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Parental Leave: Are there Benefits?A How To Book Of Self Managed Super FundsBrain Rules 7The Easiest way to do a Client NewsletterWhy Warren Buffett won't buy a NewspaperTax on Super Fund Death BenefitsEmail Marketing Business Opportunity - Helen Bairstow
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Parental Leave: Are there Benefits?

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

The policy momentum toward an extension of parental leave is based on some largely untested assumptions.

Australia is going to have a new parental leave scheme whichever party is elected in national elections later this year. The only choice is between the "conservatively funded" Rudd version and the "high taxing big spending" Abbott version.

Both policies accord with the conventional wisdom that the nature of its environment is important for the long term development of a child and the more time parents spend with their infant children the better for the children.

There is an opportunity cost to the time spent directly raising children. A parent foregoing income that might otherwise be earned might also have an impact on the overall wellbeing of a child. So, too, might the quality of parental care. It is hard to say dogmatically that more time with parents will always and unequivocally benefit a child.

A paper by Qian Liu and Oskar Nordstrom Skans entitled "The Duration of Paid Parental Leave and Children's Scholastic Performance," and published in March 2010 in the B.E. Journal of Economic Analysis & Policy: Vol. 10: Iss. 1 (Q&S) explores how the duration of parental leave benefits affect the development of cognitive skills among children.

The Q&S study is based on a policy change in Sweden in the late 1980s. Parents of children born in Sweden after August 1988 had their entitlement to paid leave extended from 12 months to 15 months.

The authors noted that a few recent papers had used policy reforms as experiments to analyse the longer term effects of parental leave. A study of German maternity leave extensions in the 1970s and 1980s, for example, found no evidence that the reforms improved future wages or high school attendance. A study of a Danish extension of benefits in 1984 from 14 to 20 weeks also found no significant evidence of long term effects on children's education outcomes.

The Q&S study results suggest that the duration of parental leave benefits has no effect on the school performance of the average child. However, the study also showed positive and statistically significant effects for children of mothers with tertiary education.

Parental leave extensions seem to strengthen the relationship between maternal education and the scholastic performance of children. On the other hand, all coefficients for the children whose mothers only attended compulsory school are negative but insignificant. The educational backgrounds of fathers did not alter these results.

The study observed no effects on the future earnings of mothers, fertility, child health, parental separations or indicators of maternal mental health.

In considering the relevance of the Swedish experience documented in this study, it is well to note that the benefit extension came after an already generous scheme, by most standards, had been in place. To that extent, any inferences about likely benefits from the introduction of paid parental leave in Australia may not be valid.

The benefits of parental leave may suffer from diminishing returns. The effects of an initial extension of leave entitlements could prove greater than those from later extensions. However, we simply do not know.

Parental leave extensions might still be worthwhile initiatives. Unfortunately, as we have seen with other entitlement programs, if they are not generating benefits, removing them to reflect a later change in policy priorities is difficult if not politically impossible.

At the very least, the Q&S study highlights how potentially expensive public policies can be adopted without a sound analytical foundation when there is a political consensus around what might be popular electorally.

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