Family-Friendly Policies and Economic Progress for Women

Given the dramatic divergence in educational outcomes for women and men, there is a strong case that policymakers ought to do more rather than less to encourage female labor force participation, particularly among women with high earning potential. Recently, Emily Oster, an economist at Chicago Booth, made the following observation about the opportunity cost of child-rearing in her new “Ask Emily” column for the Wall Street Journal:

Let’s imagine you were making $40,000 a year before the baby, and if you wait to have a second child you delay your return by three years. The obvious cost is the three years of lost income—that’s about $120,000. The perhaps less obvious cost is lost income growth. Your income grows every year and—this is the key issue—that growth compounds. Lost time now affects you forever.

If your income goes up by 3% every year and you plan to retire 30 years from now, then by delaying your return for three years you lose about $150,000 over the course of your career just because of compounding. This is on top of the baseline loss during the years you are not working.

One could argue that this time spent at home represents an investment in the human capital of the child that will yield dividends in the future. It is also true, however, that the resulting decline in income also represents a loss of tax revenue, as (formal) market production is taxed while (informal) household production is not. And the income increase over time reflects, at least in part, returns to experience, so when skilled women exit the workforce, they are taking a great deal of productive capacity with them. One argument for keeping marginal tax rates low is that high marginal tax rates tend to discourage labor force participation by the secondary earners in a household, and secondary earners tend to be women, though that is less true with each passing year.

This dynamic is one reason why Alberto Alesina, Andrea Ichino, and Loukas Karabarbounis have called for gender-based taxation: because women have a more elastic labor supply than men due to the traditional division of labor, reducing the taxation of the labor income of women would encourage female labor force participation, raise revenue, and nudge families towards a more equitable allocation of household tasks. Though this proposal is without question politically unrealistic, for reasons Matthew Weinzierl touches on in “Why do we Redistribute so Much but Tag so Little?,” it’s a useful provocation, as it forces us to think about how dominant patterns of intra-family bargaining shape the labor market.

Moreover, the willingness to combine motherhood with labor force participation varies across countries, due to cultural and institutional factors, a subject Russell Shorto addressed in 2008:

As Hans-Peter Kohler of the University of Pennsylvania writes: “In general, women are deterred from having children when the economic cost — in the form of lower lifetime wages — is too high. Compared to other high-income countries, this cost is diminished by an American labor market that allows more flexible work hours and makes it easier to leave and then re-enter the labor force.” An American woman might choose to suspend her career for three or five years to raise a family, expecting to be able to resume working; that happens far less easily in Europe.

So there would seem to be two models for achieving higher fertility: the neosocialist Scandinavian system and the laissez-faire American one. Aassve put it to me this way: “You might say that in order to promote fertility, your society needs to be generous or flexible. The U.S. isn’t very generous, but it is flexible. Italy is not generous in terms of social services and it’s not flexible. There is also a social stigma in countries like Italy, where it is seen as less socially accepted for women with children to work. In the U.S., that is very accepted.”

This leads us to the obvious question of which approach is more attractive, the Scandinavian model or the American model? This week, Dwyer Gunn offered a nuanced contribution to the debate:

new paper by labor economists Francine D. Blau and Lawrence Kahn confirms that U.S. women’s labor force participation, relative to other OECD countries, is lagging. In 1990, the U.S. ranked sixth in female labor force participation among OECD countries. By 2010, while overall female labor force participation in the U.S. had risen slightly, the U.S.’s ranking among OECD countries had fallen to 17.

But family-friendly policies create their own set of problems: Much of the increase in women’s labor force participation in other developed countries has come in the form of less-demanding, part-time jobs—the dreaded “mommy track.” “These policies work to keep women in the work force,” says Blau, “but they’re less effective at moving them up when they’re in.” In contrast, women in the family-unfriendly U.S. are both more likely to work full-time and more likely to work in higher-level, managerial positions.

Shorto favorably contrasted the Netherlands, where the fertility rate is low but not catastrophically low, with Italy, where the fertility rate really is catastrophically low, and attributed Dutch success with its family-friendly policies. Yet Gunn identifies a flaw in the Dutch model:

The availability of longer parental leave and part-time work also encourages women to, well, actually take long parental leaves and request part-time working arrangements. This kind of work-life balance may make for happier womenconsider the Netherlands, where women are quite happy but less than 10 percent work full time, or all those (allegedfeminist housewivesin New Jersey—but research has repeatedly shown that such alternate career arrangements are still quite harmful to women’s incomes and career advancements.

As women sort into part-time work, “occupational segregation” becomes entrenched:

“The segmented nature of part-time work meant that women who switched to part-time hours, usually over child rearing, were often thrown off their occupational path into low-skilled, feminized work,” writes feminist sociologist Louisa Blackwell. In other words, you don’t see many three-day-a-week investment bankers or Fortune 500 CEOs.

Extended job interruptions also take a heavy toll on women’s earnings. The economists Claudia Goldin and Lawrence Katz have a paper that looks at the cost of workplace flexibility, including job interruptions, across a variety of “high-powered” professions over the last 40 years. The costs vary considerably across disciplines, but “MBAs give up 41 percent [of their earnings], Ph.D.s and J.D.s 29 percent, and M.D.s just 16 percent for a job interruption equivalent to 18 months during the 15 years after receiving their BA.” Even overly generous maternity leave policies are associated with higher gender wage gaps.

Several of the scholars Gunn interviews, including Harvard economist Claudia Goldin, recommend crafting Scandinavian-style “use it or lose it” family leave policies that require that fathers interrupt their careers as well as mothers as a means of reducing the stigma associated with such detours.

It’s not clear to me that these strategies will succeed in changing entrenched patterns, but they merit consideration. Another related strategy might be to facilitate a different child-rearing sequence. Among educated adults, it is increasingly common to delay child-rearing until the early 30s or later, a period during which the opportunity cost of child-rearing is relatively high. Shifting from time-based to competency-based credentialing might lead us to a different model, in which people start having children somewhat earlier and combine child-rearing with enrollment in flexible online or blended instructional programs in preparation for a return to the labor force. This is easier said than done, as child-rearing is taxing, yet it would be much easier under a flexible, competency-based approach than it is under traditional modes of higher education.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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