Last week, the Australian Catholic University (ACU) announced a plan to give all new mothers on its staff a full year’s paid leave. As nice as the benefit sounds, the unintended consequences that would follow from a universal adoption of this private university’s generous plan would cripple businesses and harm the prospects of women in the workplace.

ACU’s new maternity policy is part of the university’s plan to enhance its “family friendly” reputation. The policy is designed to attract and keep employees. The new maternity leave involves 12 weeks of fully paid leave, and 40 weeks on 60-percent pay. Men are eligible for three weeks paid leave. It will likely be available by the end of the year.

Maternity policies vary around the world. While most of Europe subsidizes increasingly long maternity leaves, Australia and the United States have resisted the urge to dictate such policies beyond a minimum. As attractive as a long maternity leave might appear to women, there are significant disadvantages, a fact that is receiving some attention in Australia.

The new maternity policy has caused much debate between unions and employer groups. Unions complain that Australia owes its workers a better maternity leave policy. Employer groups caution that such policies would hurt all employers and bankrupt small businesses due to astronomical costs. The reason for such alarm among employers can be found in the simple economics of paid maternity leave.

Employers do not normally employ redundant employees. Paid maternity leave, however, requires doing just that. While paying two people for the same job might work out for short-term paid maternity leave because of job loyalty and training investments already made by the employer, paying two people over the long term can only harm a company.

While basic economic concerns are important, they do not exhaust the negative incentives and unintended consequences that would occur following the implementation of such a policy. A year’s paid maternity leave is longer than most other nations, and though supporters claim that it is a worthy goal, the painful consequences, which are offset in other countries by extensive government subsidies, would emerge in Australia.

Rather than helping women, a year’s paid maternity leave would instead reduce the average lifetime earnings of women—both because employers will pay women less due to the anticipated outlay for maternity leave, and because employers will choose to hire men rather than women.

These responses by employers are rational and would push women back towards the status of economic liabilities. Why pay women as much as men when you only have to pay men for three weeks of leave when they become parents, but you have to pay women for a full year when they become parents? The incentives act to push women back into the home and away from the workplace.

While extended paid maternity leave sounds like the hallmark of a woman-friendly workplace, it could rob both women and small businesses of opportunities. Those who call themselves women’s advocates should be aware of these negative consequences. Rather than demanding that the government legislate extended paid maternity leave, they should allow employers and employees to negotiate mutually beneficial arrangements.

– Joelle Cowan

Public Policy Fellow