Enhancing Paid Parental Leave
Why it’s Not Just Good for Mums
13 July 2022
This article draws heavily on a presentation I delivered to the Economics Society of Australia’s annual conference. My presentation and this article are purposely provocative – designed to reinvigorate a policy discussion on a matter critical to economic participation and societal wellbeing. On a matter which was fleetingly on the tables of both major political parties pre-election, but has since disappeared.
Paid Parental Leave needs to be put back on to the table. Not just because enhancements are good for mums. They are. But they are much more than that. They are good for dads and employers.
Key messages conveyed in my presentation and this article are that:
only a fraction of dads take Paid Parental Leave;
a key reason why is because the scheme targets mums;
current settings incentivise employers who rely on the scheme to hire dads, not mums;
political parties’ proposed enhancements are off the table;
enhancements are needed to make the scheme gender-neutral, longer, and more generous;
the fiscal barrier to change can be addressed if employers contribute; and
the benefits of change outweigh the costs.
The biases of current arrangements
Despite the gender-neutral name, it is mums and not dads who make use of the Government’s Paid Parental Leave scheme. Of the dads who could access two weeks of Dad and Partner Pay, less than a third do.
Use of entitlements
Source: Women's Statement, Budget 2022-23.
And it is little wonder. The current arrangements are based on the presumption that mums will stay at home to take care of their babies, while dads head back to work. From the table below, it is apparent that Paid Parental Leave is for mums, while Dad and Partner Leave is for dads. The income threshold makes it more likely that mums will fall within this eligibility requirement as the gender wage gap means that more mums than dads earn an annual income under $151,350. As an added incentive, mums can claim Paid Parental Leave, even if their employers are also supporting them. As we will shortly see, many employers do, and most pay full salary. By way of contrast, dads cannot access Dad and Partner Leave at the same time as claiming employer funded entitlements. And given that most will be paid above the minimum wage, they have a financial incentive to keep working.
It should, therefore, come as little surprise that even after 30 years there has been hardly any change in the labour force status of dads. The same proportion are employed full time – 84 percent. The most that has happened is that labour market conditions have improved: more dads are working part time, and fewer are unemployed. Only one percentage point more have decided to exit the labour force.
Labour force status of dads
With children < 15yo
But perhaps the situation is better than the labour force statistics let on? In a separate article on this website, titled Let’s hear it for the boys, data is shared evidencing that more dads are choosing to stay at home, with numbers more than doubling in just under 40 years. But, when measured as a share of all couple families, the proportions remain tiny and have stagnated at between four and five percent since the mid-1990s.
In the same article we find that what dads appear to be doing in order to have more time with their kids is making greater use of flexible work arrangements. The proportion using such arrangements has increased significantly, with the most recent period recorded (2017) suggesting that they are accessed by over 40 percent of dads. While part time work has increased, it is used by only a small proportion of dads. And close to none job-share. What most dads who access flexible work arrangements appear to be doing is finding ways that they can still work full time AND be around the kids, such as by working flexible hours, including undertaking shift work, and working from home.
Therefore, if we want to see more mums working full time and staying in the labour force, we need to support dads to not do everything - to work part time or exit the labour force, and spend quality time with their kids. Starting with addressing the gender bias of Paid Parental Leave.
Labour force status of mums and dads
With children < 15yo, 2022
An episode of ABC’s Q&A panel which aired in May 2021, provided a stark real-life illustration of the gender biased application of the Paid Parental Leave provisions in practice. A lady from the audience shared that two weeks following the birth of her twins she returned to work and her husband stayed at home with them. This was a rational economic choice as she was the household’s main breadwinner. Further, as an early career doctor, her contract runs for the calendar year, and makes no provision for parental leave, let alone paid parental leave. However, under the Government’s Paid Parental Leave scheme her husband could not claim it directly, as the provisions rely on the birth mother claiming the entitlement and then transferring up to six out of the 18 weeks – not the full 18 weeks - to him. But, as she earned over the income threshold, she was ineligible. It mattered little that her husband earned under the income threshold. The couple asked that they be reconsidered as an ‘exceptional circumstance’ only to be told that it was her choice to return to work and, therefore, was not ‘exceptional’. The Services Australia website explains that exceptional circumstances are situations such as severe illness or a serious accident. So, by definition, her circumstances were not considered ‘exceptional’. Of course, they should not be. They should be the norm, just as mothers who choose to stay at home are the norm. And, as such, they should be no less entitled. Yet, under current arrangements, the most this couple will have been entitled to is two weeks Dad and Partner Leave, despite him being the primary caregiver.
