The incidence of Mandated
Maternity Benefits
By Jonathan Gruber, AER vol 84.
No. 3 pp 622-641
Gruber AER 1994
• “The Incidence of Mandated Maternity Benefits”
– Maternity Mandates – enacted in several states and then at the
federal level to force employers to offer comprehensive childbirth
coverage in health insurance for all women. It, therefore, raises
the costs of hiring childbearing age women.
– It’s an attractive way for Governments to engage in social policy
since they do not have to finance it.
– But it may have other effects that are unintended.
• This paper:
– exploits the enactment of state and federal maternity mandates
(“natural experiments”) to estimate the response of the labor
market.
– Data: Current Population Survey (CPS)
Gruber AER 1994
• Mandates (relative to public provision) may be
more efficient because they are benefit taxes i.e.
the beneficiaries pay (part) of the mandate
through for example lower wages or increased in
labor supply reducing the deadweight loss
associated with them.
• If valuation of the benefits is full, then there is no
deadweight loss associated with mandates
because employers transfer the benefits to lower
wages.
Gruber AER 1994
• Group-specific mandates may have inefficiencies and
result in increased unemployment for that group even
in the presence of full valuation from the employees
due to impediments to lower wages accordingly:
– Antidiscrimination laws (prohibiting differential pay for the
same job and differential promotional decisions across
groups)
– Within firm antidiscriminatory rules
– If the group is composed of minimum-wage earners there is
no possible downward adjustment.
Summers (1989) “It is possible that mandated benefit
programs can work against the interests of those who most
require the benefit being offered” because they introduce
differences in the hiring costs of these groups relative to
other groups in the population.
Gruber AER 1994
• Possible effects of the mandates:
– Lower wages for this group. If wages of these women
are lowered in the same amount as the benefit then
beneficiaries of the policy “pay” the full cost of the
coverage and there should be no effects on
employment (in this case the policy would be efficient,
there is no DWL).
– Lower labor demand for this group if wages are not
able to adjust
• Results: finds substantial shifting of these costs
to wages for the target group
Gruber AER 1994
• 1975-1979 – 23 states passed laws
prohibiting treating pregnancy differently
from “comparable illnesses” in health
insurance benefits
• October 1978 – Pregnancy Discrimination
Act (PDS) Federal Law prohibiting
“differentiated treatment of pregnancy in
the employment relationship”
Gruber AER 1994
• Using the 1977 National Medical Care
Expenditure Survey, restricting to 2,900
women of ages 20-40 who were covered
through employment based group health
insurance (in own name or family member)
Gruber finds that around 20% of women
did not have coverage for maternity
benefits while they had coverage for “inhospital room and board” and “other
services”
Gruber AER 1994
Gruber AER 1994
• In this paper he estimates whether there is
shifting of the costs of the mandates to the
wages of the affected group. If there is no
shifting then either:
– The group that benefits from the mandate does
not value it
– Or there are impediments to the adjustment
This would imply efficiency costs of the policy.
Gruber AER 1994
• Empirical strategy. The objective is to identify the effect of
laws passed by certain states (experimental states) on
certain individuals (the treatment group). For that effect we
need to control for any systematic effects to the treatment
group that may be correlated with the laws but are not due
to the law.
– year effects – capture national trends
– State effects – capture differences in earnings across states
– State-year effects – capture state specific shocks which may be
correlated with the passage of the laws.
The exercise thus compares treated individuals in the experimental
states with control individuals in those same states and compare
their relative outcomes (before and after) with those in nonexperimental states. These are differences-in-differences-indifferences estimates (DDD).
Gruber AER 1994
• The treatment group = insured workers that
may be parents.
• Control group = individuals unaffected by the
law.
• Identifying assumption: there must not be a
contemporaneous shock affecting the
relative outcomes of the treatment group in
the same state-years as the law.
Gruber AER 1994
Because no information on the CPS on health
insurance coverage before 1979:
1) use as treatment group: married women of
childbearing age (20-40 years old) and as control
group: All individuals over 40 and single males
20-40. (single women 20-40 and married males
20-40 are dropped from the sample because may
be either treated/control)
2) Use other data with information on insurance
coverage to estimate the likelihood of insurance
coverage and the type of insurance coverage that
they would receive and assign to each individual
an estimate of the cost of the mandate. [we will
not see this part of the analysis in class]
Gruber AER 1994
Experiments:
a) Effects of the state mandates - Can only use those
states that were identifiable in CPS before 1977
(state laws 76-77). Focus on 3 treated states (out
of 23) and small set of control states. Use two
years before laws (74,75) and two years after
laws (77-78).
On average wages fell more in experimental
states than in non-experimental states. Are the
mandates responsible for all or part of these
drop?
Gruber AER 1994
Gruber AER 1994
Experiments:
b) Effects of the federal law – Because later we
can identify all states from the CPS, more
states can be included in the analysis.
1978-1979 as the “before period” and 19811982 as the “after period”.
experimental states: those that had not
enacted any state mandate by Jan 1977
control states: all those that did pass state
mandates by Jan 1977
Gruber AER 1994 – raw DDD
Experiments:
a) Raw DDD say there is a 5.4 percent fall in
the relative wages of 20-40 year old
married women of childbearing age in the
states that passed the law compared to the
change in real wages in non-experimental
states. Suggests the affected group bears
part/all of the cost of the mandates.
Gruber AER 1994 – raw DDD
Experiments:
a) DDD in a regression framework (allows to
control for other observables that affect the
outcome). i=individual, j=0,1 (states), t=0,1
(time before and after the law) W is the log real
hourly wage (b8 captures the DDD estimate):
Wijt    b1 X ijt  b 2 t  b 3 j  b 4TREATi 
b 5  j  t   b 6  t  TREATi   b 7  j  TREATi  
b8  j  t  TREATi 
Gruber AER 1994 – raw DDD
b8<0 means that there was shifting of the costs of the law to
the treatment group in the form of low wages.
The effect on # hours and employment are uncertain:
a) If employers shift all cost to the worker and there is
full valuation =>no change in the # hours worked nor in
the probability of employment.
Otherwise:
b) employers may want to increase hours of work i.e.
reduce part-time jobs and reduce employment for that
group. This is what he finds.
c) as some part-time workers do not have health
insurance, there may be a shift towards part-time jobs
for this group i.e. lower hours and higher employment
Gruber AER 1994 – raw DDD
Wages
fell by
4.3%
Smaller
than raw
DDD but
similar
meaning
that it is
similar
to an
experim
ent
Hours
increase
by 4.9%
Employ
ment
decreas
es by
1.6%