A bit late for May Day
I meant to do a May Day post on Industrial Relations, and particularly Labor’s proposal requiring employers to grant new parents 12 months unpaid leave, in the absence of “reasonable business grounds” for refusal. It’s hard to analyse a policy like this in terms of labour market microeconomics. A standard equilibrium analysis would suggest that some firms might voluntarily offer family-friendly conditions, but the number of such firms would be smaller than the number of employees who would prefer them (since there is less cost and trouble for employers in being family-unfriendly) and this is what we see.
Assuuming there’s a general social consensus in favour of assisting families with children, an obvious question is whether business should be expected to carry some of the burden. As this graph of the profit share of GDP shows, there shouldn’t be a problem of affordability.
Of course, there will always be marginal firms, but if you can’t make it with profits at current levels, probably you shouldn’t be in business at all.
From the viewpoint of the average member of society, depending mainly on labour income, the case for accepting a substantial profit share rests on the assumption that incentives to seek profit will ultimately benefit everyone. It’s hard to make this case when conditions like parental leave haven’t improved substantially in decades and other conditions, such as rights to weekends and public holidays, are going backwards. The long term interests of business would be better served by a less aggressive pursuit of short-term goals.