonskilled workers relied on.

The U.N.’s 2001 warning that Estonia’s population would almost halve by mid-century was widely publicized, pushing the plunging birthrate to the center of national politics. When the country held elections in 2003, fertility was the main issue along with tax cuts. Every party promised generous financial aid for families. The Reform Party, previously known for championing small government, proposed the mother’s salary, arguing that in a country where most women work, women needed to have their income protected if they were to have children.

Now, Estonia’s government is debating other measures, such as subsidizing nannies and private day care. Currently in Tallinn, there are waiting lists of as much as three years for day-care centers. Only the relatively wealthy can afford a nanny to bridge the time between the mother’s salary and kindergarten.

Advisers to the population minister are also studying different ways to link people’s pension entitlements to the number of children they had. And the government is expanding pre-abortion counseling, in the hope of giving more women confidence that they can cope with a baby, and of reducing the country’s high abortion rate.

“Estonia should be a test site for the rest of Europe,” says Kristina Täht, who advises the population minister on family policies.

Many Estonians say the mother’s salary is contributing to a change in climate. Indeed, for the capital of a country that’s critically short of children, pregnant women and mothers pushing strollers are a surprisingly common sight in Tallinn — a new trend many locals are quick to comment on.

At the Merimetsa mall near Tallinn’s Baltic seafront recently, Leila Niidas pushed her five-month-old daughter Annaliisa in a stroller. “In the past I didn’t see little children in the streets. Now it’s crazy how many children you see here,” she said.

Now 41, Ms. Niidas decided last year to have a third child, 15 years after her second child was born. She wouldn’t have had Annaliisa, she said, if the government hadn’t ponied up, replacing the income from her marketing job at Hansabank, the country’s largest bank.

“My husband’s salary would not have been enough,” Ms. Niidas said. “We spend all that we earn.” In addition to paying loans on the family’s large four-room apartment and upmarket Audi station wagon, she has a 19-year-old son who wants to go to college in Florida, where he recently spent his last year of high school.

Not surprisingly, the mother’s salary has had the biggest impact on the birthrate of affluent, career-oriented women, because the amount is linked to the mother’s previous wages. Researchers at Tallinn think tank Praxis say the biggest statistical change is that more high-salaried women are having second and third children. While Ms. Niidas’s higher income qualifies her for the maximum $1,560 monthly benefit, less well-off Estonians get less help.

“To me it seems an unfair way to divide the government’s money,” says Hanna Kaptein, 25, who gets the minimum rate of $200 a month because she had a baby right after graduating from university and wasn’t working yet. Her husband, Veljo, a church pastor, earns only $650 a month.

He jokes that if the family’s washing machine breaks down once more, they will need another baby to get more benefits to pay for the repair.

Source: In Estonia, Paying Women To Have Babies Is Paying Off, Wall Street Journal