Paid Parental Leave or a Poor Parents' Benefit?
Keith Rankin, 17 May 1999
One of the big New Zealand political stories of 1999 has been the success of Alliance MP Laila Harre in getting support for her private members bill to pay parents 12 weeks leave.
Apparently the government hopes to defuse the issue by announcing a plan in this week's budget to pay an additional income tested benefit of up to $1,560 to parents when their baby is born (see '"Baby Bonus" on the way', Herald 15 May).
The government's response completely misses the point. Reproduction is, among other things, an employment cost. This matter of income support for non-employed parents is quite separate.
Our policymakers have concluded erroneously that it is the role of government to minimise businesses costs. Actually it is the role of business to minimise business costs. It is the role of government to ensure that businesses pay all the costs that they incur.
Government is a referee, not an agent of the business community. Businesses will "externalise" their costs - ie make the public or some other third party pay - if government lets them. Such 'externalities' are a form of economic inefficiency; a classic form of market failure.
Labour costs are more than wages. Human beings are not commodities; we are a living breathing reproducing intelligent life form. The economic cost of employing human beings includes the cost of enabling people to perform their necessary individual and social functions. Society dies if humans do not reproduce. Reproduction costs are costs intrinsic to what we now call "human resources".
Firms used to pay for reproduction through what was known as the "family wage"; an above-market wage only payable to men. Family wages were high enough to enable women to choose to not work. Today, despite equality in the workplace, the family wage premium remains a valid cost of employment. That premium should be paid to both parents, so that both can benefit from some free time to look after their newborn child, without having to worry at that time about the loss of parental income.[#]
The argument for giving employers subsidies to fund a component of their costs is "international competitiveness". New Zealand must keep its labour costs down to maintain or increase a labour cost advantage vis-à-vis other countries. This 'competitiveness' argument - the epitome of modern economic nationalism - is dangerously wrong, as Paul Krugman's new book The Return of Depression Economics will show.
Labour costs in each country should reflect levels of labour productivity in each country. Any attempt by any country to outflank another country by allowing employers to pay less than the true cost of labour invites a similar response by other countries. The logic of the process is that all countries' populations bear the costs that their businesses do not. No country gains an advantage, and living standards fall worldwide. It's a vicious spiral; a 'prisoners dilemma' in which the countries that underprice their labour are defectors from the common good.
If our employers face up to the full range of their labour costs while employers in other countries are allowed to defect, then trade protection to offset the extent that foreign countries externalise their costs is the appropriate response. A free trade world in which only some nations internalise their costs falls far short of the abstract free trade ideal.
The only valid reason for opposing employer-paid parental leave is that employers may be inclined to discriminate against hiring women of child-bearing age. Laila Harre resolves this problem by collectivising paid-parental leave; making all employers pay into a common fund. The alternative solution would be to do what Ms Harre does not propose; ie make the paid parental leave completely gender neutral. It is about time that employers perceived that men will on average require as much parental leave as women. Under such conditions, hiring employers would have no grounds to discriminate against female prospective employees. [*]
We don't need another targeted benefit. The welfare system is already a huge mess; a poverty trap. Parents not in work need a universal benefit system that enables them to be parents while not discouraging them from partaking in part-time or fulltime work. Employed parents need employers who recognise that reproduction, like sickness, is a feature of being a human resource.
# In today's labour markets, about 50% of childless partnered women will be earning more than their male partners. The loss of a woman's income when she embarks on unpaid maternity leave means, half the time, a loss of more than 50% of their combined income. (This loss is, however, made up to some extent by increased Accommodation Supplements, and, after the birth, means-tested Family Support). In the "good old days" of the family wage and suburban neurosis, the loss of the female partner's income rarely had such an impact.
It can be much worse for some women. Given today's "flexible" labour market, there is a high chance that a pregnant female breadwinner will not have given her employer 12 months service so would not even qualify for unpaid leave. I have heard of one case in which a woman decided to stay at work until the 40th week of her pregnancy, because she couldn't afford to lose her job.
* To create a completely gender-neutral workplace, men should have the same right as women to 12 months of unpaid leave.
© 1999 Keith Rankin
Rankin File | 1999 titles