Why is Sweden paying grandparents to babysit?

Tyler Cowen, Tribune News Service

At first glance, the policy sounds absurd, especially to many Americans: In Sweden, grandparents are now eligible for government subsidies to babysit their grandchildren. As a proud grandparent myself, I would be willing to pay to babysit my grandkids. (I don’t have to, but I would.) It would feel wrong to accept government money for my services. And even in the Swedish context, the program seems excessive. The country has long had first-rate and well-subsidized child-care facilities, which is another reason not to pay grandparents anything, and Sweden already has high levels of government spending and taxation. Is this additional benefit — and expenditure — really what it needs?

But sometimes even apparently foolish ideas have compelling rationales — so compelling, in fact, that you begin to rethink whether they’re foolish at all. These are often the cases that require the hardest thinking. If you look at Sweden’s policy closely, it adheres pretty well to some basic economic principles: namely, the notion of Pareto improvements, which benefit all parties involved.

Start with the fact that Swedish parents currently receive extensive paid leave upon the birth of a child, and so it can be said they are already paid to look after their children. Whether or not you agree with that policy, it is longstanding and well-established. Take it as a given. Now imagine that you are an ambitious Swedish doctor or lawyer, climbing the career ladder, and are self-aware enough to realize you do not always have entirely the right degree of natural patience necessary for parenting. In that case, you might prefer to go back to work following the birth of your child. Under the status quo ex ante, you could not work and draw your normal salary and still get the full child-care benefit, even though some child benefits are paid automatically.

There is thus a potential inefficiency in the system. You may stay at home just to get the money, even when an alternate arrangement might be better for everyone. Now add grandparents to this equation. If the grandparents can be paid to take care of your child, all of a sudden the extended family as a whole doesn’t lose the money by having the parent go back to work. Instead, that money is transferred to the grandparents, so the work disincentive is diminished.

And economists will tell you that the parents and grandparents can do their own settling up. If the grandparents are well-to-do, for instance, and eager to spend time with their grandkids, they might funnel some of that money back to the parents or the child, either directly or indirectly. In some cases, on net, the grandparents may not end up getting paid anything at all. In essence, you can think of this policy as a model designed to maximize gains from trade.

One side effect is that, to the extent the parent who returns to work is a high earner, government tax revenue will increase. That will help pay for the policy, partially if not entirely.

The logic for this policy may hold all the more for single parents. In that case, the costs of giving up work may be even higher, since on a single income climbing the career ladder and investing in future earnings will be all the more important. Enlisting aid from grandparents may also be more necessary, given the higher burdens on a single caregiver. A defender of the policy would cite these accommodative benefits, whereas a critic might allege they encourage single parenthood too much.

More broadly, fiscal conservatives might point out that the policy still costs some money upfront, while social conservatives might argue that it commodifies family relationships. The policy’s supporters, on the other hand, might note that it can help some people get back to work and also make the grandparents happier. The children might benefit too.

As for myself, I am still unsure whether this new policy is a good idea, though it has stronger virtues and benefits than I first thought. But I am all the more certain of one final lesson: Framing is everything. The very same policy, described in different terms, can sound eminently reasonable or badly out of whack. Keep that in mind next time you are tempted to render a quick verdict on someone else’s idea.