Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697629739495.pdf (Australia)
Comments on the “Fairer Paid Parental Leave Bill 2016” Submission by: Guyonne Kalb and A. Abigail Payne Melbourne Institute of Applied Economic and Social Research (“the Melbourne Institute”) University of Melbourne The Melbourne Institute, housed in the Faculty of Business and Economics at the University of Melbourne, is the pre-eminent research institute for applied economic and social research in Australia.
We have several researchers keenly interested in issues that pertain to the employment of women and the development of children.

As any policy will have intended and unintended effects, we appreciate the opportunity to comment on the proposed changes to the Paid Parental Leave (PPL) policy in Australia.

Our experience in engaging with Government departments and in conducting rigorous data driven research provides us with unique insights and perspectives on the proposed changes.
Moreover, the Melbourne Institute was involved, as part of a consortium led by the Institute for Social Science Research (University of Queensland), in the evaluation of the original Paid Parental Leave (PPL) Scheme as introduced in 2011 following the Paid Parental Leave Act 2010.
We have read and carefully considered the proposed Bill as explained in the documents describing the changes published on the Parliament of Australia website: http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId= r5752.

Although PPL can be paid to mothers and fathers, the majority of payments are made to mothers.

In the following, we therefore often refer to “mothers” and “women”.

However much of what is said applies to fathers and men as well.
We applaud the additional flexibility that the new Bill proposes to provide in Schedule 1 regarding the eligibility requirements for paid parental leave.

The existing legislation requires the mother to have worked for at least 10 of the 13 months prior to birth and imposes other restrictions regarding minimum hours and days worked.
By allowing this 13-month period to start at an earlier date, the proposed legislation would allow a mother to qualify even if she must cease employment relatively early in her pregnancy because the work she does is hazardous to her pregnancy.

As some women will be involved in occupations that could be hazardous to her pregnancy, we applaud this proposal.

Furthermore, the Bill proposes to allow for longer breaks between workdays increasing the current 8 weeks between subsequent work periods to 12 weeks.
This extension will be particularly useful to casual and other workers with irregular working schedules who have long working histories interspersed with relatively long periods of non-work.

We are supportive of these amendments to the original paid parental leave scheme.
1 Fairer Paid Parental Leave Bill 2016Submission 95 We are concerned, however, about the impacts of the following proposed changes: 1) Shifting the responsibility for payment of the Parental Leave Pay (PLP) from the employer One of the proposed changes is that payment will be in principle by the Department of Human Services, unless the employer opts in to do the payments and the employee agrees with this arrangement.
Although this arguably reduces the administrative burden on employers1, we expect that this arrangement will weaken the relationship between the employer and employee over the parental leave period.

This relationship potentially creates a two-way commitment: i.e.

for the employee to return to work and the employer to facilitate the transition back to work.

We believe that employer involvement in the PLP arrangements creates a stronger link between the employer and the person taking the leave.
While the slower return to work in the first half year after childbirth is to be expected and clearly due to the income replacement that PLP offers, in the second half year, mothers receiving PLP return more quickly than mothers without PLP.
These results from the PPL evaluation for women (reported in Martin et al., 2015; and Broadway et al., 2016) suggest that employees with stronger links to employers (through the PPL payments and Keeping in Touch measures) have been encouraged to return to work more quickly in the second half of the first year than employees without access to PPL (and thus weaker links to their employers).
Together, the two opposite effects result in mothers with access to PPL being more likely to have returned to work after one year than mothers without access to PPL.

Thus there are two components to PPL: a financial component, encouraging leave taking, and an employer-employee relationship maintenance component, encouraging (eventual) return to work.

Broadway et al.
Broadway et al.

(2016) find further support for the relevance of a stronger relationship between employer and employee by presenting the impact of PPL by income and access to employer-provided paid leave.

This work showed that in the second half of the first year, women with access to PPL returned to work more quickly than women without access to PPL.
This increase in the rate of return to work in the second half of the first year was larger for women without employer-provided leave than for women with employer-provided leave.

This was the case for high-income women and to a slightly lesser extent for low-income women.
This indicates that this effect of a quicker return does not seem to vary much by income (and does not vary in the expected direction) but that this effect does depend on whether employer-provided leave was already available to a mother before PPL was introduced.

That is, the financial impact of the new PPL scheme is not as important a factor in encouraging a quicker return as the presence of other aspects of paid leave such as the continued relationship with the pre-birth employer.
In contrast, the impact in the first half year (which extended the duration of leave taking) was clearly much lower for high-income women than for low-income women, indicating that this effect was largely driven by the additional income received through the payment which is larger in relative terms for low-income families.

In addition, from Martin et al.

1 Martin et al.

(2014) report survey results indicating that the majority of employers found their role in the PPL scheme (i.e.
the registration process and the organisation of payments) to be relatively easy (81 per cent agreed or strongly agreed).

Similarly, most employers felt that there were minimal costs to their organisation in implement the scheme.

