Charles Wheelan, Ph.D. The Naked Economist

The other evening, I heard my wife mumbling to her computer, "I've about had it with this maternity leave stuff."

By way of background, we have three children. My wife has worked more or less full time for the past 20 years. Like me (and just about everyone else in our generation), she wishes it were easier to balance work and family.

A Policy Tweak

If you guessed that her maternity leave mutterings were an assault on the tightfisted human resources policies of corporate America, however, you'd be wrong. She's tired of women taking advantage of generous maternity benefits and then quitting almost immediately after they go back to work.

"It's unfair to the companies, and it's bad for other working women," she says. I think she's right on both points. A simple tweak to maternity leave policy could make companies and working women (and their families) better off. Maternity benefits should be more generous -- but also more finely targeted toward those women who ultimately return to work.

But before I defend that solution, let me persuade you that there really is a problem. The issue of "fairness" is always in the eye of the beholder. And any issue related to children, working women, and/or gender tends to smother logic with emotion.

So let's examine the paid leave phenomenon in a slightly different context. Let's assume that Bob falls off his roof while cleaning leaves out of the gutters and lands on a spiked wrought-iron fence, leaving him unable to work for a significant chunk of time.

What About Bob?

Bob is a model employee; his firm absolutely wants him back on the job when he's able to work. Assume that Bob is entitled to short-term disability, which replaces 60 percent of his wages while he's recovering from being impaled on the fence.

But Bob's benevolent employer offers him more than the bare minimum required by law. His firm pays him his full salary and extends his leave beyond what his doctor says is necessary for his recovery. Obviously Bob's job is held open, requiring colleagues to cover for him and precluding a search for his replacement. Bob's employer continues to pay the premiums for the health insurance policy that has covered most of his accident-related expenses.

Bob's coworkers take up a collection and buy him a get-well gift. He comes into the office once during his recovery to show off his scar (and a segment of the wrought-iron fence that the emergency room physicians let him keep). People in the office like Bob, and they think his scar is cool. But on his third day back at work, Bob tells his boss he's quitting. The life-threatening wound and several months at home thinking about it have convinced him that he doesn't want to work anymore.

Then people in the office like Bob less. They feel taken advantage of. And although I created Bob, and am sympathetic to his fence wound, I don't like what he's done here either.

Back to Maternity

"It's not called a 'maternity bonus,'" my wife reminds me. "It's called a ‘maternity leave.'" She has a good point: The word "leave" strongly suggests that you're coming back.

I'll concede that what's "fair" to employers and coworkers in this situation is debatable. But the basic economics of why generous but indiscriminate maternity benefits can make working women worse off are more straightforward. The basic analysis goes like this:

1. Maternity benefits are expensive. And the more generous the firm in this regard, the more expensive the policy.

2. Even an expensive maternity policy makes perfect sense if it helps to retain valuable employees. But the more often a firm gets "burned" by an employee who accepts generous benefits (beyond what's required by law) and then quits, the less sense the policy makes.

3. The more generous the policy, the more it hurts to get burned.

4. If enough women accept generous maternity benefits but don't ultimately return to work, some rational firms will decide that expansive maternity benefits just don't make financial sense.

There are two crucial insights here. First, when women receive maternity benefits (again, above and beyond what's required by law) and then promptly quit, the decision doesn't merely affect their own firm. In the long run, it'll also affect the workplace environment for other women, which is why I found my wife grumbling about this issue to her computer late at night.

Second, the more generous a firm is with maternity leave benefits, the more expensive it is when an employee takes the package and then doesn't return to work for any significant period of time. It's a sad irony that the firms with the best intentions pay the highest potential price.

Some Good News

There's a simple fix that's fair to firms and to working women -- both those who go back to work after having a baby and those who don't. Maternity benefits (and paternity benefits, should we ever get that enlightened) should be paid gradually over time after an employee comes back to work.

Suppose a firm wants to offer a maternity leave of 6 months at 100 percent salary, rather than the bare minimum of 6 weeks at 60 percent pay. Great. But why not fold those benefits into an employee's paycheck over the year in which he or she comes back to work -- or two years, or whatever? That's what my wife would like to see.

Some companies currently pay benefits during maternity leave but then require employees to pay them back if they don't return to work. The practical effect is the same, though it feels more warm and fuzzy to give extra benefits to women who return to work than it does to demand things back from those who don't.

In either case, the point of the policy is that any benefit above and beyond basic short-term disability goes to those workers who return to work, and not to those who don't. It puts the "leave" back in maternity leave policy.

Return Dividends

It's crucial to note that many women have no idea whether they'll return to work after having a baby. So it makes perfect sense to take leave and then decide. Fair enough. But it's also fair that those who don't come back should get less from the firm than those who do.

"I'd like to be able to offer a much bigger carrot to those women who come back," my wife explains. "And I can only do that if I don't have to give the same package to those who don't."

After all, the point is not to give Bob a send-off bonus because he had a roof accident; it's to offer a benefit that makes it easier for him to recover and come back to work.