The Economic Case For Paternity Leave

Suddenly last year, maternity leave got a makeover, courtesy of a most improbable source: Shinzo Abe.

Japan’s prime minister is synonymous with machismo-spiked nationalism (he famously denied that women forced into sexual servitude by Japanese soldiers in World War II were “coerced”). But when he unveiled his sweeping economic revival plan, it included longer leave for mothers. And this wasn’t the usual pastel-hued sop to women voters; the way Abe framed it, longer maternity leave was a shot in the arm of Japan’s moribund economy.

Though uncharacteristic, his reasoning made a certain sense.

Nearly two decades ago, Japan started running out of workers, dragging on economic growth. Making things worse is the fact that seven-tenths of Japanese women drop out of the workforce after having their first child. Getting them back to work could boost Japan’s GDP by as much as 15% (paywall), says Abe. And the way to do that was to make maternity leave longer.

The secret to keeping mothers in the workforce lies not in giving them more time off, but in getting more fathers to stay at home instead.

Japan is hardly the only country that would benefit from keeping more mothers in the labor force. If American women worked at the same rates men did, US GDP could grow 9% , say economists; France’s would pop by more than 11%; and Italy’s would see a whopping 23% boost, according to OECD calculations. The average across the OECD would total 12% .

There’s only one problem with Abe’s plan: It’s targeting the wrong people. More maternity leave might sound like a great idea, but as long as mothers are the only parents taking leave, longer stints at home actually worsens job discrimination against them and makes them less likely to pursue a career.

Rather, as the experiences of Sweden, Iceland, and a handful of other countries show, the secret to keeping mothers in the workforce lies not in giving them more time off, but in getting more fathers to stay at home instead. And that, it turns out, depends to a large extent on getting rid of the pay gap that exists between men and women almost everywhere.

Why “womenomics” works

There are lots of good arguments for adding more women to the workforce.

An economy grows when it adds more people to make things, or when the workers it has make things faster. Since upping productivity—as the latter option is called—is notoriously tricky, when an economy is stagnating it’s generally a good idea to scare up some new workers. Importing immigrants is one choice (that’s what the US favors). The other is simply getting more of your working-age population into jobs. And in most developed countries, the biggest base of unemployed workers is women.

The benefits of upping the share of women working come in fits and starts. At first, it tends to lower productivity, partly because some of this additional female labor is usually part-time, and partly because new people need training.

Over time, however, influxes of women make a workforce not just bigger but also more productive. Firms in the top quartile for female senior managers earn 56% more than companies with none, according to McKinsey & Company. This may be because management teams with an equal gender balance tend to innovate more, make more informed decisions, and take fewer big risks. The share prices of companies with one or more women on the board outperform those with none, Credit Suisse research shows (pdf, p.12). Although that’s not a causal relationship, Credit Suisse cites research suggesting that greater gender diversity in leadership improves communication and reduces corrosive competition among senior managers.
Women are “the ultimate agents of aggregate demand.”

There are other benefits to the economy too. Accounting for seven-tenths of global consumer spending , women are “the ultimate agents of aggregate demand,” says Christine Lagarde, head of the International Monetary Fund. Companies that design and market their goods and services in ways that appeal to women will sell more effectively than those that don’t. Companies led by talented women are more likely to pull that off.

Women also tend to spend more on healthcare and education. These services are more labor-intensive than most sectors, so they generate more jobs. And when these “agents of aggregate demand” earn more, they’ll spend more too.

Finally, women tend to invest a larger chunk of their income than men on their children’s well-being—or as economists call it, “human capital.” In the long term, this trend should help create a smarter, heartier talent pool.

Of course, getting more women to work isn’t the only way to keep a country’s economy humming; you can also buy workers from other countries. The US prefers this approach, relying heavily on a temporary worker program to supplement its workforce. Immigrants are usually young and healthy, and therefore tend to contribute more taxes than they take in services from the state (even many illegal workers pay taxes). But the lack of employment protections or financial security means that they neither produce nor consume as much as they might. And the risk of a labor shortage always looms.

There’s one final reason to employ more women. Every major developed country is in the midst of an aging crisis . Women are having babies too slowly to replace the people bowing out of their workforces, causing an ever higher number of retirees to be supported by the taxes of an ever-shrinking number of workers.

