Social engineering with Tony

Most of the initial reactions to Tony Abbott’s maternity leave proposal have focussed on its political motivation, on how it squares with his personal ideology, and on reactions of the business lobby.

As far as the politics are concerned, it looks like standard Howard era populism, seizing on the winds of prevailing opinion. As for the financing, the interesting aspect is not that business will pay for it. In fact, it would take it a bit of detailed modelling to work out how the incidence would ultimately fall. Businesses forced to pay the levy would recover part of it from salaries and part from consumers via higher prices, with shareholders paying the balance. The cost will fall fairlly broadly on the community as a whole, just as it would if it were taxpayer funded.

Therefore, what is interesting from an economic point of view is the insurance aspect — that there would be no connection between what firms pay and whether their female employees take maternity leave. The alternative private-sector funded scheme might have been a compulsory scheme in which each employer pays for its particular employees who took leave. That would have created a disincentive for firms to hire potential new mothers, and Abbott’s scheme avoids this.

At the aggregate societal level, it amounts to subsidisation of working mothers, in the form of six months’ free time, by the rest of the population. I had a go at unpicking the welfare implications a couple of years ago (and Paul Frijters before that), and this seems an apt moment to review the issues briefly.

For women who would otherwise have taken time off unpaid, the scheme is a windfall. For those on low incomes it’s a justifiable income redistribution measure, but for those on average incomes and higher, it’s middle class welfare pure and simple. For the rest, however, the scheme amounts to social engineering, so we need to consider how it will change behaviour and whether there is a net social benefit, given the mildly distortionary effects the levy would have.

Three groups of women benefit. The first is those who planned to have a baby anyway but would otherwise have stayed at work. This is good for their mental health, and the babies benefit from some extra crucial bonding time.The social benefit seems straightforward, but it isn’t clear whether leave on full pay would be necessay to meet the objective in the majority of cases. The $150,000 threshold seems excessive at first blush.

Second, there are women who would not otherwise have had a baby. Presumably the nation benefits from the extra children. But the same effect could probably be acheived with a bigger baby bonus that didn’t discriminate in favour of working women, so, if natural population growth is the main motivation for the scheme, it rests on an implicit assumption that working women raise better young citizens than their non-working counterparts.

Third, there are women who were going to have children anyway but would have stayed out of the workforce in the absence of a paid maternity scheme. Arguably it’s good for them and their chidren to have a closer attachment to the workforce, but the likey affect on their labour market participation, and the number of women involved, would be very hard to quantify.

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17 Responses to Social engineering with Tony

  1. Aidan says:

    I think Mark has managed a fairly good critique of this plan. It is regressive, and a give-away to the rich. More Howard-era nonsense.

  2. Anthony says:

    You suggest that when business meets the costs of their employees’ leave, either directly or via a levy, the costing falls broadly, just as if it were taxpayer funded. According to this reason, isn’t sick leave or long-service leave for well-paid employees also ‘middle class welfare pure and simple’?

  3. Andrew Norton says:

    While I don’t support Abbott’s plan, I do think it is consistent with the way familist conservatism is evolving. If you assume that women are assessing the opportunity cost of leaving the workforce, then Abbott’s plan targets that, while Rudd’s does not. If a woman on $100K needed a large proportion of that, a minimum wage payment won’t be enough to stop her going back to work as soon as it is physically possible.

  4. Paul Frijters says:

    James,

    yes, the economic case boils down to the desirability of the social-engineering and, if we want more kids and think they have positive externalities, whether paid maternity leave is the way to go. I am a bit skeptical that it will raise fertility by much if you think of the monetary implications: kids incur immense costs over their lifetime and 6 months pay is not going to change the calculus by all that much to budding parents. Hence, we should probably assess the scheme more on its potential to change attitudes towards working mothers and the whole area of the obvious conflicting areas of child-rearing and paid employment: are there second-round cultural effects that would increase fertility? That’s a fairly tricky sociological question.

  5. Patrick says:

    I wonder if the last sentence is meant as a general endorsement of the principle that where the benefits are very hard to quantify, we should eschew government action?

    Or perhaps not just ‘government action’ but any change?

  6. James Farrell says:

    Andrew: I’m having trouble opening the permalink, but from the first half of the post I get the gist. I agree, with the qualification that this particular thread of conservatism is not just pro-family, but sees the upper-middle class family in particular as the bedrock of society — an institution that has evolved considerably since the Victorian era, with the improved status of women.

    Patrick: more oan endorsement of the principle that if one doesn’t know much about something, one should desist from making any strong pronouncements about it.

  7. John Ryan says:

    Love the bit about how nice it will be and it will not burden the taxpayers as much as the Govt scheme,utter rubbish,this is Australia old son and the cost will not affect the Company’s or the Shareholders or the staff it will flow straight through to prices,and we all will pay for it.
    Its just a Great Big TAX,and who pays the taxes we do

  8. Andrew Norton says:

    James – I’d need to think more carefully about the class question, because attitudes on class seem to me to be one of the areas where conservatism is undergoing a complex evolution. The rise of conservative populism against the left-wing elites seems to me to have diminished the standing of the upper middle class and increased the standing of the ‘respectable’ lower middle and working classes.

