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Government Cash Handouts Won't Strengthen Families

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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Heather Boushey, an economic adviser to presidential candidate Hillary Clinton, and the executive director of the Washington Center for Equitable Growth, has a plan to help American families while attacking inequality. She wants to require that companies give all their employees, both male and female, paid parental leave.

Boushey’s idea is far from revolutionary. If anything, it's the exact opposite: The U.S. is a laggard in this regard -- all other developed countries now have mandatory paid leave for mothers and some for fathers as well. Paid parental leave falls under the category of “things we should have done long ago.” It’s the kind of smart, well-targeted policy that doesn’t just put money in poor people’s pockets, but strengthens families at the same time.

There is, as in so many policy debates, another side. In a recent column, my Bloomberg View colleague Tyler Cowen said that as an alternative the government could give people cash, which they could spend as they please, rather than mandating paid leave:

I usually suggest comparing any proposed program for amelioration to the simple alternative of sending people cash or leaving more cash in their hands, whether through tax cuts, tax credits or outright payments.

Giving cash is a favorite solution of many economists, since it doesn’t tell people what to spend their money on. And that often makes perfect sense. But in this case, I see two reasons why paid parental leave is probably better than cash.

The first is that mandated benefits like parental leave tend to distort the economy less than giving people cash. To give people money, you must levy taxes (or borrow). Economist Larry Summers made this point in a 1989 paper entitled “Some Simple Economics of Mandated Benefits.”

The reason is that the true cost of mandated benefits is less than it appears. Some employees would negotiate for paid parental leave even if the government didn’t order companies to provide it. For these companies to offer leave to people who would have gotten it anyway imposes no further costs on the economy.  In contrast, giving everyone cash requires raising taxes enough to pay everyone. Even if you give out the cash via a tax cut, that requires either a matching spending cut or a rise in budget deficits. Therefore, as Summers shows, mandated benefits are often cheaper than universal cash payouts.

But I see an even deeper reason for mandated parental leave. In this case, there are good reasons for the government to give people incentives to pay more attention to their families.

Parents are critical for childhood development. Research confirms that the more attention parents pay to their kids, the better-adjusted those kids become. More parental time spent with kids translates into better behavior and better social skills. But left to their own devices, parents may not give their kids enough attention. If the government mails parents a check instead of mandating that they get time off to spend with their children, the parents may squander the money, instead of staying at home spending quality time with those kids.

Fathers are especially important. Studies show that when fathers are very involved in parenting, their kids tend to enjoy healthier social and cognitive development. Psychologists have found a number of mechanisms by which dads’ attention helps kids, meaning that the pattern probably isn’t just a coincidence.

Writing in Atlantic magazine, family researcher W. Bradford Wilcox offers yet more evidence on the importance of fathers, and concludes:

The story told by this data, then, suggests that…great, and even good-enough dads, appear to make a real difference in their children's lives.

And it’s here that mandated parental leave can have the biggest effect. Researchers Ann Bartel, Maya Rossin-Slater, Christopher Ruhm, Jenna Stearns, and Jane Waldfogel find convincing evidence that mandated leave has large effects on fathers’ leave-taking (though it also affects mothers to some degree). And Cornell doctoral candidate Ankita Patnaik has found that father-only leave programs have even larger results, causing dads to spend much more time with the kids.

So mandated leave is very effective in getting dads to spend time with children, which in turn is healthy for kids’ development. If you think the government ought to look out for the health and well-being of people too young to vote, and if you think emotionally healthy and well-behaved kids have a positive spillover effect on society -- and I do believe both of those things -- then that’s a good reason to support mandated parental leave instead of simply mailing out checks.

So although parental leave might be more economically efficient than cash giveaways, there’s a deeper point here as well. For too long, economic policy debates have been filtered purely through the prism of efficiency. There's too much focus on measuring benefits in dollar terms. But in a country where families are breaking down and emotional health is deteriorating, maybe it’s time we thought more broadly about the effects of policies. The federal government doesn’t exist just to put more money in our pockets -- it has the power to demand that the corporate state have more respect for family values.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net