Undercover Economist

The patter of tiny feet in stereo

The Undercover Economist – FT Magazine, 26 November 2005


The Harford family would like to hear the patter of tiny feet in stereo, but we discovered the first time around that having a baby is not cheap. So, in between practising, we have been looking into the possibilities of getting someone else to make a financial contribution.

As our first baby was born in the US, we’ve had an opportunity to compare and contrast. In Britain, employers pay for six months of maternity leave and reclaim the money from the government. In the US, on the other hand, the mother pays. With no legal right to maternity pay, many women scrape together some paid time off using their holiday and sick-leave entitlement instead.

That doesn’t sound like such a good deal to us. If we stayed in the US, nobody would be paying my wife to stay away from the labour force and she might emulate her American peers, who tend to return to work very quickly and outsource the baby’s care.

Yet look a little deeper into the economics of it all, and the British system may not be such a sweet deal for new families. If we settled back in Britain and we wanted those tasty maternity benefits, we would have to persuade some employer that my wife wasn’t going to be using them. American mothers seem to have a friendlier relationship with their bosses, even looking forward to telling their colleagues that they’re in the family way. “My boss was so pleased, he gave me a big hug,” said one of our baby circle. Why shouldn’t he be pleased? She took less time off work this year than I did.

British mothers-to-be dread the day that they will be forced to “break the news” to their employers, and no wonder. Even though British maternity leave is subsidised by the government, the employer bears a heavy burden. Good employees are always paid less than they’re worth (when this is not true, the employees don’t stay employed for long) and the cost of an employee disappearing for six months is often much more than the cost of paying her.

Of course, the effects do not stop there. I said “the employer bears a heavy burden” but the smart employer will work hard to shift the burden elsewhere by avoiding women who seem likely to have children or by paying them less than they would otherwise get, to compensate for the risk. Fertile-looking women have to outperform their peers.

There is an alternative, but it would be insane: my wife could start her own business. That might make sense if employers were able to shift the full cost of maternity leave on to mothers, but they will always spread the burden on to other women and perhaps beyond. This makes employment more attractive for anyone who plans to get pregnant and less attractive for everyone else. Broody Brits should flock to employers and shun self-employment, where they have to face the full costs of their disruption to business. It seems that they do. In the UK fewer than one in six small businesses are majority-owned by women; in the US very nearly half of private businesses have women owning at least half of the company. The American system has its costs but it has benefits too.

Female entrepreneurs are rare in Britain because it takes an unusually independent spirit to turn your back on the blandishments of paid maternity leave, and start both a business and a family. Of course, this is exactly what my wife has done. It looks like we can forget about asking anyone else to pick up the tab.