The Economics of Paid Parental Leave

From economist David R. Henderson, “Paid Parental Leave Is Not A Free Lunch,”, August 26, 2016.

On her website, Democratic presidential candidate Hillary Clinton calls for “up to 12 weeks of paid family leave and medical leave” for an employee to “care for a new child or a seriously-ill family member.” She claimed, in her acceptance speech for the Democratic presidential nomination, that this would benefit women with children. The good news is that she’s right. The bad news, according to widely-accepted economic analysis and past evidence, is that the main people who would pay for this benefit would be women of child-bearing age.

Think of how employers would react to such a mandate. They would realize that the main people who would take advantage of paid parental leave would be women of child-bearing age. This makes those women less valuable to them as employees. So their demand–the amount they are willing to pay–for women in that category would fall. Women in that category, on the other hand, would be willing to work for less because the benefit is valuable. In economists’ jargon, in short, both the demand curve and the supply curve would fall. The wages of those women, therefore, would fall.