Finally, return to work tax rebates

I have been following the Australian election at a distance and it is amazing how much more policy-centered it is than elections taking place here in North America. There are so many policies it is easy to miss some. Thankfully an alert Twitter follower noticed something familiar about the ALP’s new policy with regard to employment by small businesses.

Top of the list was a new promise to give small businesses an additional $20,000 a year tax deduction for taking on a new employee who is under 25, over 55 or a parent returning to employment and parental leave.

There is alot here but the one that got my attention was the notion of giving small businesses a tax rebate for employing someone return from parental leave. I searched for details and couldn’t find any but I did want to say that this has the makings of the best parental leave policy ever, anywhere. Of course, I would say that as it is the same as the policy I have been advocating for almost a decade.

Anyhow, for those interested, here are some links to accessible articles about this:

And here is a set of videos I recorded explaining the scheme.

The bottom line is that rather than simply handing out dollars to parents on leave, this policy targets the real issue — discrimination in the workplace — and makes it easier for businesses to encourage parental leave and ensure parents return to work successfully. In other words, target the problem rather than the symptoms. While the policy announced is small scale relative to what I was proposing, I should note that is the sensible place to start so we can learn whether what is proposed in theory actually works in practice.

Is the Coalition’s Paid Parental Leave Scheme fair?

Fairness is an awful word to use in debates. Scott Adams once called it the word that allows morons to participate in arguments. Children learn that one pretty early.

But Labor started it by calling the Coalition’s Paid Parent Leave (PPL) scheme unfair. That scheme places a tax on business to pay for six months of up to $75,000 of a mother’s salary following a child’s birth. This is supposedly unfair because the beneficiaries are those who earn the most.

Today, Peter Martin argues that it is not unfair as it is borne broadly by shareholders and the benefit is large precisely when women are doing well in the workforce which is generally an outcome we want. In that respect, it is like any other workplace entitlement like sick leave.

Well, not quite. It matters when the entitlement is decoupled from the hiring decision. For sick leave, that makes it a direct cost of employment and so whether it occurs or not is a private decision. However, for the PPL from the Coalition, the costs are socialised (well, almost and I’ll come to that in a bit). That means that firms will not consider them when hiring an employee.

Why is this a problem? Because parental leave (like sick leave) is overwhelmingly a private good. Here is what Martin says when trying to twist it otherwise:

And their shareholders’ children and grandchildren are more likely to be breastfed for the recommended six months rather than the presently funded three at the minimum wage. They will typically develop higher intelligence, greater emotional resilience, better teeth, resistance to colds and flu, and protection against diabetes and obesity.

This is buying the data in a way that is not warranted. As I wrote about in May, even if you accept this argument, we are subsidising $68 a breastfeed. So much for looking at the numbers carefully! In any case, if you believe that you have to mandate and subsidise maternity leave for high income earners you are basically arguing that women wouldn’t have made every attempt to breastfeed within employment constraints to the benefit of their children. Again, I am not sure that case has been made and any economist would tell you the thing you need to consider is workplace reform and not handouts. Indeed, the socialisation of PPL costs, will reduce incentives for workplace reform for family friendly practices.

Which leads me to the other point of unfairness. Martin laments: “bizarrely we are told that it’ll make employers discriminate against women of childbearing age and hire men instead.” On the one hand, PPL handouts will give employers a free entitlement that will be realised if they hire women (which is good) but it will do them no favours if the cost of them going on leave is greater than $75,000 per year. And that is likely to be the case for women with more specialised skills. In that case, who would you invest in, a man who won’t have the opportunity to take leave or a woman who is given an incentive to do so? I don’t like those equations but we cannot ignore the incentives — something that I have now been saying for many years. Again, we need to incentives to make workplaces more family friendly and not to move the family further from the workplace.

Peter Martin is a fine economics journalist and should know better. He should know that the thing to attack from Labor is the premise that a “fairness” claim is relevant as opposed to a productivity claim. We need less fairness and more coherence in debates over policy.

