Is Government Mandated Maternity Leave Really a Solution?

Maternity laws around the world have become increasingly progressive. In many countries, labour laws mandate that all women employees be provided 26 weeks of paid leave during maternity. This law is being forcefully enforced in many countries of the world. However, is it really a solution?

The reality is that forced government intervention is never really a solution. The government succeeds in enforcing its will up to a certain point. However, businesses tend to find a workaround.

In this article, we will discuss how businesses have started working around these legislations.

Taxes Reduce Overall Wages

The first point to be noted is that entrepreneurs are in the business because of the profit motive. This means that they will only buy a raw-material if its cost is lower than the price at which they sell the finished product. If they do not do so, businesses will cease to survive.

This same logic applies to wages as well. At the end of the day, every employee must generate more revenue than the salary they are paid. If they do not do so, they are basically freeloading off of somebody.

Now, maternity leave can be government funded or employer-funded or a combination of both. Regardless of who appears to be paying the costs, the reality is that the costs are actually borne by the other employees. Consider the case of government-funded maternity leave. The government accumulates these funds by levying a tax on all workers. Hence, maternity leave is not really an increase in wages. It is just a redistribution of wages. The employer continues to pay pretty much the same amount. The government takes a part of it, stores it in a cookie-jar and redistributes it at a later date.

The problem is that these taxes are levied on all workers regardless of their gender and age. Hence, there are some workers who are never going to reap the benefits of paid maternity leave. However, they too are forced by the government to pick up the costs.

Gender Pay Gap

The effect of forced maternity leave is quite similar even if corporations are asked to foot the bill instead of the government. The only difference is that instead of all employees paying a small price so that a few of them benefit, corporations ensure that only the concerned employees are made to pay.

In a way forced maternity leaves are somewhat responsible for the gender pay gap. As mentioned above, corporations are business entities which exist to generate profit. In order to generate profit, the businesses have to factor in all possible costs including contingency costs. Therefore, when businesses hire employees, they tend to make predictions about whether or not they will have to pay maternity leave in the future. This is the reason why women who are likely to become mothers in the near future often receive lower pay than their peers.

Now, this could be taken to mean that the organization is indulging in discrimination. However, that is not necessarily true. If corporations paid the exact same wages to men as well as women, they would actually be paying lower wages to men! Hence, the gender pay gap may not necessarily be an evil conspiracy to enforce patriarchy. Organizations that work for the profit motive have no interest in enforcing patriarchy. The reality is that this is just the market mechanism at work.

Organizations also take other measures to correct the wages paid if mandatory paid maternity leave is enforced. It is a known fact that companies tend to give a poor performance appraisal to expectant mothers. Since these performance appraisals are often linked to pay hikes, the organization in a way recovers its costs. It pays an additional salary for six months. However, it reduces the overall salary paid in order to recoup its losses.

Unwillingness to Hire

Lastly, forced maternity leave makes employers wary of hiring employees who are likely to get pregnant. The modern world is characterized by labour mobility. This means that workers can simply move from one company to another within a very short span of time.

In such a situation, if an employer pays six months of maternity leave and the employee leaves the organization, the employer is left holding the bag. Many industries such as airlines and schools where a lot of women work, have experienced this situation. These industries have experienced that paid maternity leaves also create a lot of uncertainty for the business. Employers cannot really plan or allocate female resources on top projects since their continuation with the company cannot be predicted.

Hence, if businesses are forced to pay the maternity costs of their employees themselves, they will avoid hiring candidates where they may see a possible future cost.

The bottom line is that the government must stop forcing organizations to pay the bill. Instead, it could leave the maternity issue up to the labour market. If a significant number of employees believe that it is the employer’s duty to provide paid maternity leave, the employers will be forced to provide this facility. Over the longer term, voluntary facilities tend to work out better than forced contributions.