In a blow to arguments that a federal paid leave law would harm small businesses, a new study co-authored by Stanford’s Maya Rossin-Slater finds that support for paid leave among small employers is not only strong, but also increased as the pandemic added new strain to the work-life juggle.
“The big roadblock to passing paid family leave legislation is a concern that small businesses are not supportive and that it would be challenging for them,” Rossin-Slater says. “We find that’s not the case.”
The research, released this week by the National Bureau of Economic Research as a working paper, finds that 71 percent of New York and New Jersey employers surveyed during COVID-19 said they backed paid family leave — up from nearly 62 percent in 2019, before the coronavirus outbreak. What’s more, the study finds the jump in support was driven by employers that were previously opposed to the policy, and not just neutral about it.
This is from Krysten Crawford, “Paid family leave support grew during COVID-19, Stanford study finds,” Stanford Institute for Economic Policy Research (SIEPR), November 17, 2021.
Both the press release excerpted above and the actual study stop short of saying that their findings are a good argument for mandated paid family leave. That’s good because it’s not a good argument; it’s a bad one.
To the extent employers and employees want paid family leave, they are free to negotiate that. Nothing is stopping them. So a mandate isn’t necessary. But to the extent there are employers and employees who don’t want paid family leave, a mandate is undesirable.
It’s not just undesirable to employers; it’s also undesirable to employees.
Employers and employees agree on overall compensation packages in return for employee productivity. These packages include monetary pay, vacation leave, sick leave, usually health insurance, and sometimes paid family leave. If an employee wants paid family leave strongly enough to give up even a few dollars more than the cost of that leave to the employer, then both sides will benefit if such leave is provided. If we observe a pay package that doesn’t include paid family leave, that strongly suggests that the cost of providing it exceeds the value to the employee, making it a non-optimal pay package. So if the government mandates paid family leave in situations where employers don’t provide it, those mandates, once various other components adjust, make both employers and employees worse off.
I hope the authors understand that.
READER COMMENTS
Peter Gerdes
Nov 20 2021 at 7:57pm
Yes, they are free but just like people not buying flood, fire or even health insurance people are often irrational in their choices not to get it. Sure, this is tantamount to a tax on people that they are forced to redeem in terms of ‘days off work’ insurance but I’m not so sure that’s a bad thing.
Also, remember that this policy isn’t wholly neutral. It also effects a transfer from workers who have less need for medical/family leave to those who have more need. A transfer which wouldn’t happen in the free market. One could reasonably believe, in fact I think I may believe, that such a transfer is desirable.
I say this despite being a strong strong critic of things like deductions for having a child or for child care (except to the poor) as they are wholly unfair transfers from those who don’t have kids to those who do with no particular reason to believe it increases utility. At least, in this case, one can tell a pretty plausible story about how people who need days off get especially much utility from it and wouldn’t otherwise do it (tax breaks don’t even particularly affect the number of kids people have…if you want to do that you give cash birth bonuses).
Jon Murphy
Nov 20 2021 at 9:39pm
What’s the mechanism that causes such irrationality? It appears to me the typical arguments for market failure in the insurance market (adverse selection, moral hazard) do not hold for paid leave. So, what’s the mechanism at play here?
Knut P. Heen
Nov 22 2021 at 11:09am
I guess someone may say adverse selection combined with some behavioral errors. The behavioral problem here is that it may be easier to see the benefit than to see the cost. The employees who take paid leave sees the benefit. The employees who do not take paid leave may not realize that they are paying for the colleague’s paid leave.
Now, suppose you have a market in which some firms offer paid leave and some firms don’t offer paid leave. The latter firms offer higher paid work than the former. In this case, it is likely that the employees will sort into different firms based on their preference for paid leave/paid work. The problem with this system is that the paid leave folks cannot extract rents from their behavioral colleagues because they work at a different firm. Hence, they argue for a system in which every firm must offer paid leave, such that they can continue extracting rents from their behavioral colleagues.
Jon Murphy
Nov 22 2021 at 2:55pm
Perhaps, but we’re still lacking a mechanism. In insurance, there’s information asymmetry. That doesn’t appear to be the case here.
But they’re not.
Johnson85
Nov 22 2021 at 3:11pm
They are not directly paying for their colleagues paid leave, but for employees who will not be using such paid leave, their compensation is almost certainly reduced by it. With a mandate, all these businesses will now have a new expense to deal with, and even if there is no immediate cut to compensation, there likely will be a reduction in growth in compensation. And I doubt a company could legally find a way to pay more compensation to people who will not need paid leave.