Paradoxically, upping female employment levels appears to stave off this peril. Women in countries with higher female employment rates give birth to more children, on average, according to Goldman Sachs (pdf, p.9).

The problem with maternity leave

So the case for getting more women working is clear. How to make it happen?

The standard answer is maternity leave. All over the globe, paid maternity leave policies have proven vital in boosting the likelihood that a new mother will return to work, and will put in more hours after she returns. Along with tax reform, these policies powered the surge in Europe’s female labor-force participation in the 1980s and ’90s. The US, however, stagnated. Whereas in 1990 the US had the sixth-highest rate of female labor participation in the OECD in 1990, within two decades it had plunged to 17th place. The US’s lack of paid parental leave and flexible work policies were responsible for nearly three-tenths of that drop, according to an oft-cited study (pdf) by Francine Blau and Lawrence Kahn of Cornell University.

But on its own, paid maternity leave works only up to a point. Even in euro-zone countries and others that have boosted the share of women in the workforce by offering lavish maternity leave and cheap childcare, the gap between male and female labor participation still yawns.

For the vast majority of women who don’t return to work after giving birth, this is because the costs of returning—both financial and psychological—outweigh the benefits.

On its own, paid maternity leave works only up to a point.

Here are the factors they’re likely weighing. Since it’s assumed the mother will take a long maternal leave after giving birth, businesses systematically underpay women and skip them for promotions in favor of their male colleagues. Their husbands, therefore, likely have a much higher salary and aren’t eligible to take much more than a few weeks, at most, of paid childcare leave.

So women have little choice but to take many months off work to care for their newborn. Even in countries with robust maternal employment protections, low-skilled women in particular still face pressure to quit their jobs. Many who consider returning to work once their child is old enough for daycare struggle to find a job that pays well enough to cover childcare—or, with their skills now outdated, to find a job at all. Highly educated women, meanwhile, often find that taking a lengthy leave jolts them off the management track. And since this group tends to have wealthier husbands, without the professional motivation, there’s no point in returning.

Treating women’s work as less valuable than men’s is sexist. But so is paying mothers more money than fathers, and for much longer, to raise children. In fact, the two reinforce each other—something Japan’s dim history of female career advancement illustrates all too well.

Japan’s incredible shrinking workforce

Japan has the biggest aging crisis of any country in the world. This isn’t a new problem; its working-age population peaked in 1995 at just shy of 87 million. But though Japan reformed its maternity leave policies repeatedly throughout the 2000s, some 7 million women remain out of the workforce for good. And instead of encouraging more babies, the policy has led birth rates to fall; Japan is one of the few countries in the world where pet dogs and cats outnumber children (pdf, p.4).

The funny thing is, women in Japan don’t start out working any less than in most other rich countries. The chart below tracks female labor-force participation, a measure that includes both those with jobs and those looking for work. Roughly the same percentage of Japanese women enter the workforce in their 20s as Sweden and the UK. But once they hit their 30s, things change—forming a trough in the composition of the labor force that demographers call the “m-curve”:

It’s not that they lack the skills to return. The women of Japan are better-educated than those of nearly any other country on the planet—in fact, more Japanese women enter university now than men.

But upon graduation, most of that learning gets tossed aside. Women are hired into what economist Noah Smith calls an “economic underclass ,” with the majority in jobs with “low, stagnant salaries, few benefits, few guarantees and little if any possibility of promotion.” And as companies slot women into dead-end clerical jobs, they start grooming their male peers for promotion along the management track.

Though this two-track system smacks of sexism, from a human-resources perspective, it makes a crude kind of sense. That’s because government policy and Japanese culture make it hard for fathers to take leave, and unusually easy for mothers.

In 2012, only 1.9% of Japanese men who were eligible for childcare leave took it, down from 2.6% the previous year.

Japanese couples are currently allowed up to 12 months (pdf) of “childcare leave” to divide between them more or less as they see fit (and 14 months if the father takes at least two of them). The government pays the first six months at two-thirds of the parent’s salary, and the remaining months at 50%.

That might all seem very equitable. But in practice, maternal recovery and breastfeeding mean the mother is likely to take the earlier months—paid at two-thirds her wages. If the father takes the later months, he’ll get just half his wages. Since he on average makes 27% more than his wife, the more leave he takes, the more income the family loses. And this has the predictable result: As of 2012, the last year for which there are data, only 1.9% of men (paywall) who were eligible for childcare leave actually took it, down from 2.6% (pdf, p.5) the previous year.

