The Effects of Mandatory Maternity and Pregnancy Benefits on Women's Wages and Employment in Taiwan,

1984-1996

Yu-cheng Lai , ChangJung Christian University, Taiwan

Stanley Masters, Binghamton University

outline

1. Background2. Theoretical Expectations3. Estimations4. Conclusions5. Implications

1. About LSLContent----1.8 weeks’ maternity leave with full-paid wages. cannot fire pregnant workers.2.give new mothers two paid half-hour breaks each day to breast-feed the baby until the baby is one year old.3.switch women to easier job during pregnancy.

Coverage----1. 1984-1998 manufacturing, mining, electricity, construction, transport, and mass media.2.1998-now extended to all industries.

Enforcement----

The 1993 LIL regulates all local inspection agencies, which send a clear message to employers about the need to comply with the LSL

2. Theoretical Expectations

1. if wages are perfectly flexible and if female workers value maternity/pregnancy benefits at cost, then no changes in employment and wage rate declines, as shown by point E.2. If wages are flexible and women value the mandated benefits at less than their cost to the employer, wage rates declines and employment declines, as shown by point B.3. If the wage is rigid, there will be an excess supply of labor at the original wage, leading to a decline in employment and possibly in hours worked per week.

The most realistic case probably is the in-between one, in which there is some wage flexibility. In this case, benefits lead to smaller wage reductions than if wages were flexible and to employment reductions smaller than if wages were completely rigid.

3.1 Data selection

the Manpower Utilization Survey, a biannual survey of earnings and employment available since 1978.Tips: 1.Restrict the sample to nonfarm, full-time, private-sector employees between the ages of 20 and 54.2.1978-1996, since the LSL was extended to all industries in 1998.

3.2 Estimating wage effects

DDD method to estimate the effects of LSL on wage.W--monthly real wage rateF---gender dummy variable, 1 for young womenCovered----dummy variable, 1 for LSL covered industryYEARi -----a set o dummy variables for the year 1978 to 1994, with 1984 as the base year.A set of human capital variables as controls----education, experience (linear and quadratic), tenure (linear and quadratic), and each of these variables interacted with F, the dummy for gender.

Empirical specification

Uncovered Covered

Male a0 a0+a2

Female a0+a1 ao+a1+a2+a10

U C

84 86 84 86

M a0 a0+b4 a0+a2 a0+a2+b4

F a0+a1 a0+a1+b4 a0+a1+a2+a10 a0+a1+a2+a10+b4+e4

• The finding of stronger results when the comparison group is young men suggests that the labor of young women is a closer substitute for that of young men than for that of older women.

3.3 Estimating employment effects

EMP, for whether the person is employed in an industry covered by the legislation.

4. Conclusion

1. the LSL had negative effects on both the relative wages and the employment rates of young women, especially after passage of the LIL in 1993.

2. in this latter period, the effects were greater on employment than on wage rates. (wage rate down 10% and emp down over 15%)

3. The strong effects of the LSL on employment as well as wage rates suggest that the increased costs of employing young women were greater than the decline in their wage rates and that wages were only partially flexible.

4. the value employees placed on the mandated benefits was below their cost to employers. Thus the demand curve shifted by the full amount of the benefits, but the supply curve shifted less, leading to a decline both in the wage rate and in employment.

5. Implications

In the short run the LSL has had an adverse effect on the relative economic position of women, since it reduces both their employment opportunities and their average wage rate.

In the long run, however, the LSL may well lead to a reduction in economic inequality by gender. With more human capital, women should attain higher earnings and thus have an incentive to work even more. In this way a dynamic may emerge that could substantially lessen gender inequality in Taiwan.