Acommon concern for India and the US is the decline or stagnation in female labour force participation in recent decades. In the US, between 1960 and 2016, female labour force participation (LFP) increased from less than 40% to nearly 60%. Yet, since the 2000s, participation has tended to stagnate and even decline. It is a similar story in India. Not only have female LFP rates been lower than other comparable economies, the trend reveals declining rates over time.
Research suggests that nearly 28% of the decline in female participation in the US relative to other Organisation for Economic Co-operation and Development economies is due to its lack of family-friendly policies, such as paid parental leave. While India has had a maternity leave policy on the books since 1961, it recently expanded the law in 2017. Yet, there is increasing concern and speculation that the law may have the unintended consequence of worsening the labour market for women, who already deal with social stigmas often associated with working women.
So which is it? Does having a paid parental leave law lead to higher or lower female LFP? The answer depends upon the design of the policy.
I have worked extensively on this issue. Over the course of the previous year and a half, I have been directing a working group focused on the matter of paid leave. Last year, we put forward our recommendation for a US federal policy on paid parental leave (until 2017, the US was the only developed country that had no federal policy on paid leave).
The working group has the advantage of having members who hold diverse political perspectives, enabling us to consider different viewpoints. This has allowed us to study not only the benefits of paid leave, but also the costs associated with implementing the policies, especially on businesses.
India’s maternity benefit amendment offers new mothers 26 weeks of paid leave from their workplace, with an average wage replacement rate of 100%. The benefits of such a policy are, in many ways, obvious. Having access to paid leave is critical for today’s families. Research on paid parental leave shows that there are both economic as well as health benefits to mothers and children when leave is easily available.
But how you design the policy matters. In India, the policy is problematic because it is imposed as an employer mandate. Employers have to bear the entire cost of providing leave to employees—in terms of both continued pay while on leave, as well as the indirect cost of having to get the work done by employing other workers to finish the work of the absent employee.
In turn, this raises the concern that employers will begin to discriminate against women of childbearing age, both in hiring as well as in salaries, since this group is entitled to the benefit of paid family leave and is most likely to use it. Therefore, employer mandates are not the ideal way to design a paid leave programme.
The solution could lie in imposing the cost of the paid leave policy on employees through a tax. In other words, while employers would provide job-protected leave, the wage replacement could be funded through an employee payroll tax.
The US, for instance, has a federal programme that guarantees job-protected unpaid leave of 12 weeks for new parents. Paid leave programmes, however, have come up in several states, such as California, New Jersey, Rhode Island, and, more recently, New York, Washington, DC, Massachusetts, and Washington.
As part of our working group proposal, we recommended imposing the tax only on employees to minimize any additional costs on the employer when providing paid leave. Such programmes have worked well at the state level, where employers have reported feeling little or no administrative burdens from the paid leave programme.
Another important aspect of the design of such a policy is gender neutrality. It is critical in today’s day and age that any paid leave law be gender-neutral and thus available to both fathers and mothers. This ensures that the onus of childcare is not placed solely on the mother, and instead places it on both parents. At the same time, it recognizes the important role that fathers can play in the early years of a child’s birth.
As part of our policy recommendation, we suggested eight weeks of leave available to both parents. In the case of India, a 26-week policy that is split equally between the father and the mother may make sense. That way, the father or the mother only receives about 13 weeks each, and that may be less of a burden on the employer than if either one of the employees leaves the workplace for six months.
Finally, the paid leave law in India covers only a small fraction of the workforce, given the growth of the informal economy. Much more should be done to improve access for low wage workers in the informal sector.
What India gets right about the maternity leave law is that it is a federal law guaranteeing uniform access to paid leave to all eligible employees across the country. But there is much that can be improved about the design of the policy to ensure that it works well not only for workers but also businesses.
Aparna Mathur is a resident scholar in economic policy studies at the American Enterprise Institute.
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