Another Open Letter to Aparna Mathur

(Don Boudreaux)

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Dr. Aparna Mathur
American Enterprise Institute

Dr. Mathur:

Thanks for your careful attempt to counter the objections that Veronique de Rugy, Mark Perry, I, and others have about your case for government efforts to increase paid family leave. Alas, I remain wholly unpersuaded.

I here limit my response to the foundational question of whether or not there is reason to believe that paid family leave is undersupplied on markets.

You argue that the market fails to supply adequate amounts of such leave by claiming that “there is a positive externality to allowing women to stay attached to the workforce while also allowing them to take time off to meet family needs. The externality arises because when women stay engaged, this contributes to them being more productive, having higher earnings, contributing to tax revenues and economic growth, and relying less on the social safety net.”

Your argument suffers from at least two problems.

First, the positive externality as you describe it is not directly of paid leave but, rather, of women working. You simply assume that shifting the composition of pay packages toward more paid leave and less take-home pay will encourage more women to work. But there’s no reason to suppose that this assumption is necessarily valid. The opposite might well be true. If government skews pay packages to include more paid leave and less take-home pay, women who prefer more take-home pay relative to paid leave will become less likely to work. Because there are surely some such women, you have to make the case – rather than implicitly assume – that government action to skew pay-packages toward more paid leave will in fact result in more women working.

Second, even if we grant the validity of your assumption that skewing pay-packages in the direction of more paid leave will increase the number of working women, you still haven’t made the case that there are positive social consequences of women working that remain unaccounted for by the market. Identifying, as you do, benefits that flow from some activity (namely, women working) doesn’t suffice to justify the claim that that activity produces positive externalities – externalities that James Buchanan and Craig Stubblebine, in their classic 1962 article, “Externality,” identified as “Pareto-relevant.” What is needed to justify such a claim is a plausible argument that the relevant decision-makers have inadequate incentives to take those benefits into account.

Yet in the cases both of staying attached to the workforce and of dealing with the consequences of alternative pay-package configurations, there is no reason to believe that the incentives of relevant decision-makers are inadequate. Each worker directly experiences the costs and benefits of working and of having a pay package featuring less paid leave and more take-home pay versus the costs and benefits of having a pay package featuring more paid leave and less take-home pay. In short, the benefits (and costs) to each woman of staying “attached to the workforce” and of having a particular pay-package configuration are solidly borne directly by her.

You can here assert that there nevertheless remain external costs and benefits to others in society of each woman’s pay-package choice – costs and benefits that she ignores. But the problem with this assertion is that it can be made about almost any decision. For example, admirers of the late Phyllis Schlafly can assert that when each woman chooses to work, she fails to account for the value to society of having mom’s stay at home with the children – and so government should punitively tax working women in order to correct this alleged externality. This ‘Schlaflyan’ assertion of an externality is just as plausible and as solidly grounded in economic theory as is your assertion of an externality.

The bottom line here is that any legitimate case for government action requires more than mere assertions that decision-makers fail to account adequately for the social costs and benefits of their decisions. Instead, what’s required is a plausible case, grounded in sound economics, for market failure. Yet you offer no such case. Again, neither listing the social benefits of women working nor describing in the abstract conditions under which markets would fail to supply adequate amounts of paid leave counts as such a case.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030