How parental leave policies affect employers’ perceptions of working mothers

Employer perceptions of parental leave choices contribute to gender pay disparities, highlighting the impact of cognitive bias on career progression

In 2011, Australia introduced its inaugural national paid parental leave scheme, granting eligible parents 18 weeks of government-funded leave at the minimum wage. This initiative aimed to enhance mothers' workforce participation without imposing financial burdens on employers, as the payments were sourced from federal revenue. Prior to this policy, Australia was one of two developed nations without statutory paid maternity leave (along with the US).

Despite these advancements, recent data reveals persistent challenges in achieving workplace gender equality. As of June 2024, Australia had 7.6 million families, marking an increase of over 1 million since June 2014. Notably, 73% of the 2.2 million couple families with children aged 0-14 years had both parents employed. However, the national gender pay gap remains significant. According to the Workplace Gender Equality Agency (WGEA), women earn 78 cents for every dollar earned by men, resulting in an average annual difference of $28,425. This disparity underscores the ongoing need to address gender-based systemic barriers and ensure equitable treatment of all employees.

Workplace dynamics can be complex, with multiple parties who have different expectations. Even policies designed to promote equity like paid parental leave may have unintended consequences by inadvertently activating cognitive biases among employers. Recognising and addressing these biases is essential for creating truly supportive environments for working parents, ensuring that parental leave decisions do not unjustly influence career progression or compensation.

“To ensure that equity promotion policies like paid parental leave create truly supportive workplace environments, we must consider the perspectives of all parties involved – working mothers, fathers, and employers – both explicit and implicit,” said Dr Dongju Lee, a research fellow from the Centre for Social Impact at UNSW Business School.

Australian parental leave policy and hidden employer bias

Recent research reveals a troubling explanation: employers’ cognitive biases may lead them to reward or penalise mothers based specifically on their parental leave choices, regardless of actual productivity differences.

The study, Australian Parental Leave Policy, Employers’ Cognitive Bias, and Mothers’ Wages: Penalty or Premium? published in Gender, Work & Organization, examined this phenomenon. Dr Lee and Professor Lyn Craig from the School of Social and Political Sciences at The University of Melbourne discovered that employers’ interpretations of maternity leave behaviours significantly impact mothers’ wage prospects.

“Our study contributes to debates about parental leave policy and gender discrimination in the labour market by indicating that employers interpret contrasting leave-taking behaviours differently, and reward employees in accordance with what they believe maternity leave behaviours imply about working mothers’ conformity to the ‘ideal worker’ norm,” the researchers wrote.

Read more: Slow gender gap progress puts focus on childcare support

“Paid maternity leave was last century’s great experiment in boosting female labour force participation and women’s economic empowerment,” said Dr Lee. “Yet, it has shown paradoxical effects in the advancement of women’s careers and compensation around the world. Australia, being the latest country enacting the policy under the gender-neutral name of parental leave, has the potential to make it truly inclusive.”

Understanding cognitive bias in wage penalties and premiums

The researchers investigated how different maternity leave behaviours affected mothers’ wages before and after the introduction of Australia’s paid parental leave scheme. They analysed nationally representative panel data from the Household Income and Labor Dynamics in Australia (HILDA) Survey for the period 2005-2019, using fixed effect models with lagged dependent variables.

The study found that before the national parental leave policy was implemented, mothers who were ineligible for employer-funded paid leave and had to use unpaid leave instead suffered wage penalties whose effect size was equivalent to 2.5 years of schooling. After the policy was introduced, this penalty disappeared. More strikingly, mothers who forwent paid leave they were eligible for received significant wage premiums (equivalent to 3 years of schooling) after the policy introduction.

“We find that maternity leave behaviour incurs a wage effect only to mothers whose decisions are atypical (forgoing paid leave while they were eligible and taking unpaid leave while they were ineligible for paid leave),” the researchers explained. “Also, the penalty or premium occurs to the extent that those behaviours accord with or go against the existing stereotypes of mothers that they would prioritise family over work.”

The study identified two key mechanisms driving these effects. First, employers appeared to engage in “effort justification,” a form of cognitive bias where they valued mothers who forwent paid leave (sacrificing care benefits for work) more highly than those who took unpaid leave (sacrificing wages for care). Second, the introduction of the government-mandated policy appeared to intensify employers’ biases, particularly in private-sector workplaces where employers had more discretion over wages and promotions.

How company structure and visibility affect discrimination

The research revealed important distinctions between public and private sector employers, as well as between women who stayed with the same employer versus those who changed jobs after childbirth.

Wage penalties and premiums were far more pronounced in the private sector, where profit pressures and managerial discretion allowed employers greater latitude in compensation decisions. In contrast, public sector workplaces with standardised wage scales and collective bargaining showed little evidence of such discrimination.

Read more: A guide to tackling invisible career barriers for women at work

Additionally, discrimination only occurred when employers could observe mothers’ leave-taking behaviours directly. The study found that wage penalties or premiums were more likely if a mother remained with the same employer after her leave period. When mothers changed employers after childbirth, these effects largely disappeared.

“The fact that mothers who used unpaid leave before PPL did not receive a penalty if they changed their employer also provides evidence of the screening mechanism of employers,” the researchers noted. This finding strongly suggests that the wage effects stemmed from employer discrimination rather than actual productivity differences among mothers.

Practical implications for employers and working parents

The study offers important insights for organisations seeking to create more equitable workplaces and for parents navigating career decisions around childbirth.

For employers, recognising unconscious biases in evaluating employees’ leave-taking behaviours is crucial. The research suggests that organisations should not send wrong messages to their employees by differently treating employees based on conformity to ideal worker norms rather than actual productivity.

For working parents, particularly mothers, understanding how leave decisions might be perceived can help inform career planning.

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Policymakers should consider that if paid parental leave is predominantly taken up by mothers, it can reinforce stereotypes of working mothers and thus need to develop various initiatives to increase fathers’ participation, such as “father’s quota”, a reserved portion exclusively for fathers, which is increasingly adopted in European countries. The researchers suggest that “long-term equitable change would involve eliminating the tensions between motherhood and prevalent norms of what constitutes a good worker.”

The study ultimately reveals that despite Australia’s progress in providing paid parental leave, deeper cultural changes are needed to truly support working mothers. As long as the “dominant masculine ideal of continuous full-time employment over the working lifetime remains unchallenged, women as a group are disadvantaged”. Achieving genuine equality will require not just policy reform but a fundamental shift in how we define and value ideal workers.