Catallaxy Files

Julia has now gone on the attack about doubts surrounding her support for the government’s paid parental leave scheme.  Her response – hang Cabinet confidentiality – centred on her concerns about the fiscal sustainability of the proposed program.

This seems quite implausible given the relatively modest (albeit in the context of programs with price tags in the billions – eg. BER) of something of the order of $350 - $400 million per year.  The combination of limiting the payment to 18 weeks; using the Federal Minimum Wage as the benchmark; removing eligibility for the Baby Bonus and Family Tax Part B benefits to recipients has kept a lid on the outlays.

Of course, Julia evidently did make several good political points – what would older working mothers who did not receive this benefit think about it and, perhaps a stronger point, what would non-working mothers who will receive lower benefits upon the birth of child think of this scheme.  You can just hear it : is my baby less valuable because I don’t work?

While no doubt sounding like a broken record, I repeat that the economic case for a mandated paid parental leave scheme is weak.  Of course, the provision of paid parental leave makes economic sense for many businesses, who seek to defend their investments in firm-specific skills by encouraging their (female) workers to return to work at some stage, hopefully not too long, after giving birth.  It is estimated that some 50 per cent of women workers now receive some form of paid parental leave privately provided by their employers; the percentage is higher among large firms and, not surprisingly, for women in professional and managerial occupations.

The case for government-funded or mandated paid parental leave revolves around the best interests of the new baby;  the child will generally thrive with the undivided attention of a parent, almost always the mother, for the first months of life.  In many cases, this will also be associated with the child being breast-fed. (The evidence on the  benefits of breast over bottle is actually quite weak, you might be interested to know.) It is estimated that between 11 and 17 per cent of Australian new mothers return to work in the first three months of the child’s life.  Even in the context of a generous mandated scheme, these percentages might drop by a half; some mothers just will return to work soon after their babies are born.

The irony is – given Tony Abbott’s OTT scheme – is that the Howard government probably had it about right – a relatively generous Baby Bonus available to working and non-working mothers and an increasing prevalence of privately provided parental leave, including the extension to some lower-paid workers (eg. Woolworths, Aldi).  By international standards, Australia is very generous to families with new babies.

One interesting aspect of the Baby Bonus is whether or not it has contributed to the tick up in fertility rates that have been evident over the past several years.  One piece of research undertaken at the Melbourne Institute found the impact to be very modest.  But I would be interested to know if there is else around on this topic.