The economics of maternity leave

Maternity benefits alone will not be enough to bridge India’s gaping gender gap in the workforce

Last week, Parliament more than doubled the extent of paid maternity leave from 12 weeks to 26 weeks, placing India in the league of wealthy Western countries that have some of the most generous benefits for new mothers. In fact, once the amendment to the Maternity Benefit Act, 1961, comes into effect, only Canada and Norway will be ahead of India, with 50 and 44 weeks of paid leave, respectively. This development deserves a cautious welcome.

On the one hand, the many benefits of maternity leave, particularly for the new mother and child, are well documented: data from around the globe shows that access to maternity leave reduces the risk of infant mortality, and improves breastfeeding rates and duration which has a positive bearing on the child’s physical and mental health. Studies also show that adequate maternity leave (of at least 12 weeks) helps prevent postpartum depression and stress in new mothers. On the economic front, there is ample evidence to suggest maternity leave does not hurt businesses and is actually good for the economy—women workers who have access to maternity leave are more likely to return to the workforce, allowing their firms to not just retain but also attract the best talent. Moreover, the cost incurred by employers in the process (reimbursements for temporary replacements or overtime expenses) is considered to be negligible.

On the other hand, however, there have also been instances wherein pro-women, family-oriented policies have backfired. For example, after Chile made it mandatory for companies of a certain size to provide free childcare (India is doing something similar by making it compulsory for companies with either 30 women employees or more than 50 employees to provide access to a crèche) it was found that companies responded by reducing women’s salaries by nine to 20%. Similarly, when Spain introduced a new law in 1999 allowing all workers with children under 7 to work reduced hours without being fired, it was only women who took the benefit—and soon companies were found to be hiring and promoting fewer women while women of childbearing age were 45% more likely to be fired, according to a study by the IE Business School in Madrid. One way to offset this problem is to offer fathers paternity leave, as well as have the option of parental leave wherein both parents can share an extended leave period—as is already the norm in many developed countries.

Still, it is worth noting that even in the advanced economies of Scandinavia which boast of gender parity in the workforce, it has been found that while expanded parental leave increased women’s participation, much of the increase was in part-time work, as Chinhui Juhn and Kristin McCue note in Specialization Then And Now: Marriage, Children, And The Gender Earnings Gap Across Cohorts. Their results were corroborated in a Cornell study across 22 countries which found that while generous maternity leave ensured that women returned to the labour force, they were more likely to have unstable contract jobs. In fact, Juhn and McCue observe, women in these countries were less likely to be in management and professional occupations than women in the US who only get 12 weeks of unpaid leave—a rarity in the developed world.

So how will this play out in the Indian context? A survey by the Associated Chambers of Commerce and Industry of India last year found that 25% of urban Indian women quit their jobs after having their first child. Extended maternity leave might help change this pattern, but the question to be asked is: will this be enough to bridge India’s appalling gender gap in the workforce? Or could it actually make things worse?

In 2012, which is the most recent data available, only 27% of Indian women worked compared to 55% in OECD countries and 63% in East Asia. This deficit shaves off an estimated 2.5 percentage points from the country’s gross domestic product every year. Worse still, India is one of the few countries where women’s participation in the workforce has actually fallen—the International Labour Organization reported last year that female participation declined from 34.1% in 1999-00 to 27.2% in 2011-12. There is also a stark rural-urban divide: In 1972-73, women comprised 31.8% of all rural workers; in 2011-12, that figure had dropped to 24.8%. For urban workers, the number has increased only marginally, from 13.4% to 14.7% in that same time period.

What explains this poor participation number—that too in spite of high economic growth and rising school enrolment numbers for women? According to the ILO report, a complex interaction of social and economic factors is at play here. For one, an adequate number of jobs which could easily absorb women workers especially in the rural areas, was not created. Second, even if there were jobs available, women didn’t always take them up because household incomes were rising anyway and they had no incentive to step out. Add to this the long list of barriers that women face in accessing employment opportunities, such as the risk of exploitation particularly in the informal sector, the lack of wage parity, concerns regarding safety and security, etc., and the paltry numbers begin to make sense.

It also becomes clear that India’s problem is not just about ensuring women return to the workforce after childbirth but in bringing women into the workforce in the first place. Resolving this will require more than just maternity leave—let us keep that in mind as we celebrate our newly acquired progressive credentials.

Do you think maternity leave will improve women’s participation in the labour force?