A significant minority (37 per cent) agreed “that organising payments for PPL has been time consuming”.

However, this result did not vary by firm size or sector.
Furthermore between 2011 and 2012 employer attitudes towards the registration, organisation and costs involved in implementing PPL improved.

2 Fairer Paid Parental Leave Bill 2016Submission 95 (2015) and Broadway et al.

(2016), there was also evidence that PPL encouraged women to return to the same job with the same employer, preventing (or at least reducing) the potential loss of human capital.
The most likely mechanism for this to occur again points to a strengthened link with the employer while on leave.

We are concerned that by shifting the responsibility for paying PLP to the Commonwealth Government Department of Human Services the payment will resemble a welfare payment rather than a work entitlement.

While this may be a subtle difference, it can result in important implications.
We believe that a work entitlement would encourage a return to the labour force by women at the end of the leave.

If the payment, however, is perceived as a welfare payment we expect to see less of a link between PPL and a return to work.

Recent studies that use data from Germany suggest there are differential effects on labour force participation after childbirth based on the treatment of parental leave payments.

Between 1979 and 2007, Germany experienced several reforms.
From 1979 to 1985, only mothers who were in employment before childbirth qualified for paid leave.

From 1986 to 2006, payments were extended to cover stay at home parents regardless of whether the parent worked prior to childbirth.

The level of the payment was income tested (after six months) and was provided for a period of up to three years after birth.
From 2007 onwards, leave payments were shortened to 12 months and the level of the payments was increased for many parents to provide coverage that was linked to earnings in the year preceding childbirth.

Schönberg and Ludsteck (2014) studied the scheme that was in place from 1986 to 2006.

Given the structure of the scheme, it resembled one that is more similar to a welfare payment than a work entitlement.
The study found that this scheme discouraged female labour force participation.2 Several other authors observed a difference in labour force participation after the 2007 scheme was put into place.
Shortening the period of leave payments (to 12 months) and increasing the level of payments by tying them to previous earnings before childbirth resulted in more mothers being eligible and taking advantage of the scheme in the first year after childbirth, and more of these mothers returning to work in the second year after childbirth (Kluve and Tamm, 2013; Geyer et al., 2015).
Before the 2007 reform new mothers would have had full pay for the first two months of leave, but the high- income mothers would face a large reduction in payment between two and six months, and often lose the payment completely after six months.

Bergemann and Riphahn (2015) argue that after two months, return to work by the mother and use of childcare is unlikely to be an attractive and viable option for many families, whereas after one year this option may be feasible and much more attractive.
As a result, the (large) reduction in payment after two months is unlikely to trigger a return to work, because it is simply too early for most women.

However, a similar reduction after one year is much more likely to provide an incentive to return to work as it coincides with the time at which a much larger proportion of women would consider a return to work.
Bergemann and Riphahn thus argue that both duration and generosity are important aspects of the design of paid leave that can encourage take-up of leave early on, as well as increase the return to work later on.

2 When increasing paid leave by 16 months and unpaid leave by four months (in 1986), mothers worked around three months less in the first six years after birth.
3 Fairer Paid Parental Leave Bill 2016Submission 95 2) Reducing PLP based on employer-provided paid leave The Bill proposes to reduce PLP for weeks in which the employee also receives payment from an employer-provided leave scheme.

Moreover, if the employer supports more than 18 weeks of support above the minimum wage rate, the employee would not receive any government-paid leave.

We believe this could result in employers withdrawing their employer-provided paid parental leave schemes.
At a minimum, any current employer-provided leave pay that is less than the value of the PLP payments is likely to be eliminated.

For lower-income employees we expect the Government would then bear all of the responsibility for paid parental leave.
If the new total payments are less than is currently provided under the Government’s PLP scheme in conjunction with employer schemes, this could result in negative repercussions, both in terms of the ability of a low-income mother to spend time with her newborn child prior to returning to work and in terms of overall family well-being.

Evaluating the impact of the current PPL scheme, Broadway et al.
(2016) show that although the impact of PPL was less for women who already had paid leave through their employer, it still increased leave taken in the first half year and increased the rate of return to work in the second half year.

The increase in leave taken after childbirth was particularly relevant for low-income women.

This is the group that the proposed PPL scheme would hurt the most.
In particular, we should expect the biggest detrimental effects of the proposed PPL scheme to be observed for single parents and for women who are the main breadwinners in their households.

As a result the pressure to return to work quickly may increase for these groups.

The proposed PLP reforms mean that PLP can no longer be treated as a starting point for employers to build upon.
Employers’ contributions will reduce the Government-provided PLP, thus reducing the employers’ incentives to improve work entitlements around childbirth for their employees, especially for low-wage employees.

For higher-income employees, employers might have an incentive to provide a shorter period of employer based benefits at higher rates in order to limit the reduction in PLP.

Such responses would lead to the savings being lower than anticipated.
The new rules also increase the administration costs to compute the exact amount each family is entitled to over the 18 weeks which are substantially more complex than in the original PPL scheme, thus further reducing the savings to be made on Government expenditure.

