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Options for ParentalLeave

Joshua GansThought Leadership Forum, 19th June 2008

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Goals

Child development Income support for parents Improve gender equality

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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

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Current Policy

Right to 52 weeks of unpaid leave for oneparent

Public service and larger employers havepaid 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

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Policy Responses

Parental leave entitlements Should it apply to both parents?

Paid leave Who should pay?

Most of OECD have publicly funded paidleave of 14 weeks or more

NZ: Up to income cap for 14 weeks Norway: 100% of income and mandated

paternal leave

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Evaluating Policies

Does the policy increase the actualamount of leave taken?

Does the policy improve workconditions for women and family-oriented employees?

Is the policy equitable?

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The Firms DecisionWageGap

Prob Woman Takes Leave1/2 1

The HouseholdDecision

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No discriminationWageGap

Prob Woman Takes Leave1/2 1

Household

Work

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DiscriminationWageGap

Prob Woman Takes Leave1/2 1

Household

Work

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Evidence

Source: Australian Institute for Family Studies

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Evidence

Source: Australian Institute for Family Studies

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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 ishigher (e.g., delayed parenting)

Potential for large cross subsidy

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Evidence

Source: Australian Institute for Family Studies

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Evidence

Source: Australian Institute for Family Studies

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Public PaidWageGap

Prob Woman Takes Leave1/2 1

Household

Work

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Private PaidWageGap

Prob Woman Takes Leave1/2 1

Household

Work

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Whose leave?

If create more incentives for maternityrather than paternity leave that increasesthe wage gap

Discriminatory pressures may be faced byfathers too Studies show that wage gap has likely

increased where maternity leave benefitsare stronger

Sweden requires 30 days paternity leave

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Equity

Minimum wage paid leave is a form ofsocial insurance Fairly costless given current policies

Use income-contingent loans for leaveabove 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

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Return to Work

What if firms were paid to bringparents 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 andprovides an incentive for re-integration

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RTW CreditsWageGap

Prob Woman Takes Leave1/2 1

Household

Work

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MixtureWageGap

Prob Woman Takes Leave1/2 1

Household

Work

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Summary

Minimum Wage Paid Leave Income-Contingent Loans for Gap Return to Work Tax Credits

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Self-Promotion