Holding the baby: parental leave, career prospects, and well-being

» Lire en français: French

Parental leave policies are designed to achieve a number of objectives. They can promote wellbeing, encourage women’s return to work, avoid adverse career impact, and benefit the overall economy. But to achieve optimal results which mix of job protection and cash benefits works best?

 4 min read 

LaliveRafael Lalive is a professor of Applied Economics and Econometrics. His research interests include social economics, labor economics, public economics, microeconometrics.

When rumors surfaced in September 2014 that the state of Quebec in Canada was planning to reduce parental leave entitlement, criticism was quick to follow. Parental leave (PL) is a hot topic in many states and nations, although the rationale behind it is sound enough. Through a mix of benefits and job protection, PL is intended to help parents, their employers, and society, in a number of ways. It encourages job continuity after birth, by helping get women back into work. In doing so it limits womens’ loss of work experience and so avoids adverse impact on employment and earnings in the medium-term. And it promotes wellbeing, allowing parents to spend time with their young child, and even boosting the mother’s performance in the job market as a result.

Prolonged absence from work could reduce a mother’s value in the jobs market and damage her career prospects.

The challenge for governments is that devising a PL system that meets the needs of both employers and parents isn’t easy. Getting the balance wrong can cause problems. Prolonged absence from work could reduce a mother’s value in the jobs market and damage her career prospects. Cash benefits may encourage mothers to return to work later, with a similarly adverse impact on their careers.

There are many different approaches to PL. In the US, for example, leave offered under the 1993 Family and Medical Leave Act is short and without benefits. Switzerland offers a paid maternity leave of 14 weeks. While countries such as Germany and France offer up to three years of leave with generous cash benefits from the state.

The impact of cash benefits and job protection in PL systems is a subject that Rafael Lalive, Analía Schlosser, Andreas Steinhauer, and Josef Zweimüller have been studying. Initially, Lalive and colleagues took advantage of a series of reforms to Austria’s PL system over the last 25 years, using the Austrian Social Security Database (ASSD) to look at the effects of a number of different PL scenarios. Notably, where cash benefits and job protection last for the same amount of time; where job protected leave lasts longer than cash benefits, so leave is partly unpaid; and when cash benefits last longer than job protection, so leave is fully paid but not fully job protected.

An extension of one year in PL benefits led to an extra 7.8 months spent at home.

The main finding was that an extension of the benefits and job protection periods led to considerable delays in the mother’s return to work. The length of time benefits are paid for had a more significant impact on return to work than the length of job protection. An extension of one year in PL benefits led to an extra 7.8 months spent at home. The delay in returning to work was also apparent for women who returned to work with a new employer.

The optimal balance

Because PL in the Austrian scenarios always combined benefits and job protection, however, it was not possible for Lalive and his colleagues to disentangle the effects of having just one the two factors. To do this the researchers constructed a new tool that accurately modelled the mother’s PL behavior under different conditions.

The model was used to test three PL situations following two months mandatory maternity leave: no PL after maternity leave; PL benefits until the child is two but no job protection; and job protection and no benefits.

With no PL, 41% of women go straight back to work for the same employer. The rest look for work elsewhere, with just over half finding work after two years. In terms of serving the interests of mothers, and the broader economy, many of these women either return to work too early or stay out of work for too long.

With benefits but no protection, women spend more time with their child immediately after birth; only 19% go straight back after the statutory maternity period. Then they return to work, but at a slower rate than in the no benefits scenario, as joining a new employer takes longer than returning to their previous job. The return to work percentage of this group after five years is similar to that of the no benefits/no protection group. So these women tend to return to work later than might be ideal.

Where job protection is available, but no benefits, women tend to return to work fairly quickly, with 32% going straight back to their old job. After a year the return to work percentage is almost the same as the no benefits/no protection group, but more women return to their old employer overall. So in this scenario, women tend to go back too early.

The research shows that the PL system producing the best balance of results is probably the most costly option.

Compare this with a more generous system that offers both benefits and protected job for two years. This system appears to offer the best balance of results. Women spend more time with their young child with only 12% going straight back. By the end of the two year period only 31% have returned to work. Yet almost immediately post-leave, 60% of women are back in work, with the percentage in work by year five similar to the three other scenarios. And nearly half of the women return to their previous employer.
Lalive and his colleagues’ findings are very relevant given that many governments are seeking to cut public spending. Contrary to the urge to cut benefit budgets, the research shows that the PL system producing the best balance of results is probably the most costly option. In return, though, policymakers obtain the economic benefits of better medium-term labor continuity and performance for women post birth, while providing mothers with the opportunity to care for their young child immediately after birth.

While the “best” option will inevitably need to be politically expedient, policymakers in Quebec and elsewhere should find Lalive and his colleague’s work interesting reading.

Read the original research paper: “Parental Leave and Mothers’Careers: The Relative Importance of Job Protection and Cash Benefits” by Rafael Lalive, Faculty of Business and Economics of the University of Lausanne (HEC Lausanne) And CEPR, Analía Schlosser, Tel Aviv University, Andreas Steinhauer, University of Edinburgh, and Josef Zweimüller University of Zurich And EPR. Review of Economic Studies (2014) 81, 219–265.

Featured image by Chris Smith / Flickr CC