Paid maternity leave is not a fertility policy

The release of the first Intergenerational Report as part of the 2002-03 Budget has started a very valuable debate on the demographic changes to our society and the effect that these will have on future Government expenditures.

The "ageing" of the population is a term used to describe the rising proportion of people of retirement age compared to people of working age. People of working age are commonly considered to be those aged between 15 and 65 years. People of retirement age are those aged 65 years and above. People of working age are the primary income tax payers in our society. People of retirement age pay much less income tax because they have retired from the workforce.

At the moment there are 5.4 people in the working age population for each person of retirement age. By 2020 that number is estimated to decline to 3.7 and by 2040 it is estimated to decline to 2.5.

Australia is expected to have a relatively constant number of people of working age over the next forty years, but the number of those at retirement age will grow by about 3.8 million. The proportion of those in retirement to those in the workforce is growing.

Interestingly enough, the Intergenerational Report identifies another huge cost pressure that will grow over the next forty years in addition to the ageing of the population. This is the cost arising from health spending, particularly on the Pharmaceutical Benefits Scheme, which is driven by the development of new technology and treatments. Whilst it is true that older people draw-down much more heavily on medical services and pharmaceutical benefits, even without the ageing of the population, the draw-down on pharmaceutical benefits would increase quite substantially. This is the result of scientific discoveries. These produce new treatments by the day, at high cost, which have to be subsidised by taxpayers if they are to be available to all those wanting treatment.

Why is the population "ageing" in this proportionate sense? Two factors are at work here. The first is that people are living longer because of improvements in standards of living and medical care. The other is that birth rates are declining. A lot of interest has focussed on the declining birth rate recently.

The Intergenerational Report shows the fertility rate in Australia over the last 30 years.

Chart 1: Australia’s historical total fertility rate

The total fertility rate represents the number of children a woman would bear during her lifetime if she experienced the current age-specific fertility rates at each age of her reproductive life. Age-specific fertility rates are equal to the average number of children born to a woman of a particular age in one year.

One response to this decline in the fertility rate has been the suggestion that the Government should fund a system of universal maternity leave.

There are arguments for and against a system of universal maternity leave. It is not the purpose of this article to consider those. The purpose of this article is to suggest that paid maternity leave is not a fertility policy.

There is no evidence of a connection between high fertility rates and maternity leave.

The International Experience

The international experience shows us that fertility rates have declined in all advanced industrial societies in the last 40-50 years. In fact there is a strong connection between falling fertility rates and rising living standards.

Fertility rates in the European countries, Japan, the Anglo countries – Canada, New Zealand, Australia, are all less than 2. Countries with fertility rates above 5 include Gabon, Congo, Rwanda, Mali, Uganda, Angola, Somalia, Yemen and Mozambique. Obviously these countries do not have high fertility rates because of the provision of universal maternity leave. In fact virtually all the European countries which provide universal maternity leave have fertility rates equivalent to or lower than that of Australia.

Countries with high living standards have low fertility rates. Countries with low living standards generally have high fertility rates.

A study by Gauthier and Hatzius (Population Studies, 1997) across 22 industrialised countries for the period 1970 to 1990 concluded that "…maternity leave (duration and benefits) did not appear to be significantly related to fertility".

Australian Experience

If we break down Australian Census results we find that cultural background and ethnicity are significant factors determining fertility rates. For example, in 1996, women aged 15 to 30 years who describe themselves as Christian had given birth to 0.39 children on average, the same as the average number of children born to women who describe themselves as having no religion in this age group. The average number of children born to women who describe themselves as Muslim in this age group is nearly double at 0.75.

For women aged over 30 years the average number of children ever born to those describing themselves as Christian is 2.4, for those of no religion 1.9 and for those describing themselves as Muslim 3.0.

Fertility appears to vary to some degree by ethnicity. According to ABS statistics, fertility rates for Australian resident women born overseas are, in descending order, those born in Lebanon (3.54), Turkey (2.54), Egypt (2.49), Cambodia (2.35) and Fiji (2.14).

Fertility rates also appear to vary according to educational levels and according to income (which shows a strong correlation to educational levels).

There is some evidence that fertility can be increased by large cash payments, see for example the experience of Quebec, Canada, which between 1992 and 1997 made a payment equivalent to Canadian $8,000 over a five year period following the birth of a third or subsequent child. This contributed to an increase in the province's total fertility rate (TFR) from 1.4 to 1.6 during the years in which the scheme operated. These cash payments were not related to maternity leave and were available to women who were not in the workforce, and never returned to the workforce.

Conclusions

Fertility rates are determined by factors such as ethnicity, religion, education, income and living standards, and not to the provision of funded maternity leave. Again, this is not to say that maternity leave is a bad idea. It is simply to make the point that it is not an answer to declining fertility.

Fertility rates can be moved to some degree by financial incentives, but the movements are small and the incentives need to be very large. Fourteen weeks of paid maternity leave is not large enough to induce a significant behavioural change. And maternity leave only applies to those in the workforce. To move fertility rates, the payments should be available for additional births regardless of whether the mother is in the workforce.

It is worth recording that family assistance benefits have been very significantly increased under the term of the Howard Government, through the introduction of Family Tax Payment A, Family Tax Payment B, Childcare Benefit and the Baby Bonus.

In 2002-03 a total of $19.3 billion will be paid to families (through Family Tax Benefit, Child Care Benefits, Maternity Allowances, Parenting Payment and the Baby Bonus). These payments have not been directed at increasing fertility rates, but at helping with the cost of raising children. The available evidence shows that they have significantly improved the financial position of families. Notwithstanding this assistance, fertility rates remain low by historical standards.

In a society like ours where there are high levels of education for women and strong career opportunities, the fertility rate is likely to remain low.

Therefore it is not realistic to think that the ageing of the population can be significantly addressed by a reversal of the fertility rate. It is not realistic to believe that it can be addressed by the introduction of universal maternity leave.

The ageing of the population is something that Australia must face up to in the same way as every other western society. The ageing of the population is not occurring in African countries or in the Muslim world. But it is occurring in Western societies and is occurring in Australia.

We cannot avoid this issue. We must start to address it. And the longer we leave it, the harder it gets.

To the extent that a universal maternity allowance increases female participation in the workforce or assists employers to retain a skilled workforce, there may be a case for paid maternity leave. Increased female participation in the workforce and the contribution to GDP they make, provides a stronger economic and tax base to carry the costs of an ageing population. What is unlikely, is that it would produce a higher fertility rate. And it would not, in any meaningful sense, reverse the "ageing of the population". This is a problem we will have to address in much more direct terms, like restraining costs in those areas where Commonwealth expenditure is growing out of proportion to economic growth.