California Provides an Argument Against Mandated Paid Family Leave

At least in a U.S.-based context, California is known as a state that is at the forefront of trying policies that are heralded by the Left. One such policy is that of mandated paid family leave. Under the California Paid Family Leave (PFLA), employees are provided partial pay to take off of work for up to six weeks to either tend to the serious illness of a close family member or to bond with a new child. Essentially, the premise behind paid family leave is work-life-balance vis-à-vis providing employees to take on a variety of family caregiving obligations without work getting in the way or needing to quit one's job to meet said obligations. If you want more information on paid family leave, please see my analysis on paid maternal leave from five years ago (see here), my analysis on Family and Medical Leave Act (FMLA), this policy report from the Cato Institute, or you can read this primer from the Congressional Research Service.

Having recently come back from a trip to France and see how they better manage work-life-balance than in the United States in the sense that they work to live (instead of the increasingly common practice in the United States to live to work), it got me thinking about whether it's an important value. Nevertheless, the tricky thing about public policy, especially when it has good intentions, is that it all too often comes with unintended consequences. Looking at the latest study on the PFLA, it seems that paid family leave is no exception. Last week, researchers from the University of Michigan, University of Utah, Middlebury College, and the U.S. Department of Treasury released a study showing that there is little evidence towards the benefits of paid family leave (Bailey et al., 2019). To quote the report:

We find little evidence that PFLA increased women's employment, wage earnings, or attachment to employers. For new mothers, taking PFLA reduced employment by 7 percent and lowered annual wages by 8 percent six to ten years after giving birth. Overall, PFLA tended to reduce the number of children born, and by decreasing mothers' time at work, increase time spent with children.

This finding is significant because one of the arguments used for legally mandated paid family leave is that at least for new mothers, it helps with labor force attachment. Based on these findings, reducing annual wages by 8 percent sure doesn't help with the gender wage gap that liberals are vehemently against (see my analysis on the gender wage gap here, here, and here). And I imagine that reduced employment doesn't do any favors when it comes to trying to get greater female representation in the workforce, nor does it help with make new mothers more likely to stay attached to employers, as proponents predict. While increased time with children is important, there is also the tradeoff of a lower fertility rate, which is problematic for a country that already struggles with a fertility rate below replacement rate.

Yes, this study draws upon robust tax data, has a large sample size, and does so over a relatively long period of time, all of which helps make it methodologically superior to previous paid family leave studies. While case studies have a role in discovering the efficacy of new ideas with little previous empirical data, there are limits to trying to draw general conclusions from this study. For one, PFLA lasts for six weeks. One could argue that six weeks is not long enough (or that it could be too long). Another issue is that PFLA provides 60-70 percent of a worker's wages. Perhaps providing a different amount would create different incentives. Perhaps an automatic enrollment would change the interactions. There could also be other elements within either the culture or economy of California that could make paid family leave less effective than it could be otherwise.

By itself, using this study to rally against mandated paid family leave is inadequate. Nevertheless, it does add to the empirical research showing the unintended consequences of mandated paid family leave. With that being said, here are a few points to consider when thinking of the tradeoffs of mandated paid family leave:

• Paid family leave lowers women's wages. The latest study is not the only one to confirm this point. One study analyzing 21 countries showed that paid parental leave is more effective when the time period is moderate, as opposed to being long (Misra et al., 2011). On the other hand, the same study showed that the same policies contribute to lower wage levels for women relative to men (ibid.). There are also older studies showing the same effect, including those from economists well-known on the Left (e.g., Ruhm, 1996; Gruber, 1994; Summers, 1988).
• Paid family leave affects women labor participation rate. A study from the National Bureau of Economic Research came to the conclusion that paid parental leave was responsible for about 28 percent of the drop of women labor participation between 1990 and 2010 (Blau and Kahn, 2013).
• Paid family leave makes it more difficult for women to receive promotions. A study of paid leave expansions in the United Kingdom not only resulted in fewer female managers, but also exacerbated gender inequality (Stearns, 2017).
• Support for paid family leave is in the details. Much like with so many policies, they sound nice in concept or in theory. That is why support for many Left-leaning proposals has higher support in the abstract. When you ask survey respondents about the details of the Left's latest and greatest policy ideas, support declines (see my analysis on that survey data here). Mandated paid family leave is no different. People assume that paid family leave is a wonderful thing, assuming they don't have to pay for it. When confronted with costs they would have to shoulder (e.g., lower salary, fewer benefits, less promotional potential for women), the support for federal paid family leave diminishes to the point where a majority are opposed (2018 Cato Institute survey).

I will leave you with this thought: whether we are discussing minimum wage, menstrual leave, or other rigid employee protections, they unquestionably come with a tradeoff. That is the economic nature of labor laws, and more specifically, employee benefits. If mothers want to prioritize more time bonding with their newborn children, that's fine. That is a decision they have to make for themselves. But let's not ignore the fact that that choice all too often comes with the tradeoff of less career development potential, a shift in career choices, and lower wages for women. While paid parental leave is becoming more popular, it comes with a price, a price that employers are too happy to ultimately pass either to the customer or their employees. The question is whether the price of a policy such as mandated paid family leave is worth the cost.

