David R. Henderson  

The Economics of Paid Parental Leave

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On her website, Democratic presidential candidate Hillary Clinton calls for "up to 12 weeks of paid family leave and medical leave" for an employee to "care for a new child or a seriously-ill family member." She claimed, in her acceptance speech for the Democratic presidential nomination, that this would benefit women with children. The good news is that she's right. The bad news, according to widely-accepted economic analysis and past evidence, is that the main people who would pay for this benefit would be women of child-bearing age.

Think of how employers would react to such a mandate. They would realize that the main people who would take advantage of paid parental leave would be women of child-bearing age. This makes those women less valuable to them as employees. So their demand--the amount they are willing to pay--for women in that category would fall. Women in that category, on the other hand, would be willing to work for less because the benefit is valuable. In economists' jargon, in short, both the demand curve and the supply curve would fall. The wages of those women, therefore, would fall.


This is from David R. Henderson, "Paid Parental Leave Is Not A Free Lunch," Forbes.com, August 26, 2016. It's a longer, more-detailed version of a post from earlier this month.

Read the whole thing. In it, I refer to one of my favorite Larry Summers articles.


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CATEGORIES: Labor Market , Regulation




COMMENTS (5 to date)
She claimed, in her acceptance speech for the Democratic presidential nomination, that this would benefit women with children. The good news is that she's right.

No, she probably isn't right. On balance, it would probably disadvantage women with children, since, as you say later, their earnings in dollars would be lower. It's a matter of the (foregone) opportunity costs.

After all, women already have the option of saving from their paychecks, on their own volition, for a period of maternity leave (self-financed). Having your employer do that for you is not necessarily more efficient, for that purpose.

Michael writes:

The proposed policy is vague about whether the paid leave would be available to new fathers. The argument in your article seems to be that if the benefit is only available to (or primarily used by) women then businesses will adjust by paying women lower salaries. Are you opposed to gender neutral paid leave for new parents? Your argument about the impact on wages would still apply but the affected classes would change I think (discriminating by age, perhaps).

Thanks!

David R. Henderson writes:

@Michael,
The proposed policy is vague about whether the paid leave would be available to new fathers.
Nothing in the proposal precludes this. I’m sure it would be available to fathers.
The argument in your article seems to be that if the benefit is only available to (or primarily used by) women then businesses will adjust by paying women lower salaries.
Correct. And I think it would be primarily used by women.
Are you opposed to gender neutral paid leave for new parents?
No. I’m against government interfering and forcing this on firms and workers.
Your argument about the impact on wages would still apply but the affected classes would change I think (discriminating by age, perhaps).
I agree with you if men took it in equal proportion to women. I doubt that though.

David R. Henderson writes:

@Patrick Sullivan,
On balance, it would probably disadvantage women with children, since, as you say later, their earnings in dollars would be lower. It's a matter of the (foregone) opportunity costs.
That’s absolutely right. That’s one of the main points of my article. You’re using the word “benefit” differently from how I’m using it. You’re using it to mean “net benefit.” I’m using it to mean “benefit.” The net benefit is less than zero. The benefit is positive, but it’s more than offset by cost.

Larry writes:

The piece is not complete without citing something empirical from a developed country that mandates this policy.

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