Parental leave and benefits

Put yourself in the place of an employer faced with two excellent and similarly qualified candidates for a position. You'd be very happy with either. But one, a young women, comes with maternity leave risk. If she decides to have a child, you will bear costs of worsening productivity over the course of the pregnancy despite her best efforts, costs of finding a temp worker to cover her position while she is on maternity leave, and the uncertainty of whether she will indeed return when leave concludes. She may also wish to move to flexible time arrangements on return. The other, male, doesn't. You're running a small business where losing a skilled worker for a short period is a very real burden, even if somebody else is paying her salary while she's on the government's paid parental leave scheme. Whom do you choose?

Cactus Kate makes the case:

I will never apologise for being honest enough to say that I don't like employing women of child bearing age especially if they have just got married or are loved up with a boyfriend because you know the next step. Babies. It is bad enough for a small business losing a staffer for 12 (as it is in HK at 4/5th pay) or 14 weeks, try employment laws where you can't sack a woman while she is pregnant (that's nine months of secure employment) even if she is hopeless at her job or not turning up, try the woman who at 11 weeks and a few days of investment and patience waiting for her to return to work, then hands you their bloody resignation. Try co-workers having to pick up the slack while she is away as you can't afford a temp.

In many cases they cope fine which means on return to the workforce it's pretty clear the new mothers position can be made redundant anyhow. This is the reality of parental leave. It indicates pretty quickly to an employer just how crucial a woman is or isn't to an operation. In many ways it's a rehearsal for redundancy.

We can wish that employers would willingly take on these costs. And many who do find that they wind up with a very loyal and committed employee if they do. But it is a risk. And it's a risk that, at least in data from a very nicely designed field experiment in France, has employers shy away from employing women with high maternity risk. Lower employment isn't the only way that the policy's costs can be shifted; Jon Gruber finds that costs of mandated maternity benefits through US employer-provided health insurance tends to be borne through lower wages for women [HT: @KevinMilligan]. And it's a pretty plausible candidate explanation for the lesbian pay gap; my excellent honours student, Hayden Skilling, is investigating this as his honours project this year.

New Zealand currently requires employers to hold a woman's position open for a year if she takes maternity; the government provides paid leave scaled to the woman's salary (and subject to a relatively low cap) for 14 weeks. The Labour Party proposes extending this to 26 weeks; the bill has been drawn from the ballot. It is likely to pass first reading, but likely to be killed afterwards because of the budgetary implications.

Were it implemented, I'd expect that the policy will increase the amount of time that women spend on maternity leave. In Canada, Baker and Milligan found that a doubling of the compensated maternity leave entitlement significantly increased the amount of time women spent on maternity leave.* Employers will bear costs despite that the paid leave entitlement is covered by IRD: it will be harder for employers to cover leave internally and so more of them will have to find replacements willing to work on temporary contracts. A longer time outside of the workplace means skills have longer to erode. Women are also more likely to want to return on part-time or flex-time arrangements after longer periods outside of the workforce; Schott finds that the American Family and Medical Leave Act increased women's likelihood of returning to work part-time rather than full-time.** Finally, we may expect increased labour market participation among women anticipating maternity leave, but also increased employer reluctance to take on women of higher maternity risk except at lower wages. But, I don't have a great sense of the incremental cost above existing leave entitlements; what's true at the margin might not cash out as much in the aggregate.

If Labour's economics were just a bit stronger, they'd be trying to couple their policy with some kind of compensation mechanism for employers whose workers take maternity leave rather than embedding the lump of labour fallacy into the bill's explanatory note:

Extending paid parental leave from the current entitlement of 14 weeks to 26 weeks would support families and also create jobs across the economy as employers engage staff to replace those on paid parental leave. As the majority of paid parental leave is uplifted by women, it has the added benefit of creating jobs in areas of the economy where women work, while supporting families and the well-being of children.

Why not advocate for a maximum 35-hour work-week to encourage employers to hire more temp workers to cover the work not done?

* While the Canadian change increased breastfeeding rates, one of the NZ bill's other stated purposes, it had no effect on child health outcomes.

** While Schott finds increased workplace flexibility encourages post-natal female employment, we might reasonably worry that increased likelihood of moving to part-time or flex-time arrangements reduces an employer's willingness to invest in an employee's human capital or to take on the worker in the first place except at lower wages.

Note: updated a couple of times for clarity and to add links to a couple of helpful tweets from Kevin Milligan and Frances Woolley.

Update 2: @askessler recommends this IZA piece showing no long term benefits to kids from paid maternity leave extensions in Germany. 

That pesky pay gap

It's not going to go away so long as folks of different genders have, on average, different preferences over work/home balance. I'd noted how a recent NZ study promoted by the Ministry of Women's Affairs bemoaned that male Commerce grads earned more than female Commerce grads without noting the rather large difference in the gender makeup of the different majors: finance versus marketing, for instance.

The City Journal summarizes a whole host of such studies (HT: @isegoria):

But proofers often make the claim that women earn less than men doing the exact same job. They can’t possibly know that. The Labor Department’s occupational categories can be so large that a woman could drive a truck through them. Among “physicians and surgeons,” for example, women make only 64.2 percent of what men make. Outrageous, right? Not if you consider that there are dozens of specialties in medicine: some, like cardiac surgery, require years of extra training, grueling hours, and life-and-death procedures; others, like pediatrics, are less demanding and consequently less highly rewarded. Only 16 percent of surgeons, but a full 50 percent of pediatricians, are women. So the statement that female doctors make only 64.2 percent of what men make is really on the order of a tautology, much like saying that a surgeon working 50 hours a week makes significantly more than a pediatrician working 37.
...
The most compelling research into the impact of children on women’s careers and earnings—one that also casts light on why women are a rarity at the highest levels of the corporate and financial world—comes from a 2010 article in the American Economic Journal by Marianne Bertrand of the University of Chicago and Claudia Goldin and Lawrence Katz of Harvard. The authors selected nearly 2,500 MBAs who graduated between 1990 and 2006 from the University of Chicago’s Booth School of Business and followed them as they made their way through the early stages of their careers. If there were discrimination to be found here, Goldin would be your woman. She is coauthor of a renowned 2000 study showing that blind auditions significantly increased the likelihood that an orchestra would hire female musicians.

