04/17/2017

Paid Family Leave Reduces Women's Wages, Increases The Gender Pay Gap

Tim Worstall, Forbes.com

There is, as we all know, a considerable head of steam under the idea that the United States should introduce paid family leave as a legal right. And perhaps it should. Yet there is a problem here, which is that the introduction will reduce women's wages and thus increase the gender pay gap. Which, given all the attention also paid to that problem is something that most say they don't desire. However, it is a basic truth that the effects of policies don't depend on how we wish they would turn out. Thus this problem does need to be considered.

Vanessa Brown Calder has a look at this over at Cato:

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.

Quite so. She points to Larry Summer's paper on mandated benefits:

A different type of wage rigidity involves a
requirement that firms pay different workers
the same wage even though the cost of providing
benefits differs. For example, the cost
of health insurance is greater for older than
for younger workers and the expected cost of
parental leave is greater for women than
men. If wages could freely adjust, these differences
in expected benefit costs would be
offset by differences in wages. If such differences
are precluded, however, there will be
efficiency consequences as employers seek to
hire workers with lower benefit costs. It is
thus possible that mandated benefit programs
can work against the interests of those
who most require the benefit being offered.
Publicly provided benefits do not drive a
wedge between the marginal costs of hiring
different workers and so do not give rise to a
distortion of this kind.

We should note that most proposals for paid family leave are financed publicly, not by the employer directly, However, that doesn't cover the case entirely. There are still costs to the employer. As with publicly financed maternity leave in other countries the employer still needs to get the work done and still suffers the costs of having to find and pay a replacement plus the turmoil that comes from substituting labour. There are still real costs to the employer here.

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