Topic: Poverty & Social Welfare

Response to Current Affairs

Recently I’ve received some criticism on my position on paid leave as outlined in Parental Leave: Is There a Case for Government Action? In my report, I provide evidence that the private market is providing a growing amount of paid leave over time and I suggest that providing paid leave through a government mandate or social insurance program is likely to include a variety of trade-offs and/or may not meet some of advocate’s purported objectives.

Although Nathan J. Robinson’s criticism of my report is steeped in vitriol, it still provides an opportunity to clarify my position. If I had to boil his critique down to one or two major criticisms, it would be that, in his view 1) I did not include a representative discussion of the benefits of creating a government paid leave program (and some of these benefits are mentioned in papers I cite for costs) and 2) I do not take the same position as certain academics I cite.

To the first point: Although not obvious from the paper, when I speak about paid leave publicly, I almost always first state that paid parental leave holds benefits for companies and parents and I am in favor of businesses voluntarily providing paid leave.

Moreover, voluntarily provided paid parental leave arguably holds greater benefits for parents than government supported or mandated leave, because employers incorporate the costs and benefits of leave-taking into their business model and therefore have reduced incentives to discriminate against likely leave-takers, including childbearing-age women. 

Why focus this paper on government supported leave’s trade-offs? First and foremost, because research groups and news outlets have spilled untold amounts of ink describing possible and likely benefits of government supported paid leave elsewhere. Those benefits are mostly well-known in policy circles and easily understood.

The main contribution of this paper is to challenge the prevailing view that government benefits could be realized without costs or trade-offs to workers (and indeed, workers’ lives may not be “markedly improved” after all, once associated trade-offs are taken into account). Indeed, the paper is intended to bring some balance to the existing debate by outlining trade-offs that are rarely seriously considered.

The paper is not a comprehensive review of the paid leave literature. However, it does carefully and accurately relay findings from the paid leave literature on potential costs and trade-offs of government intervention.

The second criticism–that I do not share all the same views on paid leave as academics I cite–does not make sense. Think tank scholars and academics cite other scholars all the time whom they disagree with on many points. 

As always, I enjoy hearing thoughtful criticisms of my work but the Current Affairs’ critique is off the mark. Moreover, by selecting two Cato studies and drawing conclusions about the whole of Cato research, Robinson commits one of the logical errors he spends so much time deriding: cherry-picking.

Federal Jobs Guarantee Would Be Largest Single Global Employer, By Far

Max Gulker of the American Institute for Economic Research has a great short paper out summarizing the problems with a federal jobs guarantee. It echoes many of the issues that I raised about such a program on this blog.

One thing that is often underappreciated is just the sheer scale of the programs proposed. For reasons I outlined, the true numbers could potentially be much higher than the Levy Institute and Center on Budget and Policy Priorities (CBPP) worked proposals. But even taking their numbers as given, the estimated 10.7 million participants according to CBPP and 12.7-17.5 million from Levy would make the federal program by far the world’s largest employer, if thought as a single firm or entity.

Consider the striking chart below.

At the Levy report’s upper-bound estimate, the numbers employed would exceed the world’s nine largest employers combined. Even the CBPP’s lower estimate would only be marginally below the employment level of the world’s five largest employers combined.

Employment by entity

Would Government Paid Leave Benefits Grow Over Time?

Some advocates and policymakers think government should be involved in providing a limited or modest paid leave benefit, just 12 weeks or less. Their support seems implicitly contingent on the expectation that a paid leave entitlement wouldn’t grow, or wouldn’t grow much. But is there any evidence of that?

If the trajectories of OECD paid leave entitlements are any indication of the path a new U.S. entitlement would take then the answer is no. All OECD countries except one increased the length of their paid leave benefits substantially over time (see chart).

For example, the average length of paid maternity, parental, and home care leave entitlements in the Eurozone increased from 17 weeks in 1970 to 57 weeks in 2016. That means that the average duration of paid leave entitlements more than tripled over the period. OECD countries at-large follow the same trend.

In fact, the only country that reduced the length of its paid leave entitlement is Hungary. Hungary began with one of the most lengthy paid leave entitlements of any country; 162 weeks in 1970. In subsequent years Hungary reduced the length of that benefit by 2 weeks, to 160 weeks, which isn’t much. 

 

international paid leave entitlements 

Data source: OECD Family Database

In short, international programs demonstrate that paid leave benefits grow substantially over time, similar to other government entitlement programs. Supporters of government paid leave should be aware that current proposals aren’t likely to stay limited to 12 weeks or less in the longterm.

