Germany, like its graying European neighbors and Japan, has seen declining birthrates overload its pension system and raise the prospect of future labor shortages. A recent McKinsey survey of 450,000 Germans revealed that child care costs and the competing demands of work and family are the main impediments to having children. Indeed, 60 percent of the respondents pointed to the difficulty of combining parenthood and a career as a key cause of Germany's low birthrate—just 1.3 kids per woman (exhibit). What's more, 57 percent of 20- to 39-year-old women with one child said that they didn't want another, because it would adversely affect their careers.

By improving the country's child care options, however, the government could change these attitudes. Respondents said that the two most important elements of a family-friendly society would be adequate child care (51 percent) and flexible work schedules for parents (36 percent). Women aged 20 to 39 said that if affordable child care became widely available they would be significantly more willing to bear children. On the other hand, the women indicated that doubling the monthly government handout to €300 per...