I have an opinion piece in today’s Age (over the fold) outlining my ‘return to work’ proposal to deal with issues associated with parental leave. I note that it stands in marked contrast to new proposals to pay for parental leave.
Tax credits may ease workforce re-entry
Joshua Gans, The Age, 21st May, 2008.
Care needs to be taken with policies that encourage more parental leave without considering what happens when that leave ends, writes Joshua Gans.
WITH the Productivity Commission inquiry into parental leave in full swing, there are renewed calls for such leave to be paid. Many parties are proposing to pay mothers (and, in some cases, fathers) up to the whole of their forgone salaries for 14 and 28 weeks. Suffice it to say, these moves will encourage more parents to take leave; something proponents argue will benefit their children’s development.
But there is another side to the parental leave equation, apart from a child’s welfare. There is long-standing and mounting evidence that expressing a preference for spending time with one’s family can damage career prospects. Melbourne Business School researcher Isabel Metz interviewed 44 women who had left their primary employment over a space of six years.
She found that many who had had children and had taken maternity leave found it difficult to resume their chosen career paths. In some cases, this was because of unfriendly work practices. In others, it was because promises (say, to limit work hours) were unfulfilled. While, most disturbingly, there was a seeming loss in status coupled with pressure to move ahead within their organisations.
Economists have long been concerned that the very fact that practically the entire burden of child rearing falls on women can feed into poorer labour market outcomes for all women. Even with well-meaning fathers to step into the breach, the average pay gap for women makes it more likely that households will choose not to have the father take on a greater share of non-workforce activities.
The problem is that stimulating incentives to take parental leave will only exacerbate gender bias in the workplace. For many careers, pauses are costly for employers and disruptive for co-workers. And as it takes longer to change workplace culture to mitigate these costs, paying for parental leave potentially creates less pressure for employers to re-integrate parents into the workplace.
For this reason, rather than use scarce government money to pay parents while on leave, what would happen if employers were paid for successfully attracting back parents who have taken leave? Imagine a “return to work” tax credit that reduced the salary cost of returning workers but that could only be earned if that worker had taken sufficient parental leave.
Then, not only would employers have an incentive to attract workers back, they would have an incentive to encourage them to take leave in the first place. Indeed, they might even choose to provide paid leave themselves, as many organisations already do. Moreover, the more highly paid the employee, the greater the incentive to do this. That means that workplaces will want to encourage leave by fathers as well as by mothers.
Money cannot solve all these problems but it can be a start. And it can highlight the fact that we need to take care when pushing policies that will encourage more leave to be taken without taking into account the issue that often crops up when that leave ends. Right now, employers face real costs associated with temporary disruptions to career paths. Those costs manifest themselves and are transmitted as a widespread negative impact on the labour market.
We need to recognise that gender bias in workplaces is real and that throwing money at parents will not alleviate this. Instead, we need to shift the incentives of employers.
By creating workplaces that demonstrably can accommodate parental leave and manage its costs, we can start to unravel the biases that have emerged in labour markets.
And the benefit is clear.
Half our human capital is underutilised because we are stuck in a bad equilibrium. Think of the productivity benefits associated with breaking us free of those past constraints.
Joshua Gans is an economics professor at Melbourne Business School. His book, Parentonomics, will be published by New South in August.