For more information on paid leave, see the new Cato report Parental Leave: Is There a Case for Government Action? or livestream today’s Capitol Hill event.

The Gender Pay Gap: Why We Fight The Narrative

The Economist reports on an interesting new study undertaken on differences in gender pay:

According to data for 8.7m employees worldwide gathered by Korn Ferry, a consultancy, women in Britain make just 1% less than men who have the same function and level at the same employer. In most European countries, the discrepancy is similarly small. These numbers do not show that the labour market is free of sex discrimination. However, they do suggest that the main problem today is not unequal pay for equal work, but whatever it is that leads women to be in lower-ranking jobs at lower-paying organisations.

The figures for Britain in the study break down as follows. The “raw” gender pay gap between all men and women is 28.6 percent. This falls to 9.3 percent once one controls for people being in the same level job. This falls further to 2.6 percent for the same level job at the same company, and to just 0.8 percent for the same level job at the same company with the same function. In other words, as free market economists have long explained, there is little to no evidence of overt company discrimination once one controls for observable factors (and beyond those here, things such as educational attainment, or years of continuous work experience).

Confronted with studies such as these, some commentators, and even some libertarians, pivot. They suggest that this kind of research attacks a straw man. Few people think it’s overt wage discrimination at an employer level that’s the problem, they say. The aggregate statistics though, which show women on average earn 82 percent of men’s median hourly earnings, are said to reflect other types of structural societal discrimination – in the subjects that young women are encouraged to study, hiring processes at firms, the nature of wage negotiation and much else besides.

The starting point that we would expect an aggregated pay gap of zero even in a world in which no overt or covert societal pressures exist is questionable. When free to choose, it’s unlikely gendered populations will make equal choices. And to the extent these commentators are right, it is unclear what the policy implications should be.

Nevertheless, most evidence suggests this is explicitly not what the public hear when they see talk about the gender pay gap. A recent YouGov survey in the U.K. asked the public what they thought when they heard of the term. Just 30 percent said that they thought it was about women, on aggregate, being paid less than men. A whopping 64 percent thought that it was about women being paid less than men for the same job. To be clear: the latter is not what the commonly cited aggregated statistics on the gender pay gap are about.

Gender pay gap survey

Politicians appear to misunderstand this too, and it leads to bad policy. After all, in developed countries one policy that they have pushed for is company-level disclosures– something that makes little sense if you are worried about society level structural problems.

It’s little surprise that the public interpret the term in this way then. Though in pure language terms both definitions might be acceptable, pay gap stories of the aggregate variety reported in the media regularly include irresponsible lines implying discrimination, such as “from this day onward, women work for free” or describe companies that have the largest gaps as “the worst offenders.”

In this environment of misinformation, it is important and worthwhile to continuously highlight what the pay gap shows, and what it doesn’t. The structuralists might have a point about broader drivers, but it’s not one helped by a raw measure that is used misleadingly and to advance policy positions which do not make sense according to the structuralist concern.

Read more on the gender pay gap here, here, and here.

What Would Government Paid Leave Cost Workers?

Cost estimates for new government programs usually vary depending on the source. For government paid leave, cost estimates depend on assumptions about benefit duration, wage replacement rate, eligibility requirements, and more.

A variety of real and hypothetical government paid leave programs are listed below, along with associated costs. 

Source Program specs Cost to average worker  Total annual cost Notes
AEI-Brookings Cost Calculator Similar to the FAMILY Act:
12 weeks paid, 70% wage replacement, $1000 max weekly benefit, FMLA take-up assumptions
0.89% payroll tax = $450/annually for average annual wage of $50,620 $76 billion This seems like a middle-of-the-road estimate.
This estimate uses a benefit profile that closely resembles the FAMILY Act.
American Action Forum FAMILY Act 2.1 percent payroll tax to cover the lower bound estimate = $1,063 annually for mean annual wage of $50,620
A 13.02 percent (997 bill/159 bill = 6.27 and 2.1%*6.27= 13.02%) payroll tax to cover the upper bound estimate = $6,590 annually for average annual wage of $50,620
$159 - $997.4 billion annually The lower bound estimate assumes that everyone that takes paid leave takes 12 weeks in a year. FMLA take-up rates are used.The upper bound number assumes that all workers take paid leave in a given year and is considered the “total cost exposure” of the policy.
Institute for Women’s Policy Research FAMILY Act About $5/week for average wage worker in 2016 = $255/annually for average wage worker $28.3 billion annually  
California – author’s calculation California policy:
6 weeks of family leave and 52 weeks of disability.
1.0 percent in California in 2018 (on wages up to the first $114,967 of earnings) = $506 annually for average worker with mean annual wage of $50,620 n/a This includes family and medical leave benefits, as well.
New Jersey – author’s calculation New Jersey policy:
6 weeks of family leave and 26 weeks of disability.
0.28% combined employee payroll tax + 0.5% employer payroll tax (on up to $33,700 for 2018) = $263 annually for average worker n/a This includes family leave insurance and state disability insurance (temporary medical insurance), as well.
This calculation assumes full pass through of employer payroll taxes associated with state disability insurance. Note that New Jersey payroll taxes are reset annually, so numbers are subject to change.
Rhode Island –author’s calculation Rhode Island policy:
4 weeks of family leave and 30 weeks of disability.
1.1 percent in Rhode Island in 2018 (on up to $69,300) = $557 annually for average worker with average annual wage of $50,620 n/a This includes both family and medical leave programs.

