What’s the cost of parental leave to employers?

A significant number of employers still use parental leave as a reason not to employ women.  It’s too expensive, particularly for smaller employers, they say.

But new research suggests that parental leave can have a minimal impact on businesses.The research is based on a Danish study that was recently published by the US-based National Bureau of Economic Research.

No measurable impact on employers

Most of the existing data on the effectiveness of family leave policies comes from studies focusing on their impact on parents and children rather than on the cost and impact on firms and co-workers.

The researchers compared small firms who had a female employee who was about to give birth to firms where this was not the case. In Denmark women tend to go on maternity leave for an average of 9.5 months.
The study found that the impact on total work hours was close to zero. Firms’ total wage bill increased, but this was entirely due to maternity pay for which firms were compensated. In the UK too employers can claim back most of the cost of statutory parental pay from the Government.

The researchers found there were no measurable effects on firm output, profitability or survival. Co-workers saw temporary increases in their hours and earnings, for instance, if they had to step up to cover an absence, but experienced no significant changes in their well-being as measured by increased levels of days off sick.

The researchers say: “Overall, our results suggest that employees going on parental leave impose negligible costs on their firm and coworkers.”

While this sounds like good news and the researchers say that their findings do not generally rely on anything that is exclusive to Denmark, the context needs to be taken into account. In Denmark it is fairly easy and cheap to find cover for people taking parental leave due to relatively low levels of employment protection and high rates of employee turnover and jobseekers, says one of the paper’s authors, Nikolaj A. Harmon, Associate Professor in the Department of Economics at the University of Copenhagen. Professor Harmon is himself now on parental leave.

Notice and planning

He says the impact on employers has been comparatively little studied due to the availability of large sets of data on both employers and those taking parental leave.

At the end of the research the authors speculate about the impact of shorter periods of parental leave – that they may be less costly because firms can manage them without having to recruit and train cover, but may present more challenges for coworkers as a result. This is a key issue in the UK where Shared Parental Leave can be broken down into different shorter blocks of leave.

Professor Harmon says there are only a few policy reports on shorter periods of parental leave. However, he adds that advance notification – which allows employers to plan in advance – plays an important role in reducing the impact of parental leave.

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