The Easterlin Effect

Abstract

The Easterlin effect posits cyclical changes in demographic and social behavior as the result of fluctuations in birth rates and cohort size during the post-World War II period. Large cohort size reduces the economic opportunities of its members and reduces income relative to smaller parental generations. Low relative economic status in turn leads to lower fertility, higher rates of female labor force participation, later marriage, higher divorce and illegitimacy, and increasing homicide, suicide, and alienation. Cycles in birth rates and cohort size suggest that the small baby bust cohorts entering adulthood in the 1990s will enjoy higher relative income, more traditional family structures, and lower levels of social disorganization. Of interest to economists and sociologists, the Easterlin effect has generated a large literature in the several decades since it was first proposed. Our review of the empirical studies notes the diversity of support across behaviors, time periods, and nations. Up to 1980, changes in wages, fertility, and social disorganization closely matched cohort size, but individual-level studies found little influence of relative income within cohorts. Further, the correspondence of the trends ends in the 1980s and appears in few countries other than the United States. Our review emphasizes both the contingent nature of the Easterlin effect and the way in which conditions have changed in recent decades to reduce the salience of cohort size for social and demographic behavior.