Friday, 27 July 2012

The costs of paid parental leave

The Labour Party has had a bit of support for its proposed extension to paid parental leave; the bill has made it through first reading but is likely to be vetoed for its likely budgetary effect as paid parental leave here is covered by the government.

I've not run the numbers on what the legislation is likely to cost the government in terms of budgetary effect. But I'm a bit worried about another potential cost: employers being more reluctant to take on female employees with high risk of childbearing.

Even though the government pays those on parental leave, employers still bear costs in having to sort out temporary replacement cover while remaining in some uncertainty about whether the employee will return or will decide to spend a longer time out of the workforce. Pascal Petit showed in a French field experiment that employers are reluctant to take on employees who are more likely to take maternity leave.

It's a bit of a toss-up whether an extended paid leave period makes women more or less likely to seek to return to the workplace after a spell of maternity leave. The longer one is out of the workforce, the harder it is to return, but sorting out early childhood care for an older child could be easier. The cost to employers is likely to increase: it takes employees longer to get back up to speed after a longer period away, and it's also harder to try to cover the vacancy with internal resources.

If Labour's serious about the proposal, they might consider adding an amendment paying a small bonus to an employer where there's been a successful return to the workplace subsequent to maternity leave. It would encourage them to make the arrangements to facilitate the return, and to be less reluctant to hire women of higher maternity risk.


  1. Not sure about NZ, but that sounds like a few months of no employer contribution for social security in the US. It could be built into the system, scales well, and has a built in increase in value to cover the entire re-acclimation time.

    Even better, the benefit is better targeted at the people you want to help (working mothers) rather than incidental people (mothers who know they aren't coming back but milk the system for full value), even if the moms aren't getting the money in their own pockets.

  2. This is the true cost, Eric, and the ones paying with their careers, ironically, will be the women. Is any rational employer going to hire a young girl in a professional career, whose not had her family? If she has three children, she's going to be absent from the work place, for a year and a half. Who could 'afford' that - employer or employee?

  3. Of course they'll still hire young women. The effect will be at the margin: slightly less likely to hire or more likely to offer a lower salary, all else equal.

    I'm reasonably convinced that this was one of the reasons my wife had a harder time starting here when we arrived in New Zealand. In addition to the usual New Zealand xenophobia, employers reckoned that a young woman married to a guy who's just taken on a permanent academic appointment was a high risk of having kids quickly. And though she'd have been more than willing to sign a contract saying "Guarantee no mat leave for at least 3 years" when we arrived, such contracts are hardly enforceable.

  4. Small businesses of say, five or less people probably already actively select away from young women because of the obvious disruption, but extending leave means slightly larger workforces will select away, and thats no small thing in a country with half a million small businesses.

    And the more you cater for young womens' private choices the more lopsided becomes the workforce, eg, women are pushed into the Public Service and big corporations, into health, education and welfare where there are no excuses for discrimination and plenty of taxpayer money to cover maternity leave. Meanwhile small businesses become more blokish..

    Against all this TV3 last night reported an Australian study found little evidence that stay at home mums produced better children than their sisters who went back to work soon after birth and used child care centres to look after the kids. Somehow, to me, that looks like a better model to follow.


  5. Is there data on how many mums return to the workforce immediately after their 14 weeks paid leave is over? I imagine this is more an issue for lower income families, but I'm wondering how much of an impact extending this out to 26 weeks would actually be? After all, at 14 weeks the infant is still likely to be breastfeeding and almost certainly won't be on solids, so having Mum around is pretty useful, although I guess formula is fine at that age, so a care arrangement would work.
    We're in the fortunate position of having my wife's employer also provide 6 weeks paid parental leave on top of the Govt's 14 weeks, and we should be able to survive reasonably comfortably on my income alone. Plus we have a guarantee that her role will be held open for 12 months, so we don't have to make any decisions around childcare for the first year.

  6. A logical, if unconventional, approach to the discrimination problem would be to offer paid paternity leave, too. Men might be less likely to take it than women, voluntarily, but at least it equalizes the law.

    That does have a budgetary impact, though.

  7. Breast pumps exist, Lats. Sue went to work at 14 weeks with each of our kids. You just need to re-organize your tea breaks to facilitate pumping.

  8. That's been tried in various university systems as a way of trying to avoid the hell that tenure imposes on women who want to get tenure while having kids; they found that very few men take it. What was successful? Changing the default so that you're presumed to take leave unless you take active steps to avoid taking parental leave. And that would be even more expensive.

  9. True, and I meant to include expressing as an option above. My oversight. I personally prefer the option of having one of the parents at home, and if Julie was determined to go back to work I'd happily put my hand up to be a stay-at-home dad if that arrangement suited. But then she earned more than me prior to the new arrival, so it would make sense financially.
    Did Sue take your kids to work with her at 14 weeks? If so I imagine that is an arrangement that wouldn't be suitable/convenient/possible for a reasonable chunk of mothers.

  10. Mmm. You're right though; could've just been that funny Canadian accent ;)

  11. We used daycare.

    I get a bit sniffy when anti-poverty groups say it's wrong to ask mothers to go back to work when the kid is 6 months or a year old. We found the need to go quickly back to having a two-earner family because of the taxes stolen from us to pay those folks to have extended "with baby" periods.