Jon Murphy
Nov 22 2021 at 3:17pm
Not if they have the ability to reject such a package (say, by individual negotiation or choosing to work for a firm that offers more attractive compensation)
Johnson85
Nov 23 2021 at 12:21pm
The whole point of a mandate is to prevent employees from having that option, because if you have that option, the vast majority of employees are either going to be past the point of needing it (i.e., have already had all the kids they are going to have) or would rather have the cash compensation now and will deal with how to pay for taking maternity or paternity leave when they get to that point.
But now that I reread the prior posts, I think we may be talking past each other. From Knut P Heen’s post, it seemed clear to me that the first paragraph is discussing a market where you’re not allowed to choose whether to offer paid leave (hence the transition in the next paragraph “Now, suppose you have a market in which some firms offer paid leave and some firms don’t offer paid leave” and the sentences that follow). But reading the posts he is responding to, it doesn’t seem that is really responsive to them. So either I am misinterpreting his post or possibly he misinterpreted the posts he was responding to.
Don Boudreaux
Nov 21 2021 at 8:28am
Peter Gerdes: Although the U.S. government doesn’t require that employers provide paid family leave, the portion of workers in America who have some form of paid leave is almost two-thirds. This fact is evidence – although admittedly not proof – against your claim that workers are too likely to irrationally choose not to purchase (by accepting lower money wages) paid leave. Is your claim that every rational worker would choose to purchase paid leave? If not, do you have in mind a percentage – 70, 80, 95? – of workers for whom purchasing paid leave is rational?
Also, this comment of yours reveals an implicit yet mistaken assumption:
The mistaken assumption is that all workers get the same bundle of fringe benefits. Yet precisely because some workers can choose to purchase paid leave by taking lower money wages while other workers can choose not to make this purchase, there is no need for government to force any transfer of the sort that you mention. Smith can have paid leave while Jones doesn’t. It’s a beautiful, peaceful, and mutually agreeable outcome.
Finally, why do you assume that the welfare losses imposed by mandated paid leave on workers who prefer higher money wages in lieu of paid leave would be less than are any resulting welfare gains enjoyed by workers who are willing to be forced to purchase paid leave at the price of lower money wages? Not only (again) can and do many workers already choose to so purchase paid leave, how can you possibly know that the harms that a paid-leave mandate would impose on, say, young childless couples working to save money to have families in the future would be less than the gains to other workers?
More generally, how can you be so sure – so sure as to endorse government coercively imposing paid leave – that the losses that such a policy would impose on workers desperate to earn as much money today as they possibly can would be more than offset by the gains so enjoyed by workers who could, but for some mysterious reason choose not to, purchase paid leave on their own?
Alan Goldhammer
Nov 21 2021 at 3:01pm
I’m sure that George Mason Univ has a plethora of great benefits. Can you turn down some of those benefits in return for a higher salary? This may not be the case for those at the bottom level of the wage scale who are just scraping by and trying to find child care. There are lots of Euro countries that do provide paid family leave and it seems to work just fine.
Don Boudreaux
Nov 21 2021 at 5:51pm
Mr. Goldhammer:
See here.
Don Bx
robc
Nov 21 2021 at 5:53pm
I cant speak for GMU, but everywhere I have worked gives a variety of benefit options I can pay for with pretax dollars. Some I take, some I choose higher pay and buy on my own, some I reject entirely. If I had the option to buy paternal leave, I wouldnt. Six years ago, I would have chose differently (I started a new job in 2015 while my wife was 6 months pregnant).
Personally, I would prefer most of them to not be provided by employer. I would prefer my health care be separate, but the tax benefit is too good.
Phil H
Nov 20 2021 at 9:39pm
This is pretty worrying stuff. If this is the kind of argument that top libertarians are throwing around, then perhaps the movement really is as silly as it looks.
No, it is not the case that if some people do not want a rule, a community should not have that rule. The obvious counterexample is the prohibition on violence. The strongest guy in the village, traditionally, did not want a prohibition on violence, because when violence is allowed (either ritualised, like duelling, or just brawling), he was advantaged. (He’d win in one-on-one, and other people would generally want to team up with him in larger conflicts.) But his dissent from the ban on violence does not mean that banning idea.
This applies to all community rules. There is *always* someone who doesn’t like a rule. When you play Monopoly, you find people suddenly very keen to bend the rules when they are going to jail. The existence of dissent just isn’t a complete argument against having a rule.