But, of course, it is not just parents that are impacted by the provisions – employers are too. Focusing for now on the grey ends of the bars on the figure below (I will later come back to the crimson and red, which are significant), we find that 40 percent of employers do not fund primary carer leave. The likelihood of employers not funding decreases with organisation size. Almost half of small employers offer no paid leave.
Employer funded primary carer leave entitlements by organisation size
Number of employees, 2020-21
When asked for their reasons for not funding leave, the answer most frequently given by employers was because they judge the Government’s scheme to be sufficient. Therefore, for those relying on the Government’s scheme, they have every reason to employ men and not women because, if either become parents, the current settings mean that mums are more likely than dads to take time out of work.
Reasons for employers not funding leave in 2020-21
Political parties short lived reform proposals
When I submitted an extended abstract for my presentation to the Economist Society my intention was that the Enhanced Paid Parental Leave provisions floated in the Women’s Statement released with the Budget would be the focus. It bundled together current Paid Parental Leave and Dad and Partner Leave provisions into a single entitlement that:
was blind to whether it is mum, dad or a partner who accesses it;
provided for 20 weeks leave regardless of whether it is accessed by a couple family or a single parent;
was fully transferable;
based eligibility on family, not one individual’s, income; and
cost the taxpayer a bit more as it is likely to be better utilised by families of all compositions.
If you blinked, you may have missed that, for a brief period pre-election, Labor also put on the table enhancements as part of its National Policy Platform. Its proposal was very scant in detail – leaving a lot of things unanswered. But what it did tease us with was:
more leave – 26 weeks;
full salary replacement; and
an intention to share the cost with employers.
But with no detail on how the cost would be split between the Government and employers. Or on what the fiscal impact would be.
The table below compares the combined entitlements of Paid Parental Leave and Dad and Partner Leave, with the proposals of both major political parties.
Reform proposals - thwarted
But the Coalition did not win the election. And Labor’s proposal came off the table as fast as it went on, arguing that the better focus is childcare. I am unclear how these are substitutes. So, all enhancements are off the table. Which provides me with a clean slate to suggest some of my own.
My proposed enhancements
Enhancement #1: Paid Parental Leave should be gender neutral
My first and, I suspect, most contentious enhancement is that Paid Parental Leave should be gender neutral. But hear me out.
Some may argue that households are not perfect markets. That dads often hold greater market power, which may perversely result in a situation where the outcome of gender-neutral arrangements is that instead of mums accessing 18 months of leave, they use the full extended entitlement, and dads take none.
To correct for this, there will be some who argue that there should be ‘use it or lose it’ dad quotas, as a means of encouraging dads to use their entitlements. They will point to examples of this elsewhere. For example, provisions along these lines have made a positive difference in Quebec, and this is a key component of reforms shortly to be implemented in Denmark.
I do not disagree. But I do not think ‘use it or lose it’ quotas are necessary as they risk penalising households who have a legitimate need to allocate the full entitlement to mums. That is, it would be a similar situation as is currently the case for dads.
My argument is that the better approach is to correct for those market failures. Some of which are built into current policy settings. Others – and I acknowledge this is the more difficult challenge – have more to do with gendered social norms and assumptions. To remove all inbuilt gender biases from current arrangements, complementary reforms would be to:
make all entitlements fully transferable between mum and dad, no matter who accesses;
make eligibility based on household and not individual income; and
a point which I will return to, apply the same rules regarding access to employer funded leave.