  9. Magda says:

    What’s all this ‘women’ bizzo? The policy states “primary carer”. Once the sums are in what do you think the decision will be in households where the bloke earns $150K?

  10. James Farrell says:

    Paul: Isn’t the biggest obstacle to family life the lack of flexibility in working hours for professionals and managerial-level staff, especially in the private sector? A second order effect might be that full-time employed women, now permitted to spend six months at home, develop a taste for home and collective demand more job sharing options.

    Andrew: “‘respectable’ lower middle and working classes” = ‘aspirationals’?

  11. Paul Frijters says:

    James,

    I would agree that the work-life balance is a big factor in fertility numbers, but demographers are not very optimistic about the degree to which policy can increase fertility via this kind of intervention in labour relations. Even in Sweden, where this kind of policy is taken to the max, fertility rates are only about 1.7 per woman (see http://www.indexmundi.com/sweden/total_fertility_rate.html) whereas it is 1.9 in Australia. I seem to recall that the believed ability of policies to influence fertility rates is in the order of 0.2. That is not such a big number cnosidering the variation in fertility rates, meaning that ‘cultural factors’ are more important. Perhaps these monetary policies change culture in the long run but they dont seem to have in Sweden.

  12. James Farrell says:

    Magda, I’m sure you’re terribly streetwise, but I don’t know what you mean. What would they decide ‘once the sums are in’?

  13. “Andrew: “‘respectable’ lower middle and working classes” = ‘aspirationals’?”

    James – Not necessarily. Ambition is not required to be respectable; indeed grasping for wealth may undermine respectability. Respectability is about personal behaviour – having a job, behaving in a civil manner, bringing up your kids properly, contributing to the community.

  14. TimP says:

    @James;

    I think what Magda was suggesting is that in most households men earn the higher income, and that if the paid leave is offered to the “primary caregiver” rather than the mother, the man will more likely become the primary caregiver.

    I’m inclined to think that we probably would see a slight (possibly not statistically significant) increase in the number of men who choose to be the primary caregiver during the first few months of childhood.

  15. Age says:

    I wonder if the last sentence is meant as a general endorsement kf the principle that where the benefits are very hard to quantify, we should eschew government action?

    Or perhaps not just 'governmen5 action' but any change?;

  16. James Rice says:

    With an earnings-related paid parental leave scheme – in comparison to a flat-rate paid parental leave scheme or any kind of paid leave scheme restricted to mothers – in couples in which the father earns more than the mother there will be more of an economic incentive for the father to stay at home to take care of the nipper. Perhaps this is the point Magda is making.

    So, an earnings-related scheme is more likely than a flat-rate scheme to engineer a reallocation within the gendered division of household labour.

  17. James Rice says:

    As to the impact of policy on fertility, is it true that demographers are not very optimistic about the degree to which policy can increase fertility? In any case, this isn’t the position of Peter McDonald, the Director of the Australian Demographic and Social Research Institute at the ANU and the current President of the International Union for the Scientific Study of Population (see some of the articles mentioned on his webpage).

    Sweden and the Scandinavian countries in general are typically offered as good examples of how policy might promote fertility. Here are the countries of the OECD ranked by total fertility rate (the data come from the website Paul linked to earlier).

    High fertility:

    Mexico: 2.34
    Turkey: 2.21
    New Zealand: 2.1
    United States: 2.05
    France: 1.98
    Iceland: 1.9
    Ireland: 1.85
    Australia: 1.78
    Luxembourg: 1.78
    Norway: 1.78
    Denmark: 1.74
    Finland: 1.73
    Sweden: 1.67
    Netherlands: 1.66
    United Kingdom: 1.66
    Belgium: 1.65
    Canada: 1.58

    Low fertility:

    Portugal: 1.49
    Switzerland: 1.45
    Germany: 1.41
    Austria: 1.39
    Greece: 1.37
    Hungary: 1.35
    Slovakia: 1.35
    Italy: 1.31
    Spain: 1.31
    Poland: 1.28
    Czech Republic: 1.24
    Japan: 1.21
    South Korea: 1.21

    Within the OECD, the Scandinavian countries tend to have relatively high levels of fertility (1.67 to 1.9), while relatively low levels of fertility are found in the Continental European countries (excluding France, Luxembourg, the Netherlands, and Belgium; 1.24 to 1.49) and the East Asian countries (1.21). This pattern generally supports the view that policy influences fertility, given the policy differences between these countries.

    The Anglophone countries also tend to have relatively high levels of fertility – which indeed is a bit of a mystery in terms of the policy-fertility nexus! I’m no expert in this area, but at least one possible explanation I’ve read argues that private child care is more affordable in the Anglophone countries than in the other countries. The reason offered for this relates to the relatively high levels of wage and income inequality that are found in the Anglophone countries. As the argument goes, these relatively high levels of inequality mean that, relative to average incomes, the wages of low-wage workers are especially low in the Anglophone countries. Since child care workers are low-wage workers, this translates into private child care being more affordable in the Anglophone countries. I’m not sure how much evidence can actually be found to support this argument, though, and I’m sure other factors are at work. Cultural factors may also be important.

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