Blog Post

AEIdeas

A brief addendum to my previous post, “The New York Times says paid parental leave policies can hurt working woman.” I too readily accepted that there were “unintended consequences” to generous parental leave policies. Again, from the New York Times: “But these policies often have unintended consequences. They can end up discouraging employers from hiring women in the first place, because they fear women will leave for long periods or use expensive benefits”

And later in the piece, an economics professor is quoted as saying “one of the unintended consequences” to a 1999 Spanish law giving workers with young children the right to ask for reduced hours “has been to push women into the lower segment of the labor market with bad-quality, unprotected jobs where their rights cannot be enforced.”

But any student of economist Larry Summers might not be so surprised at such employment effects. From my AEI colleague Stan Veuger:

In a 1989 paper, “Some Simple Economics of Mandated Benefits,” Summers explains the following:

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.

Life is complicated, policymakers! Summers, by the way, was co-chair of the Center for American Progress’s recent “Report of the Commission on Inclusive Prosperity” that called for “parental leave, paid caregiving leave, paid sick days” among other policies supposedly important to “increase the inclusiveness of advanced-market economies.”