With that kind of policy, it’s no wonder companies don’t invest in women’s careers. Even if a female employee returns to work after having a baby, cultural norms mean that she’s going to raise the kid—and that makes her less likely to be able to put in long hours at work.

A policy supposedly meant to help women ends up penalizing them…

The trend is self-reinforcing. Once passed over for a management-track position, a woman has less motivation to work hard to advance her career. Since she won’t have been exposed to the same range or depth of experience as her male colleagues, she’ll be less competitive next time she tries to find work. Even if she’s a candidate for a career-advancing job, her manager—who is most likely to be a man—doesn’t have an incentive to give her a flexible work schedule to fit around parenting, as he’ll have plenty of other male employees willing to put in the long hours.

Women in Japan are already paid only 73% of what men make for the equivalent jobs; the fact that this gap grows during childbearing years suggests what some call a “ motherhood pay penalty .” The work women can find after having a child is often part-time, and usually less well paid, so they have less incentive to go back to work. It’s telling that the better educated a woman is, the more likely she is to stay out of the workforce.

Oddly enough, men don’t have it so great either. In return for job security, companies expect their male employees to work grueling hours that end in booze-drenched after-hours bonding sessions, week after week for their entire career. Until very recently, to test their commitment companies would deliberately transfer male workers away from their families. This peer pressure is also part of why Japanese men seldom take vacation days .

This isn’t especially good for the economy. Chronic overwork doesn’t mean more work actually gets done; in fact it’s thought to be one of the factors driving down Japan’s productivity. (Another factor is likely part-time workers, who tend to be less productive .) But because it functions like a form of professional hazing—no one wants to risk looking lazy or uncommitted—it persists.

Men understandably get resentful about these extra hours, which is part of why the few men who do elect to take parental leave fear reprisals from both management and peers. “If a male worker announces that he is going to take paternity leave, people around him start to doubt his suitability for the job,” said Tetsuya Ando, who founded an support group for fathers called Fathering Japan in 2005.

That stigma can be overt, says Matthew Apple, a college professor who has lived and worked in Japan since 1999, and runs a blog called Taking Leave about his experiences raising a family there. Apple opted to take parental leave after he and his Japanese wife had a daughter. When he returned to work, some of his more conservative colleagues stopped talking to him and successfully lobbied for his workload to increase to make up for his absence. For women, though it is worse; one of his female colleagues was pressured to quit after taking maternity leave (she ultimately triumphed in keeping her job, though she made a lot of enemies in the process, says Apple).

…and the policy encouraging paternity leave is too weak

That culture is gradually starting to change, says Apple, particularly among younger men. To the government’s credit, in 2011 it launched the Ikumen Project (the word is a slangy play on ikemen, which means a “good-looking man,” and iku (育), which means “to raise”), an online community that 2011 encourages fathers to take a more active role in child-rearing.

Another cultural milestone occurred in Aug. 2014, when Masako Mori, the minister then in charge of the declining birthrate and gender equality , declared that she would promote men who take “paternity leave ,” by which she probably meant parental leave. Abe now says he wants the number of men taking leave to rise from 1.9% to 13% by 2020.

However, it’s not clear that this is much more than rhetoric. The salary gap between men and women means it still usually makes more economic sense for fathers to keep working, especially given that they’re likely to get only half their wages during parental leave.

So what the Japanese government ought to do is fix this disparity in how men’s and women’s time is valued. Instead, it’s considering making it worse, by extending maternity leave to three years. That would further entrench the traditional divide between men’s and women’s work, worsening Japan’s labor-supply problems and keeping GDP growth anemic at best.

Indeed, this makes it look as if Shinzo Abe’s agenda is less about jump-starting the economy than about trying to boost birth rates—despite the ample evidence that longer maternity leave will bring them down instead.

Japan’s dads aren’t the only ones stuck at the office

Governments can hardly expect businesses to value women’s time equally with men’s when their leave policies don’t pay fathers equally for providing childcare. Only when governments and companies value women’s and men’s work the same—in both the workplace and the nursery—will this handicap against women lift.