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Parental Support: The Elusive First Best
May 7, 2008 | 9 Comments | Joshua Gans
So I have made a couple of posts on the issue of parental support (here and here) and I have been asked for more. Indeed, I would like to make a submission to the Productivity Commission inquiry into all of this (they are due 2nd June) but I find that my own views still remain up in the air. What is more, the debate is frustrating. On the one hand, pretty much every proposal put forward looks bad economically — in the sense, of distorting incentives or creating inequities. On the other, many countries have put in schemes of paid parental leave (e.g., Canada, Sweden) and have hardly collapsed. So there must be some solution to all of this.
It is going to take me some time to articulate and explore a view on this (I guess I have a few weeks). So what I am going to do is post on my thought process in the hope that that will work. And I will start right here.
The first thing that we don’t know is what we want. There is no consensus on the fundamental question: if economics wasn’t an issue, what do we want our parental opportunities and activities to look like? In economics, we term this the first best. It is the answer to the question, if we can have whatever we want, what would it be? And let me tell you, it is hard to rank various policies without having some idea as to how to answer that question.
Ignoring, for the moment what anyone has said that might relate to this issue, let me give it a go. And to do so, I will need an analogy — which, let me tell you, I am going to torture mercilessly. It is this: let’s imagine that you have two DVDs — your work DVD and your home DVD. In your life you want to play both of them but at any one time you can obviously only be watching just one. So you put in your work DVD and start playing it and moving through it. Then comes a time where you would prefer to watch your home DVD — indeed, it is stronger than that, you wouldn’t get enough out of that if you waited to finish your work DVD and so you will definitely want to switch between them.
What do you want to do? You want to (i) hit pause on the work DVD; (ii) eject it; (iii) put in the home DVD and play it and then (iv) eject it and put back in your work DVD and hit resume. (I know, I am simplifying even this but let’s go with this for a second). I think this captures the first best desire for many would-be parents. They want to be able to switch DVDs and then resume without cost.
Now the point about this exercise is to use it to work out what is standing in the way of this dreamworld, not to argue whether proponents of various schemes are arguing for it. They aren’t but I don’t think that anyone is arguing that, if this can be done without cost, that it shouldn’t be done. But the constraints are numerous and are often worrisome both for hitting pause (you need an income still) and for hitting resume (the various forms of discrimination parents feel in the workplace). Nonetheless, I’ll have to come back to them.
But let’s just imagine that your DVD life works just like this and there is no economic barrier to pause and resume. Notice that there is an immediate problem. Even if you take time to spend with the children, you may not be able to resume. Spend enough time away from work and your human capital may depreciate. So resuming may not be an option. Interestingly, when we talk about periods of unemployment, we are comfortable talking about re-training. But when it comes to parental support this rarely rears its head.
Now I am going to leave it right there. In future posts I will deal with the following:
1. Absent government intervention, why doesn’t the first best emerge?
2. If the first best is not possible, what are the costs on society?
3. How do we set government policy to mitigate those costs? (And if I think I can answer that in a single post, I’m dreamin’.)
Comments
9 Responses to “Parental Support: The Elusive First Best”
Just looking back over your previous posts on the matter, if I’m following you correctly, you think that a problem with paid parental leave schemes is that they subsidize those who have children at the expense of those who don’t.
But the government already provides a profusion of subsidies to those who have children, at the expense of those who don’t.
While you might think it’s unfair (and I think it’s kind of unfair as well), I think the implication is that we’re very much in the minority on this philosophical point.
Given that, I don’t think arguing against paid parental leave schemes on this basis is going to have much success.
Robert, my goal is not to argue against parental leave schemes but to work out what makes sense.
Wasn’t meant to imply that you were.
But you do seem have argued in past posts that parental leave schemes should not result in a net long-term transfer from those without children to those with children – or, at least, that such a property is an undesirable feature of an ideal parental leave scheme.
I believe that most people seem to think that such a net transfer is not only not a problem, but a desirable outcome.
To steal a phrase from my line of work – it’s a feature, not a bug.
I dunno about this ‘first best’ stuff. Just watch the work DVD at work and the home DVD at home. If the home DVD needs watching while you’re at work, then pay someone to watch it.
This reminds me of a phenomena seen in Silicon Valley. You have a lot of people working very hard for a few years with little or no break. They cash out or otherwise save up money and then take a sabbatical for a few years. In effect they trade having breaks of a two weeks during the years they are working for one longer and better break of several years.
The concept of the sabbatical works its way into this thought experiment. Or even the original concept of long service leave (which was originally meant to allow updating of skills).
To torture the analogy even more…the “home DVD” could be considered any life outside of work. The same concept of being able to switch between work and home without pause applies to undertaking training (or re-training), long term travel or having a sabbatical.
[...] Yesterday I argued that when it comes to parental support what people seem to want is a frictionless ability to transition between work and home lives. Specifically, the ability to give birth to a child, take care of that child away from work for a period of time and then to return to work with the same prospects and opportunities as the day they left. That said, there is the issue of whether it is feasible to return to work in a frictionless way given possible depreciation in human capital and also whether there has not been a change in the way parents want to work when they have children (e.g., they may not want or it may not be socially desirable to want them to put in the same level of hours or not). [...]
Don’t know that we’re not comfortable thinking of retraining for those who’ve taken time off to parent – lots of women have done this (my mum eg). But are there any serious barriers to training in that case that need government intervention to solve? It’s a rather different case to that of involuntary unemployment, after all.
I think it’s clear that the first-best solution doesn’t arise in the market because it’s not the best for all the parties involved, namely the employer. The problem with the dvd analogy is that the work dvd changes while you’re not watching it and resents the fact that you’re not watching it. It’d be more like a live TV show where viewers call in to interact with the show’s players; when you take a break to watch a DVD the show loses your participation and you miss out on what happened in the show.
[...] Gans is only getting started on the problem of parental support – i.e. paid parental leave – and promises [...]