Game Theory in Action: Sven Feldmann on Kindergarten Matching

My colleague Sven Feldmann presented a talk today on Game Theory in Action. The city council where he lives has been using a very common approach for matching children to kindergartens. The Boston Approach (see here for details) involves asking for a preference ranking and making several rounds of offers. This approach is fraught with problems including: inefficient matching, an incentive for parents to misrepresent their preferences, and “justified envy“, whereby a student prefers a school S that she was not admitted to, despite having a higher priority than another student who was in fact admitted to school S.

Sven has persuaded his City Council that they should implement the Gale-Shapley Mechanism instead (see here for details). In step 1, parents get to propose their first ranked kindergarten. Schools temporarily assign seats to proposers based on their expressed priority, others are rejected. In step 2, each rejected parent proposes her next choice. Schools then consider the pool of accepted students plus the proposer, and update their tentative offers based on expressed priorities. This repeats until a stable state is reached, at which point the tentative offers are finalized. So it is a pretty feasible approach to implement. One of its benefits is that it is strategy-proof so parents do not have an incentive to lie about their preferences. Theory also predicts that stable envy-free matching will always occur under the Gale-Shapley approach. So a few changes in behavior can make for a better matching system. But it takes a bit of work to explain this approach and its merits to city councils and parents, as Sven has apparently done with some success.

It is great to see that practical applications of game theory are making a difference in daily life. If you live in a school district that needs help, ask your city council to contact Sven who has a clear and concise explanation of how the different matching techniques work. Or move to Darebin City, Victoria, Australia.

Update: lots of good writeups on school choices are available at http://marketdesigner.blogspot.com/search/label/school%20choice

Value-Added NAPLANs?

On the eve of public reporting of NAPLAN tests throughout Australia, Ben Jensen (ex-OECD, now running the education program at the Grattan Institute) has a new report on the topic. His key argument is for value-added scores (which will be possible when/if we get 2010 test data). The money quotes:

Continue reading “Value-Added NAPLANs?”

Do school teachers send their children to government schools?

I’ve often wondered whether teachers more or less likely to send their children to private schools, and in surfing through back issues of the Australian Education Researcher, I found at least a partial answer. A 2008 paper by Helen Proctor, titled “School Teacher Parents and the Retreat From Public Secondary Schooling: A View from the Australian Census, 1976-2001”, uses custom-made census cross-tabulations. The results are only for Sydney, but make interesting reading nonetheless.

Continue reading “Do school teachers send their children to government schools?”

The most sobering sentence I’ve read this week

From the NYT:

“We’ve got to figure out how to break the cycle of poverty, and the way we’re doing it now isn’t working,” said Hank M. Bounds, the Mississippi commissioner of higher education and, until recently, the state superintendent of schools. “An affluent 5-year-old has about the same vocabulary as an adult living in poverty.”

Conversation with Ariel Kalil

Ariel Kalil

Ariel Kalil is a Professor of Public Policy at the Harris School, University of Chicago. She is a developmental psychologist by training, and her work links developmental psychology with economics, e.g., the effect of parental job loss on child development. I had a conversation with Ariel about her work and thought it would be of great interest to our readers.

Kwang: Congrats on the NY Times feature last week. Not many social scientists make it to the front page. How do you feel about that?

Ariel: It was very exciting! It was fun having friends e-mail to tell me they’d read the article on their train ride that morning. What I was especially happy about was that the reporter got the story right. He was a very curious and thorough guy, and we spent a lot of time on the phone and exchanging e-mails over the past few weeks. He read all of my original papers carefully, and came up with some very good questions for me. And the families that he interviewed had stories to offer that really illuminated some of the quantitative findings from my work.

Kwang: Tell me a little more about your work. What are main themes you’ve researched and what motivates you to pursue these questions?