Here’s what the authors found: right after graduation, men and women had nearly identical earnings and working hours. Over the next ten years, however, women fell way behind. Survey questions revealed three reasons for this. First and least important, men had taken more finance courses and received better grades in those courses, while women had taken more marketing classes. Second, women had more career interruptions. Third and most important, mothers worked fewer hours. “The careers of MBA mothers slow down substantially within a few years of first birth,” the authors wrote. Though 90 percent of women were employed full-time and year-round immediately following graduation, that was the case with only 80 percent five years out, 70 percent nine years out, and 62 percent ten or more years out—and only about half of women with children were working full-time ten years after graduation. By contrast, almost all the male grads were working full-time and year-round. Furthermore, MBA mothers, especially those with higher-earning spouses, “actively chose” family-friendly workplaces that would allow them to avoid long hours, even if it meant lowering their chances to climb the greasy pole.

In other words, these female MBAs bought tickets for what is commonly called the “mommy track.” 

Mommy track vs partner track also holds for lawyers.

Flexible work arrangements are worth a lot more for the partner planning on being the primary care-giver. More women than men choose to take on that role. And that has to turn into measured wage differentials if the non-pecuniary benefits of flex-time aren't measured as part of the total compensation bundle.

A real pay equity challenge

The New Zealand unions have been pushing hard for pay equity: that people doing equivalent jobs are paid equivalent amounts. Here's their Pay Equity Challenge website, highlighting the gender wage gap.

Three years ago, Waikato University economist Professor John Gibson released a paper (ungated) showing another pay gap: public servants earn a lot more than folks in the private sector doing equivalent jobs. And where the gender pay gap gets smaller once you start controlling for characteristics that vary by gender and also affect pay, like education, work experience and the like, the private-public pay gap gets bigger when you adjust for confounds like education and on-job satisfaction.

What did the unions say at the time about that pay gap?

But Public Service Association national secretary Brenda Pilott said the study had "no value".

"He calls public servants fat cats because a surgeon working at a public hospital earns more than a teenager working at McDonald's," she said.

"Of course the surgeon earns more because society places a higher value on saving lives than selling hamburgers."

Ms Pilott said the biggest pay increases in the state sector in recent years had been for doctors, nurses and teachers.

"Why? Because our society can't function without them and because we've struggled to hold on to them because they've been able to earn more overseas.

"I note that Professor Gibson is a public sector worker. Does he include himself in the fat-cat category?"

So Gibson's careful study, adjusting for confounds, is of "no value", but differences in average wages across genders, with no controls for confounds, demands legislative action? Interesting.

Equal pay

Auckland university economist Ananish Chaudhuri endorses the Greens' campaign for equal pay.

Women, here and elsewhere, are not asking for a hand-out. They are asking to be paid the same wage as men for the same work, which is fundamental to democratic ideals of equity and justice. Green Party MP Catherine Delahunty's bill, which proposes to amend the Equal Pay Act by allowing for gender pay comparisons, will help reduce the disparity. It is an important step forward for achieving the goal of gender pay equity.

Ananish cites some of the empirics on gender pay gaps, noting that a reasonable proportion of the pay gap remains after correcting for observables other than gender (although this depends a whole lot on which country's data you pick). But we have to remember that if a whole pile of observables are highly correlated with gender, as has to be the case if the raw pay gap is cut back a pile by correction for observables, then it would be surprising if there weren't also unobservables that varied by gender and affected pay. A reasonable coefficient on gender then can be picking up the effects of unobservables other than gender that correlate with pay. And note also that while there may be a gap in straight pay, total compensation bundles include a whole lot of non-pecuniaries valued more highly by women.

Delahunty's amendment would require firms report pay by gender, allowing easier enforcement of current equal pay legislation.

The proposed changes meant workers and unions would be able to request information on pay levels by gender in their workplaces to assess whether the Equal Pay Act was being applied.

And legal risks then increase for firms with differences in average salaries, even if such differences disappeared after correction for the usual confounds like experience, time out of the workforce, hours worked, and so on.

One risk of strengthening equal pay protection: young women become less likely to be hired because the firm then bears greater risk in case of maternity. French data shows firms show little gender bias in hiring in age cohorts where maternity risk is low but are reluctant to hire women where maternity risk is high; French firms bear high costs in case of maternity leave. Such costs are lower in NZ, but not non-existent. Firms that would otherwise let salary differences clear up the costs of flex-time arrangements or more off-job responsibilities will fear employment court action. It's cheaper and less legally risky to hire fewer women in the first place.

It's highly unlikely that Delahunty's bill makes it to the floor. But if it does, I'll have to work out terms for a bet with Ananish.

Previously:

• The lesbian pay gap
• Mommy track vs partner track
• Wage discrimination: the evidence
• Gender pay gaps: non-pecuniary benefits edition
• Critiquing the Ministry of Women's Affairs paper on pay gaps (and here)