Unintended Consequences of Paid Family Leave

In Trump’s recent speech before Congress, he stated the following:

“My administration wants to work with members in both parties to make childcare accessible and affordable, to help ensure new parents have paid family leave, to invest in women’s health, and to promote clean air and clear water, and to rebuild our military and our infrastructure.”

This one sentence spoken by Trump is filled with so much Keynesianism and economic fallacies that it should make any libertarian cringe.  It should make anyone hold onto their wallet.

For this particular post, I want to focus on his proposal to have paid family leave.  Of course, any company that wants to offer paid family leave as an employee benefit is free to do so.  Therefore, by Trump bringing this up, he is implying that the federal government would force companies to offer some kind of paid family leave.

According to the TurboTax website, Paid Family Leave (PFL) is defined as follows, at least for tax purposes:

Paid Family Leave (PFL) income is money you receive from your employer, an insurer, or the government while you are away from work for an extended period of time so you can recover from a serious health issue, take care of a seriously ill family member, or bond with your newborn or newly adopted child.”

As with almost all government programs, there are unintended consequences.  In fact, many government programs end up doing the exact opposite of their stated intention.  For paid family leave, it could end up hurting the people that it is supposed to help.

Whether it is economic ignorance or evil intentions that drive politicians to support these laws, it does nothing to negate the fact that they are harmful to a free society.

For a libertarian, the first problem with any kind of paid family leave as required by the government is that it is immoral.  It is using the threat of force to compel employers to do something.  If an employer and an employee want to trade (an employer gives up money, while an employee gives up his time and labor), then they should be free to do so without having any requirement of the employer paying family leave.

The second major problem is that this is a cost to employers, and it ultimately makes up poorer.  It hurts employers, employees, investors, and consumers.

Let’s say that an employer has to pay an employee for 8 weeks if that employee has a newborn child.  This could be for either a mother or a father.  If someone takes off for 8 weeks and gets paid, then the employer is paying that employee to do nothing for 8 weeks.  And, of course, the law prohibits the employer from firing the employee during this time.

There are any number of consequences from this.  In many cases, it is probably a combination of consequences that impact different groups of people.

It may hurt the people who never use paid family leave because they have to keep working while others are taking time off and getting paid.  It could hurt investors who find that their companies are less profitable because of the added expense.  It could ultimately hurt consumers if companies are able to pass down some of the added expenses in the form of higher prices, especially if competitors are forced to incur the same added expenses.

What many don’t think about is the cost it could actually have on those who would be most likely to use the paid family leave.  If an employer is going to hire someone who is about to have a baby, or even is at an age where they are more likely to have a baby, then the employer may factor in the added expense of paid family leave.  The employer might offer a lower salary than it otherwise would have.

Even worse for the potential employee, an employer might be more willing to hire someone who is less likely to have babies.  Maybe the employer will hire a 40-year old who already has some older kids over a 30-year old who is recently married.  Or maybe the employer will prefer a 20-year old who is not married.

The problem here, aside from the immorality of using force, is that such a law distorts the marketplace.  It puts employers on the back burner, which eventually just hurts the employees and the consumers.

In a free society, people (which includes companies) should be free to engage in voluntary associations as they wish.  Many companies will offer specific employee benefits, but they weigh these costs when they offer them.  Employers compete against each other to obtain good employees.  Employees compete against each other for jobs and the salaries and benefits that they offer.  A free market system offers some harmony in this process.

When the government distorts this process, such as requiring paid family leave, it makes the whole process less efficient.  It misallocates resources, and it ultimately hurts production.  It ultimately makes our living standards lower than they otherwise would have been.

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