≡ Menu

Open Letter to Angela Rachidi

Dr. Angela Rachidi
American Enterprise Institute
Washington, DC

Dr. Rachidi:

Thanks for your comment on my open letter to your AEI colleague Aparna Mathur. You there offer a reason to believe that the market fails to supply optimal amounts of paid leave. Specifically, you write that “Imperfect information is a market failure. Fear of hiring discrimination creates an information imbalance when it comes to negotiating compensation. If I’m a 30 something year old women I can’t ask about paid parental leave for fear of being passed over for a man.”

First, I don’t see here any economically relevant imperfect information. Employers surely know that there’s a significant probability that women – and couples – until they’re in their early 40s will have children. While knowledge of the precise number and timing of births for each employee is unavailable, markets are no more likely to fail because of this lack of perfect knowledge than they are to fail because of the lack of perfect knowledge of which particular employees will get sick or injured and when, which particular employees will quit and when, and which particular employees will prove to be insufficiently productive. Markets deal with these sorts of knowledge ‘imperfections’ routinely and successfully.

Second, in competitive markets it’s typically unnecessary for women to initiate the ask for paid leave. Entrepreneurial employers, in order to attract the best employees at the lowest possible cost, have strong incentives to initiate offers of leave if they believe that such offers are mutually beneficial.

Third, I don’t understand why, if you’re a 30-something woman, you can’t ask about paid parental leave for fear of being passed over for a man. Why would an employer refuse to offer this fringe benefit in exchange for a compensating reduction in your take-home pay or in the value of another of your fringe benefits?

The only answer to this question that would work is that employers are irrationally reluctant to employ women of child-bearing age. But in this case, paid-leave legislation – even the sort endorsed by you and your AEI colleagues – by increasing the likelihood that women will take paid leave, would make employers more reluctant, not less reluctant, to employ women.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030