In this case, there will always be some people against paid family leave: maybe a business that is struggling, financially, and really can’t find replacement workers; maybe older workers who won’t have any more children. But the fact that you can find people who say no is not a policy argument. (You can find people who say no to 5G because it causes Covid, but similarly, that’s not a policy argument.)
A policy argument might involve an assessment of the total costs and benefits to everyone (utilitarian). It might also involve assessing rule-of-law implications, and the extent to which the law is/should infringe on private life. There might be assessments of fairness, or specific care for unrepresented groups (in this case, children).
Matthias
Nov 20 2021 at 11:52pm
Not sure you are attacking the core of the argument here?
As far as I can tell, the argument is that people who want the arrangement can already secure it voluntarily for themselves.
So there’s no need to make a rule for the whole community.
In the case of a ban on violence, you can not voluntarily shield yourself from violence, because it’s exactly the people who disagree with you that you need the shielding from.
(Yes, I know there are libertarian solutions to the problem of violence too. See David Friedman’s writing.)
Mark Z
Nov 21 2021 at 12:18am
A critic of markets would probably say that market transactions are coercive just like violence is. If pretty much all employers are fleecing their employees, and we can take for granted that employees all want to be fleeced less just as much as anyone would rather not be a victim of violence. So a law like this is just forcing employers to steal less from their employees.
Even if one assumes that markets are that polluted by monopoly power though, specifically requiring paid leave doesn’t make sense as a corrective. Why not just force employers to pay employees more, and if they want to exchange some of that for pay for benefits? Let the employee make his own choice between cash and benefits. The only rationales for mandatory benefits, it seems, are either 1) paternalism: employees are too stupid to know what’s good for them and we should force them to sacrifice some wages for benefits, or 2) mandatory benefits are really just about forcing employers to raise compensation, but forcing them to do so by increasing benefits is more politically acceptable than forcing them to pay higher wages.
Matthias
Nov 21 2021 at 1:13am
Yes.
Though if one were to think that all employers are fleecing employees, I would suggest to concentrate on (a) making it easier for employees to become employers and (b) increasing competition between employers.
The former helps a bit with the latter. But so does also we inviting foreign companies to set up shop on shore, and decreasing barriers for competition between sectors. Eg allowing Walmart to compete with banks.
MarkW
Nov 21 2021 at 10:20am
But the fact that you can find people who say no is not a policy argument.
What rules do you think a majority should not be able to impose on a minorities who object? Does the idea of a ‘tyranny of the majority’ never worry you? Wouldn’t you agree that minorities should be left to pursue happiness in their own fashion without busybody majority forcing to do things their way instead?
I’m thinking for example of wine-making in California. Small wineries have (or had) long been in the practice of having volunteer workers at harvest time. The wineries were getting the labor while the volunteers were getting the experience and education about winemaking. What a wonderful example of mutually beneficial cooperation, no? What did the community have to say about it? Well, it’s California, so you can probably guess. What business is it of the ‘community’ majority if I want to volunteer at a small (for profit — gasp!) winery at harvest time? Or if I want to work for an employer and not have part of my pay go into family leave insurance that I do not want or need?
David Henderson
Nov 21 2021 at 12:24pm
Phil H, According to your reasoning, there is no reason in principle to reject a law that says NO employer may offer paid family leave.
KevinDC
Nov 21 2021 at 1:52pm
I’m a little puzzled by this comment, because it doesn’t seem to recognize the distinction between capitalist acts between consenting adults on the one hand, and initiating acts of physical violence against an innocent party on the other. Simply pointing out that some people might want to engage in unprovoked violence is not a reason to remove bans against unprovoked violence, doesn’t do anything to tell you about the acceptability of laws forbidding mutual agreements in private negotiations between consenting private parties. Those are fundamentally different things, so trying to treat one as analogous to the other is just to commit a classic category error. “Some people like to commit arson, but that doesn’t mean arson should be legal” is all well and good. But that doesn’t get you anywhere towards “Since different people prefer different mixes of pay and benefits in their employment compensation, we should force everyone to have the same mix that politicians have decided is best, whether they want it or not.” There may be arguments for that, but you still have all your work ahead of you if you want to make that case.
