A recently announced policy seeks to increase paid maternity leave from the existing 12 weeks to 26 weeks. It is a welcome move towards increasing job security of female employees but the law may not be sufficient to fulfil its objectives if it ignores the implications on the broad incentive structure. A policy should not create grounds for employers to associate employing women workers with higher costs. This may exacerbate the trend of diminishing female labour force participation in India.
One can argue that without extended maternity leave, young mothers are likely to exit the labour force in order to take care of their children. The new policy is a welcome move to start with. Such measures are even more crucial as we move away from the extended family system. The secured paid leave is also important for child’s health and wellbeing; it allows the requisite time for early breastfeeding and parental bonding with the child. A number of studies show that early nurturing by parents goes a long way in improving a child’s cognitive and non-cognitive outcomes. It is an investment that pays off for the society as a whole.
But policies like maternity leave are often associated with unintended consequences. If the provision of increased mandatory maternity leave is financed entirely by the employers, it is likely that they would factor in such costs and that, in turn, may lead them to reduce hiring young women. It may be more difficult for a woman of reproductive age to find a job in the formal sector in such a case. Their taking time off may also affect their prospects for promotion.
We need careful labour market policies that will provide the right incentives that can alleviate constraints and boost new job opportunities for women. One way of countering this negative consequence of the new policy is to have gender-neutral leave rules for parents. Paid leave for early child rearing should not bias the incentive structure against hiring women. Preventing the penalisation of the woman for the family’s fertility decisions can further the goal of gender equality. This provision would also allow both parents to be equal partners in bringing up the child.
One can think of a shared cost structure between the government and the employees for financing the paid leave. The cost of guaranteed paid leave can be funded by employees’ payroll deductions or through health insurance programmes, where the cost would be shared between the employee and the government. This would benefit a number of social objectives. First, the parental leave mandate would allow both parents to care for the child which can go a long way in improving human capital outcomes. Second, the dynamics of gender neutral leave policy, unlike that of exclusive maternity leave, would not discourage employers from hiring and promoting women. This would also encourage female workforce participation. Women will also not lose valuable experience and that will enhance their productivity. Finally, as we know from studies across countries, as labour market opportunities improve for women, the average fertility level declines in the society. An improvement in opportunities for women, including safe maternity benefits, could actually improve our population dynamics.
Empirical evidence from various countries shows that the costs of paid parental benefits, if borne by public funds or compulsory social nsurance, can provide the right incentives to avoid the marginalisation of women in the labour market.
The gender neutral parental leave will feed into efficient investments in form of early childhood benefits that will not only be efficient for the society at large but also ensure equitable employment opportunity for women.