The Unintended Consequences of Parental Leave

Last week, the NY Times told its readers that white collar workers at Amazon endured a pressure laden family unfriendly environment. However, if you work at Netflix, you can enjoy an unlimited leave policy with normal pay during the first year of parenthood. Furthermore, you can even return to work as a part or full time employee and then take some time off if you want it.

Where are we going? To the unintended consequences of parental leave policies.

First, some data…

Tech Firms’ Parental Leave Policies

From: Mother Jones (2013)

U.S. Parental Leave Policy

U.S. policy on parental leave is among the world’s least family friendly. The 1993 Family and Medical Leave Act (FMLA) says that a new parent is entitled to 12 weeks of unpaid leave during a 12 month period if certain conditions are met that relate to previous work time and the firm’s size. Most other countries though mandate paid maternity leave and some have paid paternity leave also.

Below you can see that except for the U.S., paid maternity leave is the norm:

From: OECD

But paid paternity leave is less prevalent:

From: OECD

Unintended Consequences

According to a recent study from an economist at Cornell, generous parental leave policies could jeopardize all women’s chances for promotion. Looking at the impact on women, the study indicated that women hired after the Family and Medical Leave Act was passed were “five percent more likely to remain employed but eight percent less likely to be promoted than those who were hired before” it was enacted. The reason? Perhaps employers hesitate to invest in women if there is a chance they will take long periods of time away from work.

Similarly, research on the impact of generous maternity policies in Europe indicates that women are less likely to become managers or to occupy high-powered positions. In Chile, a child care mandate for working mothers led to a decrease in starting salaries for all women.

Our Bottom Line: Incentives

I suspect that the reality of parental leave shifts employers’ and employees’ incentives. While we may have kinder work policies from certain firms, they still have to worry about competition, the work load carried by remaining employees, and their investment in human capital. Correspondingly, more employees will have the incentive to take time off that might have unintended future repercussions.

As a result, we should ask whether an Amazon is more female friendly than a firm with mommy time off.