Which Family Policy is Good for Women’s Wages?

Whatever you think about the debate going on over the spending bill, people are at least talking about family policy — which is great. I want to focus this post on two of the policies currently being debated: paid leave and early childhood spending. These are two policy areas where the U.S. is…how do I say this nicely…unique.

You see, currently, the U.S. spends far less on pre-school age children than other countries. And, it is the only developed country without mandatory paid parental leave. Don’t get me wrong…I love America’s independent streak. But, maybe we’d be better off being unique in our love of (American) Football, and not in our desire to make parenting tougher than it needs to be.

And rest assured, being a parent in America is tough. For proof, consider a recent study that measured “parental burnout.” Burnout was defined based on responses to some tough questions. Questions like, I feel completely run down by my role as a parent. And, I am no longer able to show my children that I love them. Ouch. Of the 42 countries, the U.S. was in the top 3 in terms of burnout. U.S.A! U.S.A! The map below illustrates burnout rates across the globe.

Figure 1. Map of Parental Burnout from “Parental Burnout Around the Globe.”

Source: Roskam, I., Aguiar, J., Akgun, E. et al. 2021. “Parental Burnout Around the Globe: a 42-Country Study.” Affective Science 2: 58–79.

That same study also found that women suffer from burnout more than men. Shocking! Which gets me to what I really want to talk about — how these family policies could help women achieve better labor market outcomes.

The Wage Gap Today

I have written about the wage gap in the past, but a quick reminder is helpful. Today, a woman working full-time earns about 81 percent of the typical man. And, this gap is more or less the same today as it was 20 years ago.

So, why does this gap exist? All roads point to women’s role as caregivers. At the most basic level, women are much more likely to take time off from work to care give than men. According to the BLS, just 66 percent of women with children under 6 are in the labor force. For men, the number was 93 percent. So, women end up accumulating less work experience than men. By age 45, this experience gap is 4 years. And, less experience means lower wages.

But, caregiving also has less visible effects. Even among women working full-time, it can reduce wages. For example, women often require more flexibility in their workplaces because they are caregivers for children and the elderly. It turns out schools and nursing homes will call whenever there’s a problem. So, having flexibility is valuable. But, it’s also costly. Women have to accept lower wages to take a flexible job, as their employers suffer the cost of not having employees at the ready.

These caregiving responsibilities also have an even more hidden impact. Discrimination. In a recent study, mothers were less likely to receive a callback from potential employers than fathers. Why? Probably because employers were worried about any time off or flexibility that women might need. This kind of “statistical” discrimination is likely common today.

So, how could family policy address these sources of inequality?

Family Policy and Gender Inequality

Paid leave and enhanced spending on early childhood education both have potential to alter the wage gap. The effect of paid leave is ambiguous. On the one hand, it could make women more attached to their employer, i.e., more likely to use the paid leave, but then return to work.

On the other hand, paid leave could exaggerate time taken off work — women who wouldn’t have taken unpaid leave might take paid leave. And, this could increase discrimination. Employers could hesitate hiring women out of fear of them taking leave. Indeed, this fear could exist even if men are offered paid leave too. After all, the evidence suggests that men use paid leave much less often than women. For example, when California offered six weeks of paid leave, women took five more weeks of leave then they had before. Men took just 2 days more.

Compared to paid leave, increasing money spent on early childcare has a less ambiguous effect. If childcare is more readily available for kids prior to primary school, it would be easier for moms to work during that period of their children’s lives. That leads to more work experience. And, employers would worry less about women leaving the workforce. In other words, it could reduce statistical discrimination too.

So, what does the evidence say?

Paid Leave versus Spending on Child Care

Whenever I want to know what the economics literature says on a topic, I turn to The Journal of Economic Perspectives. This academic journal asks experts in the field to survey the literature and provide their perspective on a topic. I mean, the title of the journal is pretty apt.

And, a recent article in that journal touched on this very topic. The article — published in 2017 — was by Claudia Olivetti (formerly of my employer, Boston College) and Barbara Petrongolo. To identify the effects of these two policies, the article first compared economic outcomes (e.g., the gender wage gap) in various countries with different family policies. The article then looked at how individuals within some of those countries responded to nationwide changes in family policies.

Cross-Country Evidence

The cross-country analysis suggested that paid leave had a somewhat ambiguous effect (as expected). Countries with generous paid leave were associated with a slight increase in female employment. But, these countries looked no different than less generous countries with respect to the wage gap. By comparison, early childhood education was associated with a larger increase in female employment. And, countries that spent more on early childhood education had significantly smaller earnings gaps.

The authors summarize the evidence nicely. “The one [policy] that is across the board associated with more equal gender outcomes is spending in early childhood education and care. Presumably the availability of cheap substitutes to maternal care encourages female labor supply, with positive, rather than negative, effects on the accumulation of actual experience.”

Within-Country Evidence

In studies that looked at how individuals within countries responded to policy changes, the evidence is slightly for negative towards paid leave. An Austrian expansion of extended parental leave found reductions in employment and earnings for women in the first three years after birth, although no long-term effect. An expansion in Norway of paid maternal leave also found no long-term effect on employment. For evidence closer to home, a study in California found that women who took paid leave saw wage reductions over the next decade.

For subsidized childcare, the results are mostly positive. For example, when Canada introduced a childcare subsidy for four-year olds, a study found that women were eight percentage-points more likely to work than before. And, later studies found that this benefit was maintained in the long-term (i.e., after the children aged out of care). In the United States, some expansions of childcare had a positive, but more limited, effect. For example, expansions of preschool in Oklahoma and Georgia were associated with small, but temporary, increases in employment. So, while not all studies point to large gains, the impact again seems to be uniformly positive.

What Does it All Mean?

Claudia Olivetti and Barbara Petrongolo are amazing economists, so I’ll let them summarize their work. On paid leave:

“No obvious consensus on the labor market impact of parental leave rights and benefits emerges from the empirical literature. Although there are some exceptions, it seems a fair summary that cross-country studies tend to find more positive effects on female employment than micro-level studies for relatively short leave durations, and more negative effects for longer entitlements.”

And on subsidized child care:

“The policies with the strongest evidence for reducing gender disparities seem to be early childhood spending (in both cross-country and [within country]).” “A potential common theme here is that making it easier to be a working mother may matter more than the length of leave or the payments that new parents receive while out of the labor force.”

When we think about family policy, we often think about the kids. But, moms are affected too. This evidence suggests that spending on early childhood care has a positive effect on women’s labor force outcomes. The evidence on paid leave is more mixed. Given that pre-school also has huge benefits for kids, I know which policy I would choose if I had to. And, we may have to.

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