The case against Maternity Benefit Act 2017

The Maternity Benefit (Amendment) Act that came into effect in April last year, had been hailed as “a step forward” when it had been tabled before the Parliament, and had been praised for “making India proud around the world” and “bringing women in workforce closer to workplace equality”. This is because the Act, among other things, extended the paid maternity leave available to female workers from the then-existing 12 weeks to 26 weeks, as well as made it mandatory for every establishment with at least 50 employees to provide a crèche facility for working mothers among its employees.

While these provisions seem progressive and female-friendly, two recent independent surveys conducted on their impact on SMEs and start-ups that were published last month bring to light how the Act harms the prospects of female workers rather than help them.

In this essay, we will explore the implications of the policy for female workers.

What the polls say

According to a survey conducted with 350 start-ups and SMEs by an employment services company­ — TeamLease Services — 26% of all respondents expressly admitted to prefer hiring male candidates as employees, while approximately 40% of the rest of the respondents claimed that they will consider the additional cost of the paid maternity leave while hiring female employees. This means that 66%, that is, two-thirds of all respondents disclose that the maternity benefit law adversely impacts their hiring against female candidates in some way. Only 22% of the respondents declared that the new maternity leave provisions won’t impact their hiring decisions at all. Additionally, a whopping 35% of all respondents also revealed that they see the impact of the Act as negative on both costs and profitability.

The survey by citizen engagement platform LocalCircles gives similar results. From among the 2987 respondents belonging to the SME and start-up sector, 11% admitted to having hired only male employees over the last one year since the Act came into place, and a further 43% admitted to having hired mostly male and a few female employees in the same period. This means that a clear anti-female bias crept into the actual hiring practice of well over half of all respondents ever since the Act came into place.

How ironic, that an Act which was meant to benefit female workers has ended up reducing their likelihood of being employed in the first place!

Why the Act is detrimental to the cause of women?

The Act, as well-intentioned as it may be, is a classic case of the law of unintended consequences. Ill-thought out government regulation often imposes perverse and unforeseen consequences that far outshoot any potential benefits. This was perhaps first (and best) explained by the liberal French economist Frédéric Bastiat in his essay What is Seen and What is Not Seen thus:

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

By increasing the period of paid maternity leave for female workers and squarely putting the entire burden of financing the paid leave on private businesses, the Parliament failed to take into account that businesses will shirk from hiring female workers because of the associated costs. By merely proclaiming an order for private businesses and expecting them to meekly follow suit as per their wishes, the Parliamentarians failed to account for effects that must be foreseen and betrayed themselves as bad economists.

Are businesses anti-women?

It would be an easy, albeit lazy conclusion to make, from these survey results that SMEs and start-ups do not care about married female employees and their well-being. What they, and any private business, for that matter, would care about, is their revenue, costs and profits. There might be a number of businesses that care enough about their female employees who are also mothers to choose to provide them paid maternity leave for 26 weeks (or even longer). The operative word here, though, is ‘choose’. Such businesses would not need a law to mandate them to do something that they would have done of their own accord anyway. As for businesses that could have chosen to provide paid maternity leave for, say, 10 weeks, or 15 weeks, or 20 weeks, or any period lower than 26 weeks, or even no paid maternity leave at all, they would choose not to hire married women at all because of their inability/unwillingness to provide paid maternity leave for the period of 26 weeks, due to which married female workers would be denied the choice to work at these places.

What would happen in the absence of a paid maternity leave law? Female workers that view the period of paid maternity leave as an important consideration while choosing their workplace would apply for work only at workplaces that provide generous paid maternity leave. Consequently, businesses that do not have reasonable paid maternity leave policies would lose out on talented candidates from among such female workers. In response to the same, some of them may enhance their maternity leave policies. Ultimately, over the long run, businesses would organically develop maternity leave policies that are reasonable for them, that is, which account for the costs they are willing to bear to attract female candidates to whom maternity leave matters.

By imposing a uniform mandate on all businesses, what this Act does is rob both businesses and female workers of choice: businesses, of their choice of maternity leave policies that are reasonable to them; and by extension, women, of their choice to work with workplaces that provide paid maternity leave for less than 26 weeks.

Alternative regulatory models

Providing 26 weeks of paid maternity leave to female workers is certainly a socially desirable goal. Is there a way to do that without burdening businesses with the entire costs?

The best way to do that could be to fund the costs either partially or fully through public funds, rather than impose the entire liability on employers. According to a 2014 ILO report on maternity laws and practice around the world, 58% of all countries provide paid maternity leave funded through social security (including fellow BRICS nations Brazil, Russia and South Africa), and a further 16% countries fund the same through a mixed model where costs are shared jointly by the individual employer and the State. Only 25%, that is, a quarter of all countries impose the funding liability only on the employer. Additionally, in the period between 1994 and 2013, the percentage of countries funding maternity leave through the social security and mixed models has risen by a combined 11%, while the same for countries funding it through employer liability has reduced by 7%. Clearly, the trend of the State bearing some, if not all, cost of paid maternity leave has been catching on internationally.

Another popular regulatory model in this regard followed by many countries is to provide a proportion of the full salary of the employee during maternity leave, and/or paying salary for a certain portion of the maternity leave period. The 2014 ILO report details, for instance that Canada gives paid leave at 55% of previous earnings for 15 out of the 16–17 weeks of total maternity leave, while countries like Albania, Thailand, and the UK pay different percentages of the wages for different chunks of the maternity leave period.

Other ideas worth exploring while thinking about alternative maternity leave regulations are the provision of economic or tax incentives to businesses that provide generous paid maternity leaves, and exempting enterprises with moderate turnovers from providing paid maternity leave or publicly funding it for them.

Either ways, in the absence of support or incentives, our current maternity leave policy with their employer liability model will continue to push a lot of enterprises from hiring women. In a country with a 50% gender gap in its workforce where women face entry barriers such as discrimination, fear of sexual violence and lack of skills, the last thing we need is a misguided law that deters businesses from hiring women.