Relative prices and parental leave

The New Zealand Herald reported earlier this week:

When Sammy Phillipson was planning to start a family with his wife, taking three months off to care for the babies was never on the table.

“It just wasn’t a financial opportunity for our family,” the national business manager says, lamenting on the costs of their Auckland mortgage.

As his wife, Naomi Williams, was to be the primary caregiver, under New Zealand law Phillipson was only entitled to two weeks of unpaid partner’s leave, at a time when the family’s costs would be rising.

But in October 2021, when his first child, Margot, was 15 months old, his employer, beverage company Lion, implemented a new policy allowing all parents to have 12 weeks of paid time off following the birth of their children.

Maternity leave is technically for the first year of the baby’s life, but carers at Lion are able to take the 12 weeks anytime in the first two years of their child’s life.

Lion had been offering the paid leave to the primary caregiver for more than three years. This was on top of the Government’s parental leave allowance, which was upped to six months from July 2020.

But since Lion’s extension to all new parents, the company says it is now seeing a 50/50 split of men and women taking parental leave.

When the relative price of something decreases, then people tend to do more of it. When the relative price decreases by a lot, then people will tend to do a lot more of it.

An opportunity cost is the value of an activity, measured in terms of the next best alternative foregone. In this case, the opportunity cost of parental leave is the wages foregone during any unpaid leave. Taking parental leave that is unpaid (or mostly unpaid) therefore comes with a relatively high opportunity cost. In that case, we can say that the relative price of parental leave is high.

On the other hand, when unpaid leave is replaced with paid leave, the opportunity cost of the parental leave decreases. The relative price of parental leave decreases, and we should expect people to take more parental leave.

From the article:

Since the leave was implemented for all parents, [Lion New Zealand people and culture director Jacquie Shuker] said the outcomes have exceeded their expectations in terms of men taking up the offer.

The generosity of the parental leave provisions obviously matters. The change from unpaid to paid leave is a substantial decrease in relative price. I'm not at all surprised that there is a big response to it. And neither would I be surprised by large responses to any of these (from the same article):

Lion is not the only company offering additional help for new parents. Financial services firm EY is another with extra support - from next month employees with any service period get 26 weeks of paid parental leave, which can be used flexibly and during the child’s first 24 months.

In November, Contact Energy announced it would offer primary caregivers a full salary top-up for the 26 weeks Government parental leave period, 3 per cent KiwiSaver for the duration of the worker’s parental leave and six months of flexible working, meaning employees can choose to work 80 per cent of their normal weekly hours but still receive full pay for their first six months.

It would also give primary carers $5000 towards childcare, 10 days special leave for pregnancy-related appointments, three months free power for employees who are also customers and a food package with pre-prepared meals on the arrival of the baby.

Employees who become parents but are not the primary carer are also offered four weeks of paid leave, which can be taken over 13 months, three months of free power as well as the meals on baby’s arrival.

Vodafone announced last year it would top up the Government payment to full pay for 22 weeks, give primary carers an extra 26 days of paid leave and give partners 26 paid leave days that could be used flexibly over two years after the birth.

In August Z Energy said it would contribute 5 per cent towards KiwiSaver for all employees on parental leave for their entire parental leave period and pay employees working part-time (more than 20 hours a week) 5 per cent towards their KiwiSaver based on their full-time salary equivalent rather than their actual pro-rate pay.

In 2018, NZME, the Herald on Sunday’s parent company, started offering a $5000 one-off payment to permanent employees who are primary carers, when they start parental leave. This is the equivalent of an additional nine weeks of paid leave.

NZME also offers two weeks of paid leave to partners.

It would be interesting to know whether more modest increases in employers' parental leave provisions also lead to increased uptake. But it is not surprising at all that large changes lead to large responses. When the relative price of something decreases, then people tend to do more of it. When the relative price decreases by a lot, then people will tend to do a lot more of it.