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The Case for a Retro Tax CodePaid Family Leave May Actually Widen the Gender Pay Gap
- By
- June 02, 2020
- CBR - Economics
Women in the United States are paid 79 cents for every dollar made by men, according to compensation software and data company PayScale. Although this gender gap in compensation has narrowed, its stubborn persistence has challenged researchers and policy makers for decades.
A widely accepted explanation is that women leave the workforce to care for young children, causing them to forgo raises and promotions available to men. One suggested remedy is paid family leave. Many experts argue that mandating paid leave for new parents could help narrow gender gaps in pay and employment.
But an analysis of tax data from the Internal Revenue Service suggests that California’s 2004 mandate for partially paid leave failed to narrow the gender pay gap and, in fact, cost the women who used it thousands of dollars in lost compensation over the following decade.
“Our results run contrary to claims that California’s 2004 Paid Leave Act improved women’s short- or long-term career outcomes,” write University of Michigan’s Martha Bailey, Middlebury College’s Tanya Byker, University of Utah’s Elena Patel, and the Federal Reserve Bank of Chicago’s Shanthi Ramnath.
The US is the only country of the 36 nations in the Organisation for Economic Co-operation and Development that doesn’t provide paid family leave on a national level. However, six US states have enacted some version of family leave. Bailey, Byker, Patel, and Ramnath studied the effects of California’s PFL, which took effect in July 2004 and offered new mothers six weeks of partially paid leave, adding onto California’s existing 10-week policy. The researchers analyzed more than 10 years of administrative data from the IRS to study the first cohort of mothers directly impacted by California’s PFL. This provided them with a larger-scale US data set than others have previously used to study this topic. The researchers find that in California, 18 percent of all mothers and 26 percent of all working mothers took advantage of paid leave.
Ten years after becoming mothers, women with paid leave reduced their employment by 5 to 7 percent, and their wages decreased as well.
In theory, paid leave would help women take care of newborns or newly adopted children without having to leave their jobs altogether. Staying in the workforce, and with their employers, “should help mothers retain job- and firm-specific human capital and reduce job search—both factors that should tend to increase women’s wages and narrow the gender gap in pay,” the researchers write. However, their findings suggest otherwise. Women with access to paid leave were no more likely to remain with their employers.
Moreover, 10 years after becoming mothers, women with paid leave reduced their employment by 5 to 7 percent, and their wages decreased as well. “New mothers taking up paid leave,” the researchers write, “experienced a large and statistically significant decrease in annual wages.” This amounted to 5 percent a year one to four years after giving birth and almost 8 percent after five years. Some of this wage loss, the researchers write, may have been offset by self-employment income as mothers sought more flexible work arrangements.
All in all, the researchers estimate, “the annual wage earnings of new mothers taking up paid leave were $1,600 to $2,600 lower in the short term and $2,500 to $3,700 in the long run.”
“The lack of US paid leave policy is often cited as a cause of the gender gap,” the researchers conclude. “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.”
Martha Bailey, Tanya Byker, Elena Patel, and Shanthi Ramnath, “The Long-Term Effects of California’s 2004 Paid Family Leave Act on Women’s Careers: Evidence from US Tax Data,” NBER working paper, October 2019.
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