maternity leave

Paid Leave Means Women Pay

Who pays for women’s mandated paid leave and other women-centric labor policies? At a superficial level, it depends on who you ask. Proposals for federal mandated paid leave and child care laws run the gamut, and advocates identify government, taxpayers, or private companies as backers. Unfortunately, those answers reveal a glaring oversight: directly or indirectly, women will pay.

Economists of a variety of ideological persuasions agree, including Larry Summers, former Director of the National Economic Council for President Obama. In 1989, Summers wrote “Some Simple Economics of Mandated Benefits” where he asserted that “The expected cost of mandated benefits is greater for women than it is for men.”

What does that mean? In his paper, Summers concludes that women will be paid less or not hired as a result of mandated benefits. In his words, “If wages could freely adjust, these differences in expected benefit costs would be offset by differences in wages.” And if not? “[T]here will be efficiency consequences as employers seek to hire workers with lower benefit costs.”

Liberalized Immigration Will Help Mothers More than Trump’s Child Care Plan

Donald Trump recently unveiled a new child care plan whereby the government will force employers to give time off to new mothers in exchange for some shuffling of the tax code.  Mothers do tend to benefit from such schemes but they also end up paying for their time off in other, indirect ways like lower wages.  Forcing employers to pay their female employees to take time off decreases the labor demand for child-bearing age women and increases their supply, thus lowering their wages.  Economist Larry Summers, former Director of the National Economic Council during President Obama’s first administration, wrote a fantastic paper explaining this effect.

Many firms have maternity leave policies that balance an implicit decrease in wages or compensation for working-age mothers with time off to care for a newborn.  The important point about these firm-specific policies is that they are flexible.  Some women want a lot of time off and aren’t as sensitive to the impact of their careers while others want to return to work immediately.  A one-size fits all government policy will remove this flexibility.    

Regardless of the merits or demerits of Trump’s plan, economists Patricia Cortes and Jose Tessada discovered an easier and cheaper way to help women transition from being workers to being mothers who work: allow more low-skilled immigration.  In a 2008 paper, they found:

Exploiting cross-city variation in immigrant concentration, we find that low-skilled immigration increases average hours of market work and the probability of working long hours of women at the top quartile of the wage distribution.  Consistently, we find that women in this group decrease the time they spend in household work and increase expenditures on housekeeping services.

The effect wasn’t huge but skilled women did spend less time on housework and more time working at their job.    

Younger women with higher educations and young children would be the biggest beneficiaries from an expansion of childcare services provided by low-skilled immigrants.  There are about 5.4 million working-age women with a college degree or higher that also have at least one child who is under the age of 8 (Table 1).  Almost 78 percent of them are employed, 2 percent are unemployed looking for work, and 21 percent are not in the labor force.    

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