The coalition’s much heralded $3 billion paid parental leave scheme pledge is one of the few policies that it has publicly announced. As such, the issue of parental leave looks set to feature prominently in the commentary around the upcoming election. A little known issue that may not get much coverage is the motherhood wage penalty. This is the hidden cost of maternity leave and it is impacting us all.
I have spent my free time today studying a 2011 research paper into the ‘the wage-penalty effect’ by The Australia Institute. The paper explores the long-term financial implications that maternity leave can have on a woman’s earning capacity.
It found that women suffer a ‘wage penalty’ when they return to work after having a child. Specifically, in the first year back at work, women can expect to earn around four per cent less per hour on average than they would have done had they not taken leave from paid employment to have their children. This equates to $1,566 a year, per person, in foregone wages.
I was equally shocked to learn that this wage penalty is sustained for at least three years after a mother’s return and other Australian research has found that the greatest wage disparity occurs around 10 years after childbirth, or even longer if a woman has subsequent children.
These costs of taking maternity leave and the ongoing care of children are rarely discussed in the mainstream media and so few of us know about the wage-penalty effect and the theories about its causes.
The Australia Institute paper reported new analysis of aggregated Household, Income and Labour Dynamics (HILDA*) data from 2002 to 2009 and found that it is the decisions that come after maternity leave that can have a long lasting impact on a mother’s future career.
It found that around seven in ten women return to fewer hours of employment following maternity leave, with the average reduction across the HILDA sample being 15 hours. Further, a majority of women (59 per cent) continue to work part time in the second year back at work.
Our time spent out of the paid work force, coupled with our decisions to return part time, means that the majority of us face a perceived or actual loss of skills and experience when we return to work. It is believed that this plays a part in explaining the penalty. To some extent, training can mitigate these factors, however the statistics tell us that participation in workplace training is lower amongst part-time employees, and as such, the majority of women returning to work.
It is not just employer perceptions of new mums ‘being out of touch’ or ‘falling behind’ that are contributing to the wage penalty effect. Employer bias and discrimination have also been found to play a role. Returning mothers have been stereotyped for not being ‘as committed’ and this is likely to filter through to perceptions of performance, access to opportunities and pay (go to this post for more info).
So how could we remove or compensate for this penalty?
Superannuation in this context is key. Australia’s Paid Parental Leave Scheme provides 18 weeks of payments at the level of the minimum wage. These payments are taxed as wage income but superannuation isn’t levied. Including superannuation would not compensate for the wage-penalty effect directly but it would have a significant effect on our lifetime income. (Note that the coalition has pledged to include superannuation payments in their paid parental leave scheme.)
Other measures include a ‘once-off return to work payment’ through the Family Tax Benefit to offset some of the wage-penalty effect and employer-employee ‘return-to-work’ compacts, which may help mums demonstrate to their employers their continued commitment to their job and their career.
The Australia Institute paper also recommended that employers be required to report annually on the effectiveness of return-to-work policies and it suggested that the government add an analysis of the wage-penalty effect to its evaluation of the Paid Parental Leave Scheme, due to report in full in 2014.
What does this mean for mums right now and what can we do?
When facing impending motherhood, we are naturally consumed with negotiations around the terms of our leave, not to mention our morning sickness. However, it is also really important to think through the long term financial implications of our maternity leave and return to work options.
When you are on maternity leave, and if you have a job to go back to (too many of us find that we don’t), seek to have a continuing conversation with your employer. Restate your commitment to your career and explain your future aspirations. This may help you to mitigate any stereotyped perceptions that you are ‘out of the loop’, ‘out of touch’ and/or ‘no longer interested in work’ (as outrageous as this sounds).
If you were not able to do this, be aware of the long-term implications of staying out of the workforce and plan accordingly. Take a look at this post on budgeting and the power of taking responsibility.
Sadly, Australia’s childcare policy failures don’t make life easy for mums seeking to return to the paid labour force and many of us are working fewer hours than we would like because we can’t find suitable child care.
Let’s not accept that this situation is ok. Join United Mothers, help us grow a powerful collective voice and together, let’s create some change.
* The HILDA survey is a longitudinal study that began in 2001. It interviews the same respondents each year, resulting for the first time in a data source that allows wage growth for women who take maternity leave to be traced over a number of years following their return to work.