Appendix 4 – Adjusting women’s labour force participation rates for paid maternity leave

Many OECD countries, including New Zealand, include women on paid maternity leave in their labour force statistics. While on maternity leave, these women are not contributing to the labour force productivity that drives GDP growth, as defined in this paper.[4] If the adjustment were the same for all countries, it could be ignored, as it would simply represent an equal level shift, between the NZ data and the OECD target used. However, three of the five countries in the “top five” target are Scandinavian, and paid maternity leave entitlements in these nations are substantially more generous than they are in NZ.

Data on paid maternity leave entitlements from various OECD countries (the numbers who take it up, the average length of leave, and so on) is not readily available, especially when decomposed into specific age groups. Hence we have borrowed from the approach taken by Gruen and Garbutt (2003). In Appendix 1 of their paper Gruen and Garbutt outline their approach to adjusting female participation rates for paid maternity leave

Gruen and Garbutt’s adjustment is that the average paid maternity leave contribution, in percentage points, to a female age group labour force participation rate is:

100 X % of women in workforce before having children X Average
number of children they have X Average number of weeks of paid
maternity leave ÷ (Number of weeks in year X Number of 
years covered by age group)

They assume that, for the OECD countries with the highest female participation rates in the age groups 25-34 and 35-44:

1. 84% of women are in the workforce before having their child/children;
2. they receive an average of 22 weeks of paid maternity leave; and
3. the average number of children per woman, for females in the age group 25-34, is 1.1.

Applying these assumptions for the “25-34” young women age group, to the average labour force participation rate of the top five OECD nations, gives a correction of:

100x0.84x1.1x22/(52 x10) = 3.9%

For the NZ adjustment, we used data on the paid parental leave (PPL) entitlement, which suggests around 16,000 people take it up annually and 99.7% of these are female. We attribute all of these recipients to the 25-34 female age group. While there would be recipients in other age groups, there would also be women who receive other forms of maternity leave payments, rather than the PPL transfer. These two factors are likely to at least partially offset one another. Data on take-up of PPL also shows most recipients take it for the full 12 weeks of entitlement, so we assume an average of 11 weeks of paid maternity leave for NZ women.

We based the NZ adjustment on 2001 labour force figures, so that the NZ percentage point correction is:

100 X Number of women taking up PPL X Average number of weeks
on PPL ÷ (Number of women in 24-35 age group in labour force X
Number of weeks in year)
= 100x16,000x11/(186,700x52)= 1.8%