Also, you said “No, it is not the case that if some people do not want a rule, a community should not have that rule.” This, too, is worrying stuff, because it suggests you didn’t read or understand what David was actually saying. His argument here was not that “this rule shouldn’t exist because some people don’t want it.” David made it pretty clear what the actual argument was when he summed it up as follows:
That is, David is explicitly arguing that a policy like this will have the effect of making things worse off overall for both employers and employees, and he gives various reasons and arguments for why he thinks the policy will have that effect. He’s providing the exact sort of analysis you were insisting on when you said a “policy argument might involve an assessment of the total costs and benefits to everyone” – which is what David provides, and he argues that the costs will outweigh the benefits, for both employee and employer. So to suggest that the argument here contains nothing more than “some people don’t like this rule so it shouldn’t exist” is simply a failure to engage on your part, almost as if you were so eager to disagree with the conclusion, you skipped over reading the argument that led to it.
john hare
Nov 21 2021 at 4:03am
As an employer, I would get real careful about hiring people that might need the paid leave. If I do it right, the money not spent on leave can be used to incentivize the rest of the work force. An extra dollar or two an hour makes a difference to some.
Jon Murphy
Nov 21 2021 at 7:42am
To your point about non-optimal pay packages, we must remember that competition happens at the margin. Firms and employees compete with other firms or employees for jobs along many margins. If you take away a margin, you harm certain firms and workers.
For example, my first job out of undergrad was with a consulting company. We weren’t big at all (when I started, there were 15 folks in the entire company). Being located near Boston, we had to compete heavily for economists against placed like the Fed, BCG, banks, etc.
We were able to hire some high quality folks because we offered better benefits, including generous family leave. If that margin were taken away, then my old company would lose a major advantage they had.
Mark Barbieri
Nov 21 2021 at 11:19am
Is their support for leave paid for buy the employer? I thought that the bill included taxpayer funded paid family leave. It would be easy to get both employees and employers to support a benefit when they think that somebody else will pay for it.
David Henderson
Nov 21 2021 at 11:23am
Good question, Mark. I just read the press release that I linked to and only glanced at the study.
I agree that the answer to your question matters a lot.
steve
Nov 21 2021 at 11:47am
I am up to a bit over 200 employees now from 50 about 5 years ago. Consistently hire from top 10-20 training programs. Our total package is about the same or maybe a bit less than most of our competitors but we offer a unique benefits package with a very outsize retirement plan. (We also make sure to have a lot fo overtime available and are very flexible on hours, at least for most people.) If we had to offer paid family leave we would have to totally change our package. Its total compensation that matters.
FMLA, where we dont pay when they take time off is already a problem, especially now that the men also want time off when they have a kid. If I cant hire anyone because all new employees want paid family leave them I will change, but right now I can hire the number and high quality people I want without it.
Do feel a bit different about sick pay. Both employer and employee may want to avoid it for obvious reasons. However, it does mean sick people end up going to work and you risk spread. We do pay for sick days but we also pay people for sick days they dont use or let them save sick days. Kind of a mixed message but at least people can take off if really sick without losing pay.
Steve
Vivian Darkbloom
Nov 21 2021 at 12:08pm
“We do pay for sick days but we also pay people for sick days they dont use or let them save sick days. Kind of a mixed message but at least people can take off if really sick without losing pay.”
If you pay for not using those days, it appears to me that they lose “pay” by taking sick days. I suspect your employees have the same view.
Viv
Alan Goldhammer
Nov 21 2021 at 2:57pm
Is it a defined benefit program? Most employers are dropping those like a hot potato. They look good on paper but then people start retiring and with restrictions on what kinds of investments most plans can have lead to underfunding. My former employer closed the pension plan in 2014 and only those who were fully vested would get pensions (I am one of the lucky ones, having retired in 2010). They have fully funded the plan over the years which is a good thing but all employees since 2014 only are covered by a 401(k) plan.
steve
Nov 21 2021 at 4:57pm
No, it is a 401. It does mean salaries are a bit lower. We make sure people know that before they sign, but we make sure they have plenty of access to overtime so they can earn the same take home they would elsewhere, just end up with a much larger 401 contribution.
Viv- Depends upon how you look at it. If they work x number of hours per year and take y number of weeks of vacation then they earn the agreed upon, Z, salary. If they dont take any sick days they then get an extra 2 weeks pay so they take home Z plus 2 weeks pay. If they use all 10 days of sick time they only take home Z in salary. At most jobs you dont get paid if you use your sick time you just lose it if you dont use it. We really need people to show up so it is worth paying this extra. Since many/most(?) people just use sick time as extra time off it keeps people working. It also means we dont ask for doctor notes which makes people happy. We figure if you are willing to forego that extra money you probably really are sick.
Steve
Thomas Lee Hutcheson
Nov 21 2021 at 11:12pm
What about paying employers to giver paid leave, say a rebate for the “employer’s” portion of the SS/Medicare taxes on wages. Any reduction in the wage tax would be desirable to reduce the disincentive to employment.
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