The New Cold War
America, China, and the Echoes of History
It is well known that, since the 2008–09 financial crisis, U.S. labor force participation has steadily declined for both men and women. In fact, a recent report from the U.S. Federal Reserve forecasts that it will plunge to 61 percent by 2022, the lowest level in 30 years. Beneath the top-line number lies an even more ominous trend. Female participation in the American work force has been steadily declining since well before 2008. In fact, that figure has been falling since 2000, despite the fact that female participation among other OECD nations has steadily risen.
Although American women enjoyed the sixth highest rate of labor force participation out of 22 OECD countries in 1990, by 2010 the ranking had plummeted to 17. There are several reasons for what the report calls the “stunning reversal.” For one, the United States is the only OECD country without universal paid maternity leave. And according to a study by the International Labor Organization, the United States and New Guinea are the only two countries out of 170 for which data were available that do not provide cash benefits of any kind to women on maternity leave.
In the United States, under the 1993 passage of the Family and Medical Leave Act, workers can take up to 12 weeks of unpaid temporary or medical leave (which includes childbirth, often called “disability leave”). The cap on leave has remained the same since then, yet between 1990 and 2010, other OECD countries actually expanded coverage for new families, including through more generous paid leave and subsidized child care. Over the same period, female labor force participation rose in the other OECD countries and declined in the United States.
The decline represents a significant loss of productivity. Heidi Shierholz, the chief economist for the U.S. Department of Labor, has estimated that if American women between the ages of 25 and 54 participated in the labor force at the same rate as in Canada or Germany, which have paid leave and other pro-family policies, at least five million more women would be in the U.S. labor force. Those women would, in turn, translate to more than $500 billion of additional economic activity per year in the United States.
Understanding as much, several American politicians, state governments, and leading companies have backed a range of family-friendly policies. U.S. Senator Kirsten Gillibrand (D., NY) has championed the FAMILY (Family and Medical Insurance Leave) Act, a proposal for paid leave that builds upon existing programs in California, New Jersey, and Rhode Island. U.S. President Donald Trump’s daughter, Ivanka Trump, has also committed to exploring ways to address the cost of childcare, possibly funded through a tax increase.
Those who are doubtful that such proposals can pay off need look no further than California, the first state to put in place a program of paid maternity leave. After the policy was enacted in 2002 and implemented in July 2004, one report found that new mothers receiving paid leave were “more likely to return to work.” And after one to three years, “mothers of small children were working more and at higher incomes.” The study concludes that “paid leave provides job continuity…so women are less likely to leave the labor force.”
In another case, one Fortune 50 company found that new mothers were exiting their organization at double the rate of other staff. As a response, the company extended its maternity policy to five full months of paid leave. Soon the rate of attrition declined by half. Studies also show that paid maternity leave can lead to increased work hours after the mother returns to the office, therefore boosting productivity upon return to the workplace.
Research in the United States and other countries show that paid maternity leave can also help to close gap in earnings between men and women. As a report by the US Department of Labor states, “With paid leave, mothers have access to structured, economically supported time off for childbirth, making it easier to return to work at the same job. For mothers who stay in the labor force without taking long breaks, this continuity can reduce the potential for any decrease in pay for mothers after having children.” Sometimes referred to as the ‘family gap’, the potential for this wage gap to narrow by offering paid maternity leave is significant.
Moreover, paid maternity leave may offer less pressure on public assistance. According to a study by Linda Houser and Thomas Vartanian at Rutgers, “women who return to work after a paid leave have a 39% lower likelihood of receiving public assistance and a 40% lower likelihood of food stamp receipt in the year following the child’s birth when compared to those who return to work and take no leave at all; as a result, they contribute more to their own economic security and to the security of the economy as a whole.”
There is a further benefit to companies via maternity leave. The later in life a woman has a child, the further she is likely to have advanced in her career by the time she takes maternity leave. She is likely to have built strong and valuable relationships inside and outside of the organization and to have cultivated a body of expertise. If she is paid during her leave, she is likelier to come back to the firm, which can help the company perform better. Research indicates that female corporate leaders can boost business outcomes, and several recent studies have shown that hedge funds run by women outperform hedge funds led by men.
Perhaps that is why Houser and Vartanian find that “greater labor force attachment among those with paid leave reduces recruiting, hiring, and training costs.” Employers benefit from returning employees because they do not pay for recruitment or retraining. They may also gain from having the opportunity to train and elevate staff who cover for a person on maternity leave.
Since the 2008–09 financial crisis, economists, business leaders, and executives have searched for solutions for declining productivity. In the United States, one option is to offer paid maternity leave. The regulation could spark a shift in the way that American businesses view the relationship between women, motherhood, and productivity. The windfall could be huge: an estimated $500 billion of economic activity in the United States per year, not to mention a narrowing of the gender pay gap, a reduction in training and HR costs, and potentially better performance among private-sector firms.
There is certainly a role in the American professional establishment for the mother—one who is empowered by her choice to return to the office after having had appropriate time to bond with her children. Armed with profit and a purpose, such a mother may offer a balanced, grounded, and mature voice. She will contribute to the economic benefit not only of her family, but also of her organization and her country. And by setting an example, she can inspire others to make similar choices across the globe.