A new NBER paper using IRS data suggests California's Paid Family Leave Act had a number of unintended effects, both on women's careers and on their child-rearing decisions:
We find little evidence that PFLA increased women’s employment, wage earnings, or attachment to employers. For new mothers, taking up PFLA reduced employment by 7 percent and lowered annual wages by 8 percent six to ten years after giving birth. Overall, PFLA tended to reduce the number of children born and, by decreasing mothers’ time at work, increase time spent with children.
Some interesting bits from the paper:
Two alternative models may explain these results. On the demand side, differential employer discrimination against mothers giving birth in Q3-2004 could lower future wage offers, reduce work intensity, and even decrease women’s willingness to remain employed.
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A second explanation... [is] if investment in parenting is increasing in time spent with infants... [then] additional leave may encourage women to invest more in their children (and less in their careers)— even if treatment by employers at the time they return to work is the same. Moreover, it may encourage greater specialization in childcare by the partner taking leave. Under this model of parenting and labor supply, women themselves may reduce their labor-force investments following a longer leave, thereby reducing their longer-term employment and annual wage earnings.
If the demand-side model holds, paid leave legislation could be responsible for a discrimination-induced reduction of wage earnings of $24,000. If the supply-side model holds, paid leave legislation could be responsible for an increase in investment of $24,000 worth of mothers’ time in children. Disentangling these two explanations in the IRS tax data is difficult, but two pieces of evidence point to a labor-supply effect. First, unless firm-level discrimination were specific to new mothers (and not higher parity mothers), the discrimination-based explanation should yield similar employment and wage effects for new mothers and women with older children. However, the analysis finds little effect for mothers giving birth a second or later time, but large effects concentrated among new mothers. The larger effect on new mothers implies that the Act may lead to different parenting and work behaviors on the part of parents, which is consistent with the labor-supply explanation.
The effects of the 2004 California Paid Family Leave Act on completed childbearing reinforce this interpretation. If the Act increased investments in children, then standard economic models posit the number of children should fall, because increases in child “quality” (i.e., investment in children) increases the shadow price of child quantity (Becker and Lewis 1973). Table 5A.2 shows this was the case, with the number of children falling by 2 percent for all mothers (-0.06/2.31, col. 2) and 5 percent for new mothers (-0.10/1.81, col. 4) over the next decade.
The lack of U.S. paid leave policy is often cited as a cause of the gender gap. This analysis, however, suggests that even less generous paid leave policies (relative to European standards) may have the unintended effect of reducing labor-market equality between the sexes.
To sum up, it seems that women who use paid family leave get an opportunity to spend less stressful time with their children, which leads to a larger percentage of women choosing to prioritize their children over their career (or at least better balance the two). This leads to a drop in time spent at work, employment, and earnings in the long run. However, they do reduce the number of children they have, suggesting that their time is still constrained and that they do still care about their careers, but they are better able to raise the children they do have.
This is a bit counter-intuitive on several fronts. For me, that PFL actually makes the birth rate
worse is rather alarming as it's one of the major policies which has been touted as helping to lower the cost of having kids and thus incentivize their births. If this doesn't work and is actually counterproductive, we might be in for some deep trouble.
