Friday, April 7, 2017

Incentives, externalities, and parental leave

A weird story on Bloomberg (see here) describes an unintended consequence of parental leave policies in Denmark.  "People die."  Why?  It is because nurses tend to be female and young and have babies.  So, the parental leave policy has created a shortage of nurses.

Nurses, who skew female, provide a lot of vital health care, and made heavy use of Denmark’s new paid family leave benefit when it passed in 1994. Since the supply of nurses was limited, and their skills could not easily be replaced, hospital readmissions went up, and more troublingly, mortality spiked among elderly patients in nursing homes.

Advocates of paid parental leave are no doubt bristling at the implication that their favorite benefit might kill people. But that’s not quite the right implication to take away from this paper. What it really highlights is how difficult it is to know how a given policy will turn out. Had officials understood that in advance, they might have taken steps to mitigate the effects -- such as training extra nurses beforehand. The problem, in other words, wasn’t necessarily family leave policy, but the limited visibility policymakers have into the outcomes of their plans.

The big takeaway is that labor is not undifferentiated lump and that different policies will have unintended consequences no matter what policymakers do.   

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