12-13-2018 Policy Digest: Gender Wage Gap, Social Security Privatization, Occupational Licensing

There is quite a bit of policy research that has come across my attention in the past few days. The bad news is that I cannot cover it all in the depth that I would like. The good news is that I have covered these topics in the past in some way, shape, or form, which means I can cover these topics more easily. With that being said, let's begin, shall we?

Gender Wage Gap: More Evidence It Is Misleading
Late last month, the Institute for Woman's Research put out some shocking research: the wage gap has been "woefully misstated." Their conclusion is that a woman makes 49¢ for every dollar a man makes. The reason why it looks worse has to do with how they're pulling and manipulating the data. To arrive to this conclusion, the Institute for Woman's Research compared all the earnings of women to all the earnings of men over a fifteen-year period, including part-time and unemployed workers. Unsurprisingly, four out of ten women were out of the workforce for at least a year, which is twice the rate of men being out of the workforce. Beforehand, the gender wage gap figure compared all male full-time workers to all female full-time workers. Including time with no income is naturally going to distort the statistical data to paint the picture that women are very underpaid.

You can see my analysis from February 2018 and April 2013 on the gender wage gap, but my contention has been that not using an apples-to-apples comparison is a manipulation of the data to advance a certain goal. The Institute for Woman's Research is merely the latest attempt to manipulate the data a step further. When you adjust the data for educational attainment, occupational choice, hours worked, and other forms of labor force attachment, the wage gap is all but nonexistent. Fortunately, a study from Harvard University adds to evidence to support my contention (Bolotnyy and Emanuel, 2018). The Harvard study looked at data on bus and train operators from the Massachusetts Bay Train Authority. Since the Authority is unionized, men and women do the same work for the same hourly wages and conditions, and promotions are based on seniority, and yet there was still a wage gap of 89¢. The reason for the gap? Men worked longer hours, and were paid more overtime. Plus, the women took off more time due to childrearing. Much like the study on the wage gap in the ride-sharing earlier this year, it focuses on one market, but it also adds to the increasing preponderance of evidence that the wage gap is not caused by gender discrimination, but by the different choices made by men and women.

Social Security Privatization
I thank former Cato Institute fellow Daniel Mitchell for bringing this one to my attention. The Organization for Economic Development and Cooperation (OECD) released the OECD Pensions Outlook 2018. In it, the OECD stated that "funded, private pensions may be expected to support broader economic growth and accelerate the development of local capital markets by creating a pool of pension savings that must be saved." Many OECD countries have partially or completely privatized its retirement savings (see below), including Australia, Denmark, Sweden, Singapore, the Netherlands, Chile, and Switzerland. I hope that the United States can have the good sense to privatize Social Security one of these days.

Occupational Licensing: Two New Studies
I have written about how occupational licensing creates barriers of entry to many markets, which disproportionately affects the poor. It also increases prices of goods and services since it is an additional cost of labor. How much does occupational licensing cost the economy? A study from the Institute for Justice found that occupational licensing costs the U.S. economy $200 billion annually  (Kleiner and Vorotnikov, 2018). A study from the National Bureau of Economic Research also reduces the equilibrium labor supply by anywhere from 17 to 27 percent (Blair and Chung, 2018).

What Uber and the Ridesharing Industry Can Teach About the Gender Wage Gap Myth

Our economy is evolving in such a way where there is an increase of positions in which companies contract with independent workers and freelancers for short-term engagements. This phenomenon is known as the "gig economy." One of the main features of the gig economy is that these contracted positions give workers flexibility in their work-life balance. Economists were hoping that the gig economy could help eliminate the wage gap. However, that might not be the case. Last month, five economists released a study entitled The Gender Earning Gaps in the Gig Economy: Evidence from Over a Million Rideshare Drivers (Cook et al., 2018). 

Instead of the wage gap being non-existent, the study found that there was a wage gap of 7 percent. The other interesting part of the study was that the wage gap in the ridesharing industry had nothing to do with gender discrimination, which is all the more significant considering that the algorithm and the dispatch are gender-blind. The study found that the wage gap is due to three factors: experience on the platform (learning-by-doing), preferences of where and when to work, and preferences for driving speed. Male Uber drivers work more, they are more likely to drive in areas and times in which pay is higher, and they drive 2.5 percent faster than female Uber drivers.

The study is significant given that the sample size is 1.9 million Uber drivers and nearly 2 billion ride-sharing trips. This study provides statistical evidence that there is a wage gap without gender discrimination. However, these findings are confined to one market. As fascinating as these findings are, we cannot say that there is a lack of a wage gap based on gender discrimination....at least not with this study alone.

