‘Terrible financial decision’ Aussies make

The stark realities facing working Aussies are on full display in this new report, and it makes for grim reading.

Having kids is a terrible financial decision, especially if you’re a woman. So say authors from the Treasury in a new paper. They find women who have kids see their earnings drop by up to 50 per cent, and barely recover, compared to women who don’t have kids. As the next charts show, men who have kids see their earnings fall a tiny bit too.

The paper, presented to a conference of economists this month in Sydney, says “the arrival of children has a large and persistent impact on the gender earnings gap, reducing female annual earnings by 53 per cent, on average, in the first five years of parenthood”.

Women make less than men for a range of reasons, but most of those reasons (discrimination, lower rates of female education) are improving. These days the big hole punched in female careers at child-bearing age is the biggest single reason women earn less.

It is mum who needs to give birth and do the breastfeeding. Usually that mum takes a few months off work and may do a few years of working part time. The family often has another kid shortly after. After that mum will be even further behind in their career. Then, if one parent still needs to work less, it makes financial sense for it to be that same mum. It’s a path dependency that leaves women in positions of less economic power.

Is this a feature or a bug?

In a perfect world, money doesn’t matter and reducing work to stay home with the kids is a choice that women make not only with confidence, but with joy in their hearts.

But this is not a perfect world. Money matters. Women’s reduced earnings make them less independent. It is harder to have power in a relationship or leave a relationship when you’ve lost your earning power. Women also have less for retirement – superannuation data shows women have less than 80 cents in super for every dollar men have.

The career gap also means women fill fewer powerful roles in society. A big reason there’s fewer women surgeons and women CEOs is women’s careers get stalled by having kids.

There’s a saying: “You can’t be what you can’t see.”

If women are under-represented in those leadership roles, it leaves girls looking at a world where the bosses are mostly men.

That can be corrosive for both boys’ and girls’ beliefs about what people are capable of.

Women have to juggle a lot these days. Picture: iStock

Why?

The policy landscape makes it hard for women to keep working but easy for men. Maternity leave is available but paternity leave is hard to get. In parts of Europe the parents choose who gets the parental leave. Not usually so in Australia.

Having kids is very expensive – have you seen the cost of housing? – and Australia is not having enough to sustain the population at current levels. However Australian birthrates are not so low by international standards. Compared to a lot of other countries, we are still having kids. And Australian birthrates are not falling too quickly. While the pandemic caused a big dip in births, Birthrates are 1.7 births per woman on average and have been under 2 per woman for most of the time since the late 1970s.

The solution

It is hard to encourage births and encourage women to work at the same time. Kids and work are not easy to reconcile.

The best solution is probably making childcare even more freely available. Recent moves to make childcare cheaper for second and third children are a good step in this direction. The government pays up to 95 per cent of the cost of childcare for extra kids if you have more than one kids under the age of five.

A new baby bonus is not a great idea – it would encourage births but might discourage work. A better idea might be a superannuation top-up for women when they have a kid.

That’s not cash they can access now and so wouldn’t discourage work. But it might encourage births and help even up the downsides of taking time out of the workforce. That sort of policy would be pro-birth and also pro-women, and might attract political support across the spectrum.

The motherhood penalty is definitely too large, and whatever we can do to reduce it, we should. The Treasury boffins suggest child care and paternity leave as the biggest priorities.

“Australia can learn from the experiences of other countries, which have reduced the cost of child care and increased paternal take-up of parental leave. Both measures may help to increase fathers’ involvement in family life and improve mothers’ labour force participation, helping to reduce the motherhood penalty in the long run.”