COMMENTARY: Even well-intentioned public policy has unintended consequences

What happens when you suddenly offer parents generous family leave benefits, paid at government expense? You can probably think of dozens of outcomes. But here’s one you might not have been expecting: people die.

That’s the finding of Benjamin Friedrich and Martin Hackmann, in a new working paper at the National Bureau of Economic Research. The culprit? 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.

To see why, consider what the paper actually found. When parental leave came along, it reduced the supply of nurses. But that impact wasn’t felt evenly. In hospitals, where doctors make more of the medical decisions, it seems to have been costly to patient health. But in nursing homes, where nursing staff have more power over daily operations, it seems to have made a much bigger difference. Meanwhile, nursing assistants seem to have been little impacted by the change in leave policy; while they were also likely to make generous use of the leave, health-care facilities seem to have had little difficulty replacing them.

When we assess policies we’d like to enact, we often talk about labor as if it were an undifferentiated lump, and policies will either affect it, or not. This is approximately the level at which minimum wage debates, for example, are usually conducted. But this is nonsense. A higher minimum wage does not affect all businesses or workers the same; it does not even affect all workers at or near the minimum wage the same, or the businesses that employ them.

Some businesses have affluent customers who can afford to absorb a price increase; as long as everyone is forced to pay the new higher wage, the cost will mostly be passed on to those customers. Some businesses don’t have affluent customers who can eat any wage differences, but they do have ways to economize on labor, like installing self-service drink stations. Those businesses will continue operating, but over the long run, will look for labor-saving devices that will ultimately lower employment. And some businesses will simply not be able to keep operating at the higher wage, because their customers are price-sensitive, or they compete with businesses without the same wage requirements. Those businesses will have to close if you raise their labor cost.

So too with something like parental leave.

It isn’t enough to know how many workers you might have who might take advantage of the policy. You also need to know how vital their work is to the enterprise, and how readily the enterprise could adapt to their absence. What regulatory or structural barriers might exist to prevent you from rapidly training extra workers?

It may not be possible to know this in advance. Nursing administrators may find it easy to deal with temporary shortages by enticing retired nurses to temporarily return to the profession, or getting their existing staff to work overtime. It is only in the face of a sustained, large and widespread supply shock that those traditional resources will prove completely inadequate.

Moreover, even if we knew what the impact was likely to be, we probably don’t have exact estimates of the practical effects of suddenly slashing the supply of licensed professionals, such as teachers and nurses, who will be hard to replace. I mean, we can probably hazard a guess that fewer teachers and nurses means sicker patients and kids who can’t read as well. But how big will the change actually be?

When contemplating a major policy change, often the only way to find out the impact is to run the experiment and see — or, as Nancy Pelosi famously said about Obamacare, to “pass the bill in order to find out what’s in it.”

Unfortunately, it’s often a mixed bag.

Megan McArdle is a Bloomberg View columnist.

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