Ariel: I’m interested in how socio-economic conditions are associated with families’ well-being and children’s development. So, I’m interested in parents’ mental health and their interactions with one another and their children, and I’m interested in children’s behavior and academic performance. In many instances, there is a link between, say, family income or families’ employment experiences and these outcomes. I care, as all economists do, about whether these links are causal. But, in thinking more like a developmental psychologist, I am also interested in “getting inside the black box” to understand why these links exist, and what kinds of individual differences shape how strong these links are for different types of children and families. I’ve always been interested in applying social science to real world problems. The idea that my work might someday shape public policy that could help improve the lives of families and children is very motivating!

Kwang: In the paper featured last week by the NY Times, you show that young people are badly affected when their parents lose their jobs, and that this is true in single parent and dual parent families [paper]. Could you tell us more about these effects and what you think drives the differences between single mothers and dual-parent families? Between male and female parents becoming unemployed?

Ariel: I think there are likely different factors at play for single parent vs. dual-parent households when jobs are lost. First, these families look a lot different from one another in terms of a whole set of demographic characteristics. So, in some sense, it’s a bit difficult to compare the two kinds of families. One of the biggest and most obvious differences is that when a single mother loses a job, the family has typically lost its only breadwinner. These families are likely to already be strained economically, and to have few (if any) people in their set of friends and relatives who can help them out. In many cases, a job loss sets off a cascade of adverse events that can be hard to stop, such as getting evicted or having to move in with others to save housing expenses, and this might disrupt child care arrangements or where kids go to school, and so on. There is just a lot more instability in these families related to the families’ economic circumstances.

In dual-parent families, I think the situation is a little different, and, at least in the short term, I think the impact on well-being and child outcomes has less to do with the economic impact of the job loss than the psychological one; for instance, in the way that parents relate to one another and to their children. For example, most dual-parent families have two earners, and so the family hasn’t lost all of its income at once. And many of these families also have some resources they can draw on, either savings or help from other family members. The immediate economic threat may not be quite as great. Also, in the families from whom I’ve collected data, I’ve found that parents will typically try to cut back on other things before they cut back on spending for their children, so the kids are often spared disruptions in their daily lives. In these families I think the adverse impacts that we see have a lot more to do with stress and anxiety, which we know can be very damaging to family relationships and ultimately to children’s development. And I think a big factor in the current recession is how long it’s taking people to find new jobs. The number of “long-term unemployed” is at an all-time high, and parents are very worried. We may eventually see more of these families exhausting their savings, losing their homes and encountering the same kinds of hardships that single-parent families have been more likely to face.

The different impact when fathers and mothers lose jobs is a really interesting one. In our work, we have consistently found that the negative impact of fathers’ job losses is greater. And this is not simply because fathers’ earnings losses are greater than mothers’ (in fact, in the US, in 40% of dual-earner households women are the primary earners). This is an interesting puzzle that I’d like to try to figure out; unfortunately the data are not readily available on this particular issue!

First, I think that “stereotypical” gender roles are still alive and well in many families and that the idea of being the “breadwinner” is still very important to many men and that is may be a bigger psychological blow to them when they lose their job.  Second, working women occupy a variety of roles – we see in time use data that women still do the lion’s share of caring for children and tasks around the house (cooking, cleaning, etc), even when they are employed full-time.  It turns out that working mothers cut back on their sleep and leisure time to do all of these things. So it may be that during periods of unemployment these women spend their time at home more effectively than a similarly unemployed man – because they were already occupying those roles anyway. Also, in the families from whom I’ve collected data, there seems to be more strife over figuring out what fathers’ “roles” are going to be during a period of unemployment. Many fathers viewed spending 40 hours per week in an outplacement office or a networking group searching for a new job as a full-time job, whereas many of their working wives thought they could usefully be spending more of that time helping out around the house or with the children. And that created a lot of conflict, which I think is rooted at least in part in “societal” or individual views about how the responsibilities of running a family should be divided between mothers and fathers.

Continue reading “Conversation with Ariel Kalil”