Eakinomics: Paid Leave – It’s More Than Just Costs

Eakinomics: Paid Leave – It’s More Than Just Costs Over the past several years, there has probably not been a more hotly debated domestic policy topic than prescription drug pricing. But the silver medal goes to paid leave proposals. There have been numerous proposals for parental leave (after birth or adoption), family leave (to care for family members), medical leave (for own illness), and some combination of the above. Personally, since 2017 I have participated in the American Enterprise Institute-Brookings Institution project on paid leave. And it is interesting to note that among the first responses to the pandemic was the Families First Coronavirus Response Act, which included paid sick leave for COVID-19 and paid family and medical leave in response to COVID-19. The most common analysis of these proposals is to estimate their costs; indeed AAF has contributed greatly to understanding the potential taxpayer exposure from new proposals (see the listing here). Of course, costs are only one side of the equation; good policy analysis comprehensively compares benefits to costs. Unfortunately, benefits have not much been in the debate. The usual “argument” for paid leave is that the United States is unique among developed countries in not having a paid leave law. Unfortunately, that’s an observation and not an argument. The United States also did not have ABBA, Kraftwerk, or a throbbing Eurovision bass line in every song – and that’s not a bad thing. So it is refreshing that AAF’s Tara O’Neill Hayes and Margaret Barnhorst have produced a detailed review of the benefits of parental leave. They conclude, “Besides the economic benefits for parents, there are myriad health benefits for children whose parents receive PFL, primarily stemming from the increased regularity of well-baby check-ups, greater rates of immunization, increased likelihood and duration of breastfeeding, and increased parental care and engagement. The effects of early childcare and parental interaction can last long into adulthood and into many aspects of adult well-being and social and economic productivity.” At this point, I consider it well-established that there are significant potential benefits and significant potential costs. What needs to happen is the careful comparison of the benefits and costs for specific proposals. In doing so, it is important to be wary of two important pitfalls. First, many are already taking a significant amount of parental leave. To see the importance of this fact, imagine the extreme case where a tax-financed paid parental leave program simply replaces – hour-for-hour – existing parental leave. The result would be very costly and would generate no new benefits. Thus, the more a proposal simply “buys out the base,” the greater the cost and the lower the corresponding benefits. Second, it is still unclear how many parents – especially new fathers – would use such a benefit and for how many weeks. Thus, unfortunately, the thing that there is the least information about is how much parental leave is cobbled together at present and what would be the take-up rate of any new program. Hayes and Barnhorst have made a terrific contribution to the analysis, but there is much more to understand in the paid leave debate.