If we consider again the prevalence of employer funded parental leave (and this time please do focus on the crimson and the red in the bar chart above) it is clear that the majority of employers offer gender-neutral entitlements. And if we now look at the uptake of these entitlements, as is done in the figure below, while there are still more mums than dads who access employer funded leave, it is less mums and more dads when compared to government funded paid parental leave. And that’s despite the incentives in the government’s scheme for the mum to access both.
Who accesses funded primary carers leave
Enhancement #2: Paid Parental Leave should be for longer
My second enhancement is less controversial: Paid Parental Leave should be for longer. The figure below charts the length of combined maternal and paternal leave entitlements in the OECD. Australia falls a long way short of the average of over 60 weeks. The average for maternal leave is a year. Twenty-six weeks would get us only halfway towards this average. But further on from where we currently are.
Paid parental leave entitlements in the OECD
Source: OECD Family Database.
Enhancement #3: Paid Parental Leave should be more generous
My third enhancement is that entitlements should be more generous.
The OECD average is for 77 percent of the average salary to be replaced. The effect of paying just the minimum wage is that in Australia only 41 percent of the average salary is covered.
Share of average salary replaced in 2014
Source: OECD Family Database.
Obviously, anything more generous than current provisions would be fiscally costly and, as we have already seen, leads to good ideas coming off the table. Which is why I have one further enhancement.
Enhancement #4: Paid Parental Leave should be a shared cost of government and employers
My fourth enhancement is that the Government and employers share the cost.
The figure below is sourced and adapted from a recent (March 2022) International Labour Organisation study on parental leave in 185 countries. It found that in 42 out of 46 countries with paid parental leave, cash benefits are paid through social protection. That is, they are government funded. In three of the four remaining countries- Greece, the United Arab Emirates and Uzbekistan - the employer is solely responsible.
In the fourth – Denmark – parental leave cash benefits are jointly funded by employers and social protection. That is, the cost is shared by the government and employers. The government portion of the payment equates to around half of the average weekly wage in Denmark (compared to, as we have just seen, 41 percent in Australia). In Denmark employer top ups are a provision in collective agreements, which cover around three quarters of the workforce.
Source of parental leave cash benefits in 2021
I do not think it is too far of a reach to advocate for the cost of parental leave to be similarly shared in Australia. Not when, as we have seen, 60 percent of employers already provide paid primary carers leave.
And, if we look again at the figure capturing the reasons why 40 percent do not, those who claim the government scheme is sufficient may be paying close to the minimum wage. This suggests that any top up would be minimal.
The claims of some that they lack the resources may be based on an assumption that they would have to offer full salary replacement. There are reasonable grounds for this assumption, as this is what the majority of employers who fund primary carers leave do. Minimising double dipping and paying top ups only could constitute a savings to many employers.
Types of parental leave payments offered
Proportion of organisations, 2020-21
The table below teases out the implications of cost sharing arrangements under three different scenarios. The first scenario is what we have already alluded to: if an employer pays its employees the minimum wage then there is no cost to the employer. Under the second, the employer pays only the salary top up, compared to the situation where many are already providing full salary replacement. Under the third, where the household’s income makes them ineligible for the government’s regime, the employer has the option of meeting the full cost. Which many already do.
Costs and benefits of enhancements
While I have not crunched the numbers, I feel I am on safe grounds claiming that the benefits of my proposals outweigh the costs.
Benefits outweigh costs
If we examine first the costs, a Grattan Institute analysis of a 26 week leave entitlement shared by mums and dads calculated the cost to the federal budget to be $600 million a year if it attracts good take-up. Here we are suggesting a more generously paid entitlement, but with the cost shared between government and employers.
Now if we turn to the benefits, the same Grattan Institute analysis calculated that it's proposed scheme would lead to an increase in GDP of $900 million a year, because more mums would be freed up to engage in more paid work.
The uncosted big gain I have attempted to highlight here is that more dads get to spend time with their kids. While not discussed here, there is no shortage of studies that find that this leads to better cognitive, behavioral, psychological and social outcomes for kids and, consequently, to happier families.
Finally, as foreshadowed by the earlier discussion: gender neutral entitlements takes away a driver of employers’ gender bias.
It is high time that we drag Paid Parental Leave arrangements into the twenty-first century.
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