Bearing the brunt

The gender pay gap is a well-known and stubbornly persistent characteristic of our economy.

And in tough economic times, as we’re currently experiencing in New Zealand, certain factors can cause this divide between what men and women earn to widen further.

This was a finding of research that I recently co-authored with Fariha Kamal and Cristina Tello-Trillo, both of the US Census Bureau. It showed that, contrary to what you might expect, female employees with access to family leave policies are disadvantaged relative to their male counterparts during economic downturns.

Our study focused on the impacts of the US Family and Medical Leave Act (FMLA) – a federal law related to parental leave in the US that provides new parents with 12 weeks of unpaid, job-protected leave.

In particular, our research examined how the Act impacts employment-related outcomes for women relative to men when there is a negative shock to the economy.

This work leveraged wide-ranging data on US private-sector businesses, as well as rigorous econometric estimation techniques. And from doing this, we were able to show that an increase in imports from China, associated with a decline in US manufacturing, decreased the female share of earnings, employment and promotions at businesses mandated to provide job-protected family leave under the FMLA, compared to other businesses.

In short, female employees working in companies with mandated family leave were relatively worse off.

Obviously, our study employed US data, but its findings are globally relevant.
Countries the world over have instituted mandated parental leave policies designed to allow individuals to balance family and career responsibilities. In Aotearoa New Zealand, employees can take parental leave if they satisfy certain eligibility criteria, and this can range from 26 to 52 weeks.

And while New Zealand businesses are not required to pay an employee on parental leave, the leave entitlement policy impacts them in numerous ways. They may have to hire new employees to replace those on leave, for example, or reallocate their tasks to existing employees.

These impacts on businesses can be particularly felt when a country faces negative economic shocks. Being small and globally integrated, New Zealand is frequently subject to global headwinds, some of which lead to economic downturns. The current recession, triggered by the aftermath of the pandemic and geopolitical tensions, is a case in point.

When the economy is under stress and opportunities in the workforce are scarce, women may prefer to focus on caregiving responsibilities at home, rather than work for a low wage. Employers may anticipate this and respond by employing fewer women and investing less in them, exacerbating gender inequality.

In fact, in the presence of rigid gender norms that assign caregiving responsibilities primarily to women, an employer’s belief that women will not return to work from leave during periods of economic stress would generate the same outcome. Our research showed that such negative effects on the gender gap are relevant for women in prime childbearing ages and without university degrees.

Importantly, these effects are stronger in businesses with no female managers.
So, what can be done to address this widening inequity?

Several implications emerge from our findings. First, increasing representation of women in top management can mitigate negative impacts on the gender gap. This is possibly because female managers are less inclined to adhere to rigid gender norms while making employment decisions.

Second, raising awareness among businesses and their managers on gender stereotypes and how they might be driving hiring, retention and promotion procedures at their institutions could be crucial.

Finally, offering flexible work arrangements for parents, or those with other caregiving responsibilities, can ensure that the trade-off between time at home and work is not as stark.

New Zealand consistently ranks high internationally in prioritising gender equality, ranking fourth out of 156 countries in the World Economic Forum’s Global Gender Gap Index 2023. And our parental leave policies, among the most generous in the world, were put in place to help employees balance family and career goals.

However, as our study shows, such policies can influence business employment decisions differently for men and women when our economy encounters headwinds. So, it is crucial that employers, including business leaders and managers, play a strong role in ensuring that women are not disadvantaged in the workforce during these troubled times.

Dr Asha Sundaram is a senior lecturer in the Department of Economics at the University of Auckland Business School.

The views in this article are personal opinion and not necessarily those of the University of Auckland.