Read time: 5 mins
Based on Employer vs government parental leave: Labour market effects, by Elena Del Rey, Maria Racionero Llorente, and Jose I Silva, published July 2024.
Research from ANU indicates that longer parental leave duration and higher pay not only considerably improves quality of life for new parents – it grows wages and employment too. While there’s such a thing as ‘too much’ government funding, the findings show that increasing paid parental leave to as much as 36 weeks would have positive macroeconomic outcomes.
Read time: 5 mins
Based on Employer vs government parental leave: Labour market effects, by Elena Del Rey, Maria Racionero Llorente, and Jose I Silva, published July 2024.
1
Australia’s government-funded parental leave is behind the OECD average, leading a growing number of employers to step in and fund it.
2
This gives employers leverage in negotiations and puts downward pressure on wages.
3
According to ANU expertise, increasing government-funded parental leave from the current maximum of 22 weeks up to 36 weeks would not only enhance the welfare of new parents, but also foster wage and employment growth.
Wages are the lifeblood of a healthy economy, but at 4.8 per cent below pre-pandemic levels, Australian real wage growth is among the worst in the OECD.
In this context, workers who care for a child born or adopted from 1 July 2024 are entitled to apply for up to 22 weeks of federally funded parental leave. This is paid at the national minimum wage of $24.10 per hour for permanent employees.
This scheme isn’t generous by OECD standards – the average is 51.9 weeks, or just under a year.
Australian firms are increasingly providing more parental leave to cover this gap. Approximately 63 per cent offer an average of 12 weeks.
But new research co-led by ANU suggests that employers support employer-provided parental leave because it allows them to offer lower wages.
Any change to government-funded leave duration or pay affects employer leave policies, with ripple effects on employment, wages, and welfare.
Increasing government-funded leave duration encourages firms to reduce their own leave offerings initially, but ultimately results in longer total leave duration. The impact on wages and employment hinges on the balance between the government’s wage subsidy and the costs associated with extended absences.
The authors calibrated the model to Australian data and simulate how changes in government-funded leave duration and pay affect wages, employment and welfare. Their findings reveal that both wages and employment initially increase with government-leave duration and maximum welfare is achieved with a leave duration of approximately 36 weeks at the minimum wage rate. Beyond this point, the negative impact on wages outweighs the benefits of longer leave.
Increasing government-funded leave duration encourages firms to reduce their own leave offerings initially, but ultimately results in longer total leave duration.
