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The hidden cost of maternity leave

By David Baker - posted Wednesday, 20 July 2011

For many years Australia had the ignominious honour of being one of only two developed countries, the other being the United States, which did not have a national paid maternity leave scheme. This changed at the start of 2011, when the Labor Government's Paid Parental Leave scheme came into effect. This government-funded scheme provides eligible working parents of a newborn, or adopted, infant with 18 weeks leave, paid at the minimum wage.

While this scheme has been widely welcomed and recognised as long overdue, new research by The Australia Institute has found that Australian women who take maternity leave unfortunately go on to experience a wage penalty when they return to work.

The 'wage-penalty effect' is the average amount women who take maternity leave fall behind other women in terms of their comparative hourly rates of pay. Internationally the wage-penalty effect has been found to be somewhere between five and seven per cent with some research suggesting it might be twice that. In


Germany the wage-penalty effect has been found to increase by as much as one per cent for every additional month of leave taken over and above the legislated length of paid leave.

In Australia, the provision of employer-funded paid leave had been increasing in the decade preceding the introduction of Paid Parental Leave with 1.3 million women of child-bearing age (17–49 years) having access by 2009. Paid leave was available to one in every two women employed full time and just over a quarter of those

employed part time.

A disparity in access was evident, however, between occupational categories. Professional women enjoyed the highest level of access (62 %) but this category accounted for less than a tenth of jobs held by women. The majority of women are employed as clerical and administrative workers and community and personal service workers, but only a third of the women employed in these categories had

access to paid maternity leave. Sales workers recorded the lowest level of access to paid maternity leave with only one in five being offered this entitlement from their employer.

The government's scheme addresses these pre-existing disparities. Yet, some disparity will remain as women who have access to paid leave through their job will be able to access both forms of leave. The government hopes the provision of Paid Parental Leave will see the average length of maternity leave increase to six months. The Productivity Commission has reported that there is compelling evidence of the benefits accruing to child health and wellbeing from "exclusive parental care in the first six months" and that leave for maternal recovery following birth should be "longer than 12 weeks" and up to six months.


Following maternity leave most women return to fewer hours of employment. Between 2002 and 2009 almost seven out of ten women within the nationally representative sample analysed for the Institute's report The wage-penalty effect: the hidden cost of maternity leave returned to reduced hours of employment. This decision continues to be the preferred choice amongst most women despite the widely held perception that such a choice limits, possibly detrimentally, their future career prospects.

While the basis for this widely held perception would take into account a range of factors and experiences women who return to fewer hours of employment following maternity leave actually have a lower wage-penalty effect, on average, compared with women who return to the same or more hours than they worked prior to taking leave.

The Australia Institute has found that Australian women who take maternity leave experience an increasing wage penalty effect in the first three years back at work. In the first year the effect is lower wages growth of just over four per cent, increasing to almost nine per cent in the second year. After three years the effect is still increasing, but at a lower rate. Due to this wage penalty it is calculated that women returning to work in 2009 (the latest available data) missed out on an average of $1,566 each or an estimated total of $126 million in missed earnings in their first year back at work.

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This paper uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Project was initiated and is funded by the Australian Government Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this paper, however, are those of the author and should not be attributed to either FaHCSIA or the Melbourne Institute.

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About the Author

David Baker is a Research Fellow at The Australia Institute, a Canberra-based think tank, and is co-author of the report Reining it in: executive pay in Australia available at

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All articles by David Baker

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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