More Less
More Less
March 11, 2019

The economic consequences of secularization

Opinion image

Data from the last 30 years show that Western countries are becoming more secular. That is, the proportion of individuals in these countries who are less likely to identify as associated with any kind of religious beliefs has increased. Most of these changes are due to differences across generations: younger generations are more secular than previous generations. Yet it is worth noting that still within generations there is a change in the proportion of individuals who identify as having any type of religious belief. Increased secularization at the national level is mostly explained by increases in income. The US, Europe, Canada, and Latin America all exhibit similar patterns of secularization.

This increase in secularism may have important implications for the economic well-being of a country. In particular, the literature in economics shows that increases in secularization (controlling for income level) are associated with worse economic and demographic outcomes. For example, the repeal of blue laws in the US—laws prohibiting shop-openings on Sundays and limiting alcohol sales—has been associated with a decrease in educational attainment and adult wages, as well as in an increase in crime, drug use, and drinking.

As secularization predicts worse socio-economic outcomes, religious participation predicts better outcomes. There is a large literature that shows the relationship between religious participation, labor market outcomes, and human capital. For example, income, schooling attainment and achievement have all been positively related to religious participation. In addition, religious participation also decreases welfare receipt, and decreases risky behaviors such as drug use, drinking, and crime. 

The two most likely explanations that explain how religion and secularization are related to economic well-being are: first, religion is associated with positive attitudes and social norms that promote economic growth. For example: cooperation, property rights enforcement, and saving. In addition, at the local level, religious organizations work as a social safety net, where the community provides role models and the members of the group support each other by mutually insuring against negative shocks. For example, within religious organizations members support each other in finding jobs, securing housing, or where the religious institution provides other types of public goods. This later effect is called the “Club Good Theory of Religion.”

But religion by itself is not a magic wand to achieve these improved demographic and economic outcomes. What seems most important to accrue these benefits is that countries have a competitive and plural religious landscape. That is, a landscape that improves the quality of religious services. In contrast, when there is no market for religion or there is a state religion, when individuals lack religious beliefs, the economy fails to observe these positive outcomes. 

As the incomes of Western societies increase and they become secularized, it may seem that little can be done to stop the muting of the positive outcomes associated with religion. I disagree. Three policies which might promote a competitive religious landscape and mitigate the impacts of secularization are to encourage freedom of beliefs, to promote interfaith dialogue, and to protect religious minorities from persecution and discrimination.

© Fernando A. Lozano

Read Fernando A. Lozano's full article, “The rise of secularism and its economic consequences.

Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.