I wrote on this topic five years ago. Although it was five years ago, my general conclusion about the wage gap remains the same: there are other factors that account for the wage gap. Men work longer hours, men are more attached to the labor market, there's a discrepancy in occupational hazards, and there is a discrepancy in the choice that men and women in job selection. As the American Enterprise Institute pointed out in August 2017, when factoring these considerations in account, the gender wage gap is all but nonexistent (also see Blau and Kahn, 2016; Furchgott-Roth, 2016). These findings are not confined to the United States. A 2016 study from the Hay Group compared across 33 nations, and found that the when looking at an apple-to-apple comparison with the same level, company, and function pay gap, the wage gap on a global level is only 1.6 percent.

The Uber study is additional evidence that the gender wage gap is more myth than anything else. Let's just remind ourselves of that fact when Equal Pay Day comes around on April 10th.

Are Women Really Paid Less Than Men?: Demystifying the Gender Wage Gap

Lies, damned lies, and statistics. What a great Mark Twain phrase. I love how he points out how trying to impress people with numbers, especially those yanked from their context, can give a false sense of reality. That certainly comes into play today, which happens to be Equal Pay Day. The premise behind Equal Pay Day is to close the wage gap in which "women make 77¢ for every dollar a man makes" (Census, p. 5). Being libertarian, I believe in the equal treatment of individuals under the law, regardless of gender. Shouldn't I be outraged that women are being subjected to this labor market discrimination?

I'm not disputing the 77¢ statistic itself. What I am disputing is distortion behind the statistic, mainly done via an omitted variable bias. What the statistic does is the following: First, it aggregates the salaries of all women and divides it by the number of women in the labor market. Second, the salaries of all the men are then aggregated and divided by the number of men in the labor force. The numbers are then expressed in the ratio of 77:100, and voilà, "women make 77¢ for every dollar a man makes." The issue is that the statistic is an apples-to-oranges comparison. Why? It assumes that women invest and utilize their human capital in the exact same way that men do. To make the findings more accurate, one would need to compare two similarly-situated co-workers of different sexes with the same skill set and background who are working in the same industry and doing the same work for the same amount of hours.

Before I outline my argument, I would like to postulate how I find the argument to be intuitively problematic. The rhetoric I hear often on the Left is that businesses are greedy, which would mean that ultimately, an employer cares about the bottom line. Let's also assume that male chauvinism is the primary, or even the sole, factor in the depression of female wages. If I were an employer in this scenario, would I pay a man to do a certain job, or would I pay a female a fraction of the cost to do the same exact job? If I ultimately cared about profit maximization, you better believe that I would enjoy a huge advantage over my competitors by replacing as many of my male employees with female ones so I could increase my profit margins.

Now let's lay out some reasons as to what makes the raw wage gap so different from the actual wage gap:

Educational attainment and occupational choice: Although more women are acquiring college degrees than men, women still select career fields that pay less (e.g., nursing, education, clerical work) than men do (e.g., sciences, business, law). Women have a better sense of work-life balance, which is why they tend to choose jobs that have more regular hours and have more comfortable conditions, whereas men gravitate towards jobs that have more erratic work hours an involve more risk or specialization, which result in better pay. The Federal Reserve Bank of St. Louis postulates that this selection of career fields is the primary factor behind the wage gap.

Labor force attachment: According to the Bureau of Labor Statistics, men have a higher participation rate in the labor market than women. Furthermore, men are more likely to work full-time, whereas a larger proportion of women work part-time. Even assuming that wages are equal, the gap in weekly earning is going to be sizable since women work less hours (American Time Use Survey, BLS, Table 1). What is biggest factor in this wage-hour gap? Motherhood. It might be 2013, but women are still predominantly responsible for raising children. Since childrearing engenders a weaker attachment to the labor force, women are employed in jobs that require less capital and on-the-job training.  

Postscript: This is not to say that sexism does not exist or it doesn't play a role in the gap. It does, but it plays a relatively small role in explaining the raw wage gap. Much of the gap can be explained by such factors as occupation selection, experience and length in the workplace, as well as hours worked, as is confirmed by a study (p. 2) recently published by the feminist group American Association of University Women (AAUW). This study shows when these factors are taken into account, the wage gap closes to about 94¢ for every dollar a man makes. A study commissioned by the U.S. Department of Labor comes to a similar conclusion. It is also why Politifact pointed out that the 77¢ claim is "mostly false."

Some would like the government to intervene in closing the reminder of the wage gap. Government's good intentions in this case would lead to more regulations, red tape, and frivolous lawsuits. There are ways that these issues can be solved in the free market. If pay is that much of an objection, females can be encouraged to pursue careers in business or the STEM (science, technology, engineering, and mathematics) field to counter the cultural stereotypes (Blau and Kahn, 2000). Fathers can take further responsibility for child-rearing, or alternatively, employers can provide better family-leave and child-care policies. We should empower women to make whatever lifestyle or career choices they like, but let's not pass faulty legislation such as the Paycheck Fairness Act in hopes that the government can attempt to fix a problem that by and large does not exist.


12-4-2016 Addendum: Using 2015 Bureau of Labor Statistics data, the American Enterprise Institute finds that once you control for such factors as age, hours worked, marital status, and having children, the gender wage gap is all but nonexistent.

8-1-2017 Addendum: The American Enterprise Institute provides a nice, concise list of 20 reasons why the wage gap is all but nonexistent.