Is the Coalition’s Paid Parental Leave Scheme fair?

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Fairness is an awful word to use in debates. Scott Adams once called it the word that allows morons to participate in arguments. Children learn that one pretty early.

But Labor started it by calling the Coalition’s Paid Parent Leave (PPL) scheme unfair. That scheme places a tax on business to pay for six months of up to $75,000 of a mother’s salary following a child’s birth. This is supposedly unfair because the beneficiaries are those who earn the most.

Today, Peter Martin argues that it is not unfair as it is borne broadly by shareholders and the benefit is large precisely when women are doing well in the workforce which is generally an outcome we want. In that respect, it is like any other workplace entitlement like sick leave.

Well, not quite. It matters when the entitlement is decoupled from the hiring decision. For sick leave, that makes it a direct cost of employment and so whether it occurs or not is a private decision. However, for the PPL from the Coalition, the costs are socialised (well, almost and I’ll come to that in a bit). That means that firms will not consider them when hiring an employee.

Why is this a problem? Because parental leave (like sick leave) is overwhelmingly a private good. Here is what Martin says when trying to twist it otherwise:

And their shareholders’ children and grandchildren are more likely to be breastfed for the recommended six months rather than the presently funded three at the minimum wage. They will typically develop higher intelligence, greater emotional resilience, better teeth, resistance to colds and flu, and protection against diabetes and obesity.

This is buying the data in a way that is not warranted. As I wrote about in May, even if you accept this argument, we are subsidising $68 a breastfeed. So much for looking at the numbers carefully! In any case, if you believe that you have to mandate and subsidise maternity leave for high income earners you are basically arguing that women wouldn’t have made every attempt to breastfeed within employment constraints to the benefit of their children. Again, I am not sure that case has been made and any economist would tell you the thing you need to consider is workplace reform and not handouts. Indeed, the socialisation of PPL costs, will reduce incentives for workplace reform for family friendly practices.

Which leads me to the other point of unfairness. Martin laments: “bizarrely we are told that it’ll make employers discriminate against women of childbearing age and hire men instead.” On the one hand, PPL handouts will give employers a free entitlement that will be realised if they hire women (which is good) but it will do them no favours if the cost of them going on leave is greater than $75,000 per year. And that is likely to be the case for women with more specialised skills. In that case, who would you invest in, a man who won’t have the opportunity to take leave or a woman who is given an incentive to do so? I don’t like those equations but we cannot ignore the incentives — something that I have now been saying for many years. Again, we need to incentives to make workplaces more family friendly and not to move the family further from the workplace.

Peter Martin is a fine economics journalist and should know better. He should know that the thing to attack from Labor is the premise that a “fairness” claim is relevant as opposed to a productivity claim. We need less fairness and more coherence in debates over policy.

6 Responses to "Is the Coalition’s Paid Parental Leave Scheme fair?"
  1. You’d think that an ‘economist journalist’ relying on claimed health benefits of an economic policy would cite double-blind randomised studies in support of those claimed benefits. Or any kind of controlled study? Ah, but it’s breastfeeding….

  2. I happen to agree with you about the policy, but I find your claim about ‘fairness’ claims frustrating.

    You say a productivity claim is more ‘relevant’ than a fairness claim when it comes to assessing competing policies. Fine, that’s a reasonable point of view. But it is a point of view! That’s a normative, values-based, even ideological claim you’re making (that fairness is a low-order priority), yet you assert it here as if it is incontrovertible truth and that anyone emphasising fairness in policy debates is some kind of moron. This kind of normative claim dressed up as something else frustrates me greatly.

  3. @matt My quibble for fairness is that it has no definition and so people define it on their own terms. Contrast that with equality which does.

    Define fairness.

  4. One point which I have not heard made anywhere is that mothers can currently take time off which reduces their income and tax payable. If they are on the top marginal rate, they are basically paid 49% of their income – without any cap at k$150.

  5. Perhaps the biggest flaw is “…children and grandchildren are more likely to be breastfed for six months instead of the current three…”
    On what grounds is it “more likely”? The Productivity Commission’s inquiry into a paid parental leave scheme found no relational connection between the length of time a mother breastfed and her return to work. Indeed, the most common reason given for cessation of breastfeeding was the drying up of supply.

    The pronatalists/profecundists have made the classic policy making error: they have a policy solution and are looking to confect problems to justify the solution.

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