Family leave and the gender wage gap

The gender wage gap has been decreasing slowly and steadily over time. At least, that's what I thought until I read this 2023 NBER Working Paper by Peter Blair (Harvard University) and Benjamin Posmanick (St. Bonaventure University). They present the following graph of the gender wage gap in the US (for White women, compared with White men, between 1975 and 2015:

Note that the upward trend here represents a decrease in the gender wage gap (the y-axis is negative). What is apparent from the graph is that the gender wage gap in the US decreased relatively quickly from 1975 to 1993, and then the decrease suddenly and dramatically tailed off. What happened?

Blair and Posmanick single out the Family and Medical Leave Act, which was passed in 1993, and "which guarantees 12 weeks of unpaid, job-protected leave to qualified workers for covered family or medical circumstances". The birth of a child is one of the 'family or medical circumstances' that is covered. However, a lot of other changes to welfare and other things happened in 1993, so Blair and Posmanick smartly avoid looking purely at 1993. Instead, they conduct an event study, taking advantage of the fact that twelve states and the District of Columbia had implemented family leave policies prior to 1993. So, in their main analyses, they look at how the gender wage gap changed between the period before, and the period after, implementing family leave, for the states (and D.C.) that had these policies in place prior to 1993. They focus on the impact on White women (compared with White men), but the appendix presents wage gaps (compared with White men) for Black men and Black women as well. It is reassuring (in terms of the validity of their results) that the results look similar (albeit not as great) for Black women, and that there is no change in the trend of a declining wage gap for Black men (consistent with the results being specific for the gender wage gap, rather than picking up some change in welfare that might affect disadvantaged groups more generally).

They find that:

...prior to the leave policy the gender wage gap experienced by white women was falling at a rate of 0.70 percentage points per year (p-value <0.001). In the post period, the rate of gender wage convergence falls by 0.53 percentage points per year to 0.17 percentage points per year. The decline is statistically and economically significant, and the post-leave rate of gender wage convergence is marginally different from zero.

In other words, the rate of decline of the gender wage gap decreased by 75 percent (from 0.70 percentage points per year to 0.17 percentage points per year). An interesting implication of their results, which they don't address, is what it implies about the length of time required for the gender wage gap to be eliminated (based on an assumption of a linear decline). The gender wage gap for White women was 23.8 percent in 1993 (from Appendix Table A2). So, at the rate of decline from 1975 to 1992, the gender wage gap would be eliminated in a further 34 years (that is, in 2025). But, after the family leave policy was enacted, that extends out to 140 years (that is, in 2133).

The results that Blair and Posmanick obtain when looking at the full sample of states (where most states got the family leave policy in 1993) are similar, but paint a worse picture:

We find that the gender wage gap faced by white women declined by a statistically significant 0.70 percentage points per year prior to the policy change, which is identical to the pre-leave rate of gender wage convergence that we estimated using only the state variation... After the policy change, the rate of wage convergence for white women declines by 0.67 percentage points to 0.03 percentage points.

In those results, the rate of decline of the gender wage gap decreased by nearly 96 percent (from 0.70 percentage points per year to 0.03 percentage points per year). Don't even ask how long it would take to eliminate the gender wage gap at that rate. Ok, do ask. It's 793 years.

Blair and Posmanick then go on to show that the family leave policy can explain 94 percent of the unexplained change in the gender wage gap (the 'Gap Effect') between 1993 and 2015 (after accounting for the explained change due to changes in observable factors like age, education, and occupation). On this point they note that:

As articulated in Blau and Kahn (2006): "The Gap Effect measures the effect of changing differences in the relative positions of men and women in the male residual wage distribution, including the effect of an improvement in women’s unmeasured characteristics or a reduction in the extent of discrimination against women.” Given the differences in family-leave taking between men and women, family leave policies may simultaneously decrease the unmeasured characteristics of women in the labor market and increase the extent of discrimination women face.

Overall, it is clear from the results of this paper that family leave policies are a case of unintended consequences. They are designed to make the labour market more flexible for parents, but they result in a stymieing of efforts to reduce or eliminate the gender wage gap. Given that the family leave provisions in the US are far less generous than in other Western countries in Europe and Australasia, it makes me wonder how much of an effect family leave has on maintaining the gender wage gap in those countries.

[HT: Marginal Revolution, early last year]