Sarah Truen

Having babies is a necessary part of sustaining economic growth. Without replacement labour force participants, its pretty obvious that economic systems would eventually grind to a halt. But the process of having a baby is incredibly costly – parents must lay out an enormous amount of time, effort and money to make a child into a productive member of the labour force (full disclosure: this is a topic close to my heart, as Truen junior is now just six months old).

In the economic parlance, having children is a process that exhibits externalities. The costs of having a child accrue mainly to the parents, but society as a whole reaps a number of benefits. When goods have these kinds of private costs and social benefits, they often end up being under provided. Thankfully babies are really cute, so if anything we tend to have too many of them!

In any case, I digress (it must be the lack of sleep). The point I wanted to come to is that compulsory parental leave is a very interesting mechanism for transferring some of the private costs of child rearing to society, in this case via employers. Where parental leave is guaranteed, the amount of income foregone to have a child is reduced, both because some form of pay is typically provided during the parental leave period, and because the job itself is still available at the end of parental leave, so time doesn’t need to be wasted looking for another one. This is both fairer to parents, and also has been shown to have a number of additional social benefits.

For example, a study of the impact of increasing maternity leave from 12 weeks unpaid to four months paid in Norway in 1977 found that this improved the child’s educational and wage outcomes – high school dropout rates declined by 2.7% and wages at 30 increased by 5%.[1] Paid parental leave probably also increases the size of the labour force in the short term, by improving the workforce participation rates of parents. A study of family leave coverage in the United States, the United Kingdom and Japan found that the existence of parental leave increases the likelihood that a woman will return to her employer after childbirth in all three countries,[2] and in Norway and Scandinavia, paid maternity leave with job security speeded up the return to work of mothers.[3] Similarly, the introduction of paid family leave in California seems to have increased the weekly hours worked by employed mothers of one-to-three year-old children by 6 to 9%.[4]

So in other words, no need to feel guilty about the very long period of time I have just spent out of the office – good news! Sadly, though, there is always one group of researchers which has to spoil the party. Dahl et al[5] examine the impact of the increase in the length of maternity leave in Norway from 18 to 35 weeks, and find some slightly dampening results. In summary, the increase in the length of maternity leave “had little effect on a wide variety of outcomes, including children’s school outcomes, parental earnings and participation in the labor market in the short or long run, completed fertility, marriage or divorce.” They conclude that very long maternity leave amounts to “a pure leisure transfer, primarily to middle and upper income families.” In other words, time for me to get back to work I suppose.