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Unpublished Paper
Return to Work Credits
IdeaPITCH (2008)
  • Joshua S Gans

This report examines policy options for parental leave and evaluates them from an economics perspective. It finds that:

The goal of parental leave policy is to facilitate a frictionless transition between work/career activities and home/parental activities.

There are several potential market failures that could be generated that mean that private decisions with regard to parental leave do not reflect their social counter-parts. The sources of these market failures are liquidity constraints and indivisibilities in work and home tasks. The consequences may be an under-provision of parental leave from a child development perspective as well as a sub-optimal allocation of workers to jobs and firm-specific training as a result of gender-based discrimination.

A combination of policies can be used to mitigate these market failures. These include:

Minimum-wage parental leave, paid for by the government, for one parent (for 3 to 6 months). This element is to cover the social security element of having children and would provide incentives for parental leave to be taken in contrast to existing payments such as the baby bonus which do not. This leave could be means-tested.

Income-contingent loans, secured by the government, based on previous and future household income (for 3 to 6 months). This would address the liquidity issue associated with taking parental leave. It would promote child development but would have a minimal fiscal impact on tax-payers. Consequently, it is equitable in contrast to schemes that involve lump-sum government hand-outs.

Return to work tax credits, paid for by the government to employers who have employees take parental leave and then return to work (for a minimum period). These payments would be made contingent upon criteria that demonstrated re-integration of the employer with their career in the firm.

  • parental leave,
  • maternity leave,
  • discrimination
Publication Date
May 13, 2008
Citation Information
Joshua S Gans. "Return to Work Credits" IdeaPITCH (2008)
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