In a previous article I pointed out that Australians are now working longer and harder than ever before and this is causing a tension between work and family life (“The New Tension In The Workplace”, On Line Opinion). This trend is largely a consequence of the changes that have taken place in the Australian economy over the past two decades, changes that transformed a regulated and protected economy into a flexible and dynamic one.
While flexibility and dynamism may be the basis for a healthy economy, they may not necessarily be the basis for a healthy family. Given the fact Australians are working longer and harder, Australians are spending less time with their families. They are also putting off having families. Australia’s birth rate started to decline significantly in the 1980s and while it has been relatively stable since 1998, at around 1.75 (ABS, Year Book Australia 2002), it is still below the level necessary for replacement of our population. Most strikingly, the median age of women giving birth is now the highest ever, at 30.2 years (ABS, Media Release “Age Of Women Giving Birth Now Older Than Ever” 2003).
There is currently a changing demographic in Australia, with our population starting to age. In the future, such an ageing population will put additional pressure on younger Australians to work longer and harder to maintain Australia’s economic growth. Therefore there has never been a more important time to examine policies that attempt to maintain a balance between work and family life and encourage Australian families to have children, to lessen part of the burden on younger Australians in the future.
One such policy that Australian governments have been quite hesitant to consider is paid parental leave. Many Australian women are currently entitled to unpaid maternity leave. However, the demands placed on Australian families to support their lifestyles are often in conflict with their desire to have children. Taking time off work in order to have a baby is often simply not an option when you are paying off a house or a car loan or you want to save up to travel through Europe.
Put simply, Australia’s low birth rate is an example of market failure: market failure which justifies some form of government intervention. There are significant financial costs associated with raising a child in Australia. A recent study prepared for The Bulletin by University of Queensland and Australian National University academics Paul Henman, Trevor Breusch and Edith Gray demonstrated just how high these costs are (The Bulletin “Million Dollar Baby” July 6, 2005). In Sydney, the absolute cost of raising children from 0 to 18 years, for a family whose combined annual income is $150,000, is $1,032,600. In Melbourne this figure is $985,700 and in Brisbane it is $850,500. These costs include forgone income, childcare costs, education costs and leisure costs.
While there are significant financial costs associated with raising a child in Australia, there are few financial benefits for parents. In the past, parents had children with an expectation that when those children grew up, they and their families would live with them when they were older and support them in their retirement. Children were, in effect, a form of social safety net for parents. However that is largely no longer the case in Australia. The welfare state, through the provision of retirement pensions, and our culture of independence and self-sufficiency, has broken down such social institutions.
Parents can no longer expect children to support them in their retirement: indeed many children would think such an expectation entirely inappropriate. Given the lack of financial benefits for parents having children, it is not surprising our birth rate is so low. There are of course other benefits of having children, such as emotional benefits, and these cannot be underestimated. But they obviously do not provide sufficient incentives for people to have children, as our low birth rate shows.
While there are currently significant disincentives to have children, there are significant incentives for our community to improve our birth rate. As discussed above, there is currently a changing demographic in Australia, with our population starting to age. In the future, such an ageing population will put additional pressure on younger Australians to work longer and harder to maintain Australia’s economic growth. Having additional children now will relieve part of this pressure on younger Australians in the future. The alternative may simply be that Australians will need to accept a lower standard of living in the future.
This non-alignment of incentives for individuals to have children and the incentives for society to increase our birth rate are the basis for some form of government intervention such as paid parental leave. A policy of paid parental leave could take a number of forms. One option is the government could provide a subsidy for all or part of an individual’s income, enabling them to take 12 months off work in order to have a child.
Another option is for the government to provide an interest-free loan similar to HECs loans available for higher education, equal to all or part of an individual’s annual income. This loan could then be paid off by an individual throughout the course of their working life through the taxation system. In both cases, there would need to be legislation requiring employers to provide 12 months of time off work for new parents.
A problem that could arise after the introduction of any such policy is there could be discrimination against young women, because businesses may be reluctant to hire an individual who is more likely to take time off to have a child. While there is currently anti-discrimination legislation in place to tackle such discrimination, its effect is questionable. One option to tackle such a problem could be to have parental leave “attached” to the child rather than the parent. Under such a system, any child that is born has 12 months of parental leave available to care for him or her, this leave can be used by either the mother or the father or in part by both. Such a policy has been adopted in parts of Europe and has proved quite effective in preventing discrimination against young women.
Given the strength of our economy, financing paid parental leave is a viable option for the Australian Government. It is time they properly examined the policy.