The Bill argues that the proposed reform will make the PLP scheme fairer.
Although income testing is central to many of the Government payments in Australia, ensuring that these payments go to those most in need, the proposed income testing of the PLP is unusual in several ways.

It is tested on the employer-provided paid leave only and only for the number of weeks that this leave is provided.

As a result, the PLP income testing has a much weaker link to need than the income testing of any other payment provided by the Government.
For example, a high-wage woman could be better off if her employer provides her with just a few weeks of leave support at a high rate of pay rather than a more extended leave support at a lower payment rate.
Furthermore, as the proposed PLP scheme does not take into account other family income, families where the mother is the primary earner or is a single parent are treated exactly the same as other families even though taking leave without pay is 4 Fairer Paid Parental Leave Bill 2016Submission 95 particularly difficult for these women, and as a result they may become more likely to return (too) quickly after birth.
3) Grandfathering period of three years for employer top-up pay The proposed scheme would implement a grandfathering period for some of the new rules to be applied.

It is not clear what types of employer payments would be covered in such a clause: i.e.

how is “employer top-up pay” defined; and whether different groups of parents will be treated equitably.

4) Reducing employer top-ups and not addressing the Government entitlements will mean Australia remains a low provider of parental leave support.
Unlike many other developed countries, Australia relies on general tax revenue instead of social insurance revenues to cover the costs of parental leave.

There may be efficiencies by moving to a system which would pay for parental leave from social insurance resources.

Such a system would involve recognising that all employees (men and women) and employers should contribute to funding paid parental leave through the payment of a (small) proportion of earnings as an insurance premium.
Moreover, amongst developed countries, Australia is one of the lower ranking countries in terms of generosity of payments and duration of leave entitlements.

Expressed in full-rate equivalent weeks of leave, Australia ranks lowest with only the US (where no universal paid leave is provided at all) ranking lower (see the OECD database on http://www.oecd.org/els/family/database.htm).
Summary Australia, like many countries, recognises the value of offering support during the first (half) year after childbirth to permit a parent to stay home.

From a mother’s (and father’s) perspective, the support reduces financial stress regarding household income while taking time off work after childbirth.

By providing time at home without (or with lower) financial loss, it improves mental and physical health, and reduces general stress levels.
Paid leave also facilitates the return to work at a later time, increasing a family’s long-term financial well-being.

From a child’s perspective, the support increases early healthy development, particularly through increasing the length of the period of breastfeeding (see Martin et al., 2015), but arguably also through the extra time of the parents (mostly the mother) that is spent with the child and through the lower stress levels of the parents.
Overall, we are concerned that the proposed PPL scheme will result in a lesser treatment of parents, especially those with low incomes, and that this will lead to a reduction in desirable outcomes (including most importantly female labour force participation).

The question is whether the anticipated benefits in terms of reduced Government expenditure on the PPL scheme will weigh up against these reduced desirable outcomes.
The answer is of course subjective depending on the value that is placed on the improved outcomes achieved through the PPL scheme, and it depends on how the “savings” are spent.

5 Fairer Paid Parental Leave Bill 2016Submission 95 References Bergemann, and Riphahn, R. (2015) Maternal Employment Effects of Paid Parental Leave.

IZA Discussion Paper 9073, Institute for the Study of Labor, Bonn.

Broadway, B., Kalb, G., McVicar, D. and Martin, B.


(2016) The Impact of Paid Parental Leave on Labour Supply and Employment Outcomes.

Melbourne Institute Working Paper 3/16, University of Melbourne.

Geyer, J. Haan, P. and Wrohlich, K. (2015) The effects of family policy on maternal labor supply: Combining evidence from a structural model and a quasi-experimental approach.

Labour Economics, 36, 84-98.


Kluve, J. and Tamm, M. (2013) Parental leave regulations, mothers’ labor force attachment and fathers’ childcare involvement: evidence from a natural experiment.

Journal of Population Economics, 26, 983–1005.

Martin, B., Baird, M., Brady, M., Broadway, B., Hewitt, B., Kalb, G., Strazdins, L., Tomaszewski, W., Zadoroznyj, M., Baxter, J., Chen, R., Foley, M., McVicar, D., Whitehouse, G., and Xiang, N. (2015) PPL Evaluation Final Report.
Australian Government Department of Social Security, Canberra.

Martin, B., Hewitt, B., Yerkes, M.A., Xiang, N., Rose, J. and Coles, L. (2014) Paid Parental Leave Evaluation, Phase 3 Report.

Australian Government Department of Social Security, Canberra.

Schönberg, U. and Ludsteck, J.

(2014) Expansions in Maternity Leave Coverage and Mothers’ Labor Market Outcomes after Childbirth.

Journal of Labor Economics, 32(3) (July 2014), 469-505.

6 Fairer Paid Parental Leave Bill 2016Submission 95