Paid Maternity Leave

The campaign for paid maternity leave in Australia has gotten renewed vigour following the recent change of government. The government has asked the Productivity Commission to enquire into what should be done.

And there are a lot of blog posts about it. Joshua Gans has written a series from an economic point of view, which culminates in a submission to the Productivity Commission’s Inquiry into Parental Leave and columns in the Age and AFR recommending that the government offer tax credits to employers who get employees to return to work after parental leave (whether the employer passes this on to the employee is up to them. James Farrell from Club Troppo had an excellent post summing up some of the arguments for paid maternity leave (and disagreeing with most of them).

As is often the way with tricky policy issues, the framing of the question has a big impact on the appropriate policy response.

The Productivity Commission points out that:

The risk of unintended consequences typically increases as the number of policy objectives increase. That risk can be exacerbated if the policy objectives are unrelated or potentially inconsistent. An example where two objectives of a parental leave system could be inconsistent are the potential objectives of increasing the time parents spend bonding with a newborn and maintaining parents’ work-related skills and expertise. Typically, the longer the time period spent away from work, the more likely it is that the work-related skills of a parent will decline. However, shorter periods away from work reduces the opportunity for a parent to bond with a newborn.

And everyone I read on the topic has a slightly different view on what the appropriate policy objectives should be. A few possibilities:

• Enable women to spend more bonding time with their children
• Enable parents (not just mothers) to bond with their children
• Maintain long term attachment to the workforce for mothers/parents
• To improve the chances of long term breastfeeding
• To keep babies out of childcare centres
• Encourage more children to be born

As the Productivity Commission points out, there is an inherent tension between the workforce aims and baby/child related aims of paid maternity leave. There is also a more fundamental framing tension – to what extent is paid maternity leave an extension of other forms of mandated leave which the government is happy to force employers to provide – long service leave, sick leave, jury service leave – leave which are not taken at equal levels by all employees, but rather are taken in varying proportions, sometimes by a subset of employees (I’m yet to see the libertarian website railing against the inequities of long service leave, for example, yet as a “Gen X” employee I’m less likely to stay at an employer long enough to take it than my older colleagues). If maternity/paternity leave should be an employment right, economic and behavioural arguments about the impacts almost seem irrelevent – the main question is who should pay for it and how long should it be.

So I’ll comment in two parts. First why should we have paid maternity leave?

In my view there are two main reasons:

• It is important for mothers to look after their babies for the first few months (say at least 3) and for babies to have an intense primary carer (preferably a parent) for a bit more (say up to 12 months)
• It is important for the economy and for the parents that they maintain their links to the workforce – both in keeping their skills up-to-date, but also in less definable ways – the longer a person is out of the workforce, the harder it is to find a job, as employers tend to discount previous experience.
• A subsidiary one – it is preferable that any paid parental leave does not lead to discrimination against women and parents in the workforce.

Everything I’ve read suggests that it takes mothers at least six weeks to physically recover from pregnancy and childbirth. Looking after a baby in the first three months of its life is enormously draining. I don’t know of many couples that want to swap any earlier than three months. So the first three months is pretty much always taken by the mother. It is much easier to establish and continue breastfeeding when in close proximity to your baby, so that is also a good policy outcome.

Most books suggest that babies become more used to routine, and lots of aspects of baby care become easier to cope with after three months. Three months doesn’t seem long enough, to me, for a public policy prescription. The twelve months of unpaid leave we already have seems more reasonable as a total amount of leave to aim for – but it does always depend on the child.

The other aim of paid parental/maternity leave, which is in fairly direct opposition to the first one, is to maintain the employment skills of the parents, and their attachment to the workforce. And this one is the main reason why employers have introduced paid maternity leave where they have (particularly in the private sector). It is worth their while to keep their trained and skilled staff, as recruitment of new staff costs a significant amount. So they pay their staff what is, in effect, a retainer, providing they come back to work for them.

In all the discussion of this issue, I’m surprised there isn’t more discussion of the issue of attachment to the workforce. In my experience of paid maternity leave schemes in the private sector, introducing paid maternity leave (which is generally only paid in full on return to work) significantly increases retention after the leave. And the increase in retention is long term, it isn’t just for the period required to keep the money. Most economic analysis I have seen discounts that kind of behaviour, because the amount of money involved is quite small compared with the much larger sums which might be earned by working or not working. But it does make a very real difference to people’s behaviour. And while many people who don’t come back from maternity leave have every intention of working again in a year or two, the longer you don’t work, the harder it becomes to get back in the workforce.

So a payment that bribes people back into the workforce has benefits for the economy as a whole, assuming that it is a worthwhile objective to have more people working.

Right now, Australia has a complex set of payments related to having children and being in or out of the workforce, including family tax benefits A (for families with low incomes) and B (for families with one low income out of two), child care benefits, and the baby bonus (recently means tested). Any introduction of paid parental leave must take all of those into account to avoid unintended consequences – especially high marginal rates of tax on returning to work (which are certainly a feature of the current set of policies at various levels).

So, without being willing to do the analysis, my preference is something like this:

• some level of means tested benefit for all babies – having a baby involves an enormous financial outlay for a parent, and a benefit for society at large (in long term investment). But the benefit should not be paid in a lump sum, but rather over the first year of a baby’s life.
• Some extra level of parental payment (while on leave) which depends on continuing employment. This should be clearly available to either men or women (although not both parents at once) This is where I quite like Joshua Gans’ HECS style loan – although I would want the repayment terms to be pretty generous.
• And finally, some form of compulsion on employers to at least consider permanent part time work when requested.  This is the form of employment that many mothers and an increasing number of fathers want, and it is extraordinarily difficult to find.

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Just for background, my own experience is probably relevant. I have two boys, Chatterboy (now 6) and Hungry Boy (just 5). With Chatterboy, I took six months of leave (two paid) and hired a nanny after four months so that I could ease my way back into the workforce. Just about when he turned 1, Mr Penguin got offered the choice of a glamorous (read lots of travel) job based in the US or redundancy, and took redundancy to become a stay at home dad.

With Hungry Boy, I took three months of leave (two of them paid) as I felt a bit of pressure to get back earning money as our family’s sole breadwinner. In retrospect, we could have afforded more, and I would have felt a lot better about it. I worked from home one day a week for the first few months back, until the number of meetings I was going in on my day at home became ridiculous.

In both cases, I managed to breastfeed until about 9 months, which I was quite proud of, but breastfeeding is a lot simpler when you are with the baby the whole time.

Money was reasonably important in my decisions, but of more importance was the pressure I felt from my employer (not spoken but implied) that if I took too much time off it implied I wasn’t really serious about my career. That kind of pressure is impossible to legislate for, and will only change if it becomes common for both men and women to take parental leave.