Adjusting the benefit profile of the program (for example, changing the length of benefit offering, wage replacement rate, or eligibility criteria), or changing take-up rate assumptions impacts these estimates.

For more information on the consequences of federal paid family leave, see the new Cato report Parental Leave: Is There a Case for Government Action?

Results from the 2018 Libertarianism vs. Conservatism Post-Debate Survey

As part of a yearly summer tradition, the Heritage Foundation and Cato Institute co-host a debate in which interns at both think tanks debate whether conservatism or libertarianism is a better ideology. Following this year’s debate, the Cato Institute conducted a post-debate survey of attendees to ask who they thought won the debate and what they believe about a variety of public policy and philosophical issues. The post-debate survey offers a unique opportunity to examine how young leaders in the conservative and libertarian movements approach deep philosophical questions that may be inaccessible to a general audience.

2018 Intern Debate Survey

Despite agreement on domestic economic issues and free trade, the survey finds striking differences between conservative and libertarian  attitudes about Donald Trump, immigration, transgender pronouns, government’s response to opioid addiction, police, defense spending and national security, domestic surveillance, and religion. The survey also went further than just asking about policy and used Jordan Peterson’s 12 principles for a 21st century conservatism to examine the underlying philosophical differences between libertarian and conservative millennials. 

Secretary Carson Gets Housing Affordability Right

Something promising is happening at the Department of Housing and Urban Development. Recent New York Times and Wall Street Journal articles suggest Secretary Ben Carson and his team are impressing on policymaker’s minds that 1) local policymakers have created housing affordability problems and 2) local policymakers can solve those problems. 

According to the Times article, “as city and state officials and members of both parties clamor for the federal government to help, Mr. Carson has privately told aides that he views the shortage of affordable housing as regrettable, but as essentially a local problem.”

Meanwhile, a Journal article published this week reports “[Carson] plans instead to focus on restrictive zoning codes. Stringent codes have limited home construction, thus driving up prices and making it more difficult for low-income families to afford homes, Mr. Carson said.” 

Carson is right to describe housing affordability as a local problem, and smart to signal HUD can’t and won’t solve the problem for local policymakers.

For its part, Cato scholars have argued for zoning reform in numerous places. Earlier this month, Cato Institute published a new issue brief on zoning regulation and housing prices. Elsewhere I’ve written about zoning in the context of Affirmatively Furthering Fair Housing, the controversial HUD rule the agency opened for public comment and revision earlier this week. 

Carson seems to understand that federal assistance has encouraged poor local policies. In a Cato report published last year I show that the federal government subsidizes housing in states with more restrictive zoning at higher rates than those with less restrictive zoning. Specifically, the most-restrictively zoned states receive nearly twice the federal dollars per capita compared to the least-restrictively zoned states (see figure). 

zoning and spending

 

Because restrictive zoning drives the cost of housing up, local governments actively undermine the purpose of federal housing subsidies when they adopt restrictive zoning and land use policies. HUD staff have mentioned housing vouchers cost more money each year to service the same number of people.

Local zoning regulations grow every year, so it makes sense HUD would see climbing costs. For fiscal conservatives that care about efficiently using government dollars, attaching pro-market zoning requirements to HUD grants is arguably a cost-saving device. Pro-market zoning requirements also support the purpose of housing affordability subisidies by ensuring cities are doing their part to allow development. 

Determining whether attaching requirements to grants is a constitutionally-sound strategy is best decided by a legal expert. However, Carson’s new focus on educating policy makers on the damaging consequences of local policy, while acknowledging HUD cannot overcome local problems by spending money, is a welcome change.