Options for Parental

Leave
Joshua Gans
Thought Leadership Forum, 19th June 2008
 Goals

• Child development
• Income support for parents
• Improve gender equality
 Market Failures
• Impediments to taking leave
• Liquidity constraints
• Indivisibilities
• Externalities in child development
• Require parent -- not others
• Potential for discrimination
• Gender and ‘family preference’
• Mis-allocation of skills/ability
 Current Policy
• Right to 52 weeks of unpaid leave for one
parent

• Public service and larger employers have

paid parental options
• Usually maternity leave
• Between 6 - 14 weeks
• Various parental support
• Baby bonus: $357 per week for 14 weeks
• Other payments for low income households
 Policy Responses
• Parental leave entitlements
• Should it apply to both parents?
• Paid leave
• Who should pay?
• Most of OECD have publicly funded paid
leave of 14 weeks or more
• NZ: Up to income cap for 14 weeks
• Norway: 100% of income and mandated
paternal leave
 Evaluating Policies

• Does the policy increase the actual

amount of leave taken?

• Does the policy improve work

conditions for women and family-
oriented employees?

• Is the policy equitable?

The Firm’s Decision
The Household Decision
Wage
Gap

1/2 1
Prob Woman Takes Leave
 No discrimination
Wage
Household
Gap

Work

1/2 1
Prob Woman Takes Leave
 Discrimination
Wage
Household
Gap

Work

1/2 1
Prob Woman Takes Leave
 Evidence

Source: Australian Institute for Family Studies

 Evidence

Source: Australian Institute for Family Studies

 Full Paid Leave
• Minimum wage support
• Form of social insurance
• Some proposals are for leave on full pay
• Strong incentives to take leave
• Large private benefits
• Incentives to have children when pay is
higher (e.g., delayed parenting)
• Potential for large cross subsidy
 Evidence

Source: Australian Institute for Family Studies

 Evidence

Source: Australian Institute for Family Studies

 Public Paid
Wage
Household
Gap

Work

1/2 1
Prob Woman Takes Leave
 Private Paid
Wage
Household
Gap
Work

1/2 1
Prob Woman Takes Leave
 Whose leave?
• If create more incentives for maternity
rather than paternity leave that increases
the wage gap

• Discriminatory pressures may be faced by

fathers too

• Studies show that wage gap has likely

increased where maternity leave benefits
are stronger

• Sweden requires 30 days paternity leave

 Equity
• Minimum wage paid leave is a form of
social insurance
• Fairly costless given current policies
• Use income-contingent loans for leave
above this amount
• Like HECS but based on household income
• No fiscal burden
• Private benefits paid privately (overcoming
liquidity constraints)
• Still has impact on gender discrimination
 Return to Work
• What if firm’s were paid to bring
parents back in the workforce?

• Conditions:
• Parent takes leave
• If return to work for a given period (say, 6
months), firm receives tax credit on salary

• Mitigates cost of taking leave and

provides an incentive for re-integration
 RTW Credits
Wage
Household
Gap
Work

1/2 1
Prob Woman Takes Leave
 Mixture
Wage
Household
Gap
Work

1/2 1
Prob Woman Takes Leave
 Summary

• Minimum Wage Paid Leave

• Income-Contingent Loans for Gap
• Return to Work Tax Credits
Self-Promotion