Social Policy Research Unit financial incentives and mother’s employment: a comparative perspective



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ocial Policy Research Unit

FINANCIAL INCENTIVES AND MOTHER’S EMPLOYMENT: A COMPARATIVE PERSPECTIVE

Jonathan Bradshaw, Naomi Finch, Emese Mayhew


Paper for the

Foundation in International Studies in Social Security
Sigtuna

Sweden
June 14-17 2003

SOCIAL POLICY RESEARCH UNIT, UNIVERSITY OF YORK, HESLINGTON, YORK, YO10 5DD, UK Tel: ++44 1904 321239, email: jrb1@york.ac.uk

Introduction


Esping Anderson’s (1990) work ‘The Three World’s of Welfare Capitalism’ categorized welfare state regimes according to whether state benefits are provided as citizen’s rights or not. He measured the quality and nature of the social rights of citizenship by the level of de-commodification of the labour force – ‘the degree to which individuals or families can uphold a socially acceptable standard of living independent of market participation’ (Esping-Anderson 1990: 37). The extent that workers can leave the labour market through choice depends on the generosity and universality of social rights. But by equating citizenship with paid work, Esping Anderson’s conceptualisation is gender blind. As Shaver and Bradshaw (1995) point out, whilst the concept of de-commodification makes sense for women fully engaged in the labour market, it does not make sense for the majority, notably mothers, who are not. Rather, the concept of de-commodification assumes the male breadwinner family, and that women and mothers outside the labour market are dependent upon the family - upon men and fathers.
Feminists have attempted to revise the concept of social citizenship to encompass women, embedding within it the issues of dependence and independence, and typologising welfare states through a gendered–lens. Female independence is different to men’s’, and, in contrast to de-commodification, the social right to earn an independent income can be one such source of autonomy for women. Lister’s (1994) concept of defamiliarisation – ‘the degree to which individual adults can uphold a socially acceptable standard of living, independently of family relationships, either through paid work or social security provision’ is useful for the measurement of the extent that the welfare states uphold female social citizenship. But the concept of defamiliarisation cannot be measured in isolation of women’s responsibilities as carers within the family – and this as a source of women’s difference compared to men, which constrains women’s social citizenship - i.e. their ability to participate in the labour market. Therefore, the provision of social rights that guarantee equality in the labour market by recognising their difference provoked by care work is the key to women’s social citizenship (Kilkey and Bradshaw, 1999).
In many countries maternal employment is becoming increasingly important not just for female autonomy but for the economic wellbeing of families; in both couple families and, especially lone parent families the child poverty rates are considerably reduced if mothers are in employment. But relatively little attention has been paid to the financial incentives welfare states employ in order to encourage women and mothers (lone mothers and mothers who are second earners in couple families) to earn an independent income. This is important, especially in relation to the extent that the state supports the costs of child care to replace maternal care when she takes up or takes on more paid work.
Shaver and Bradshaw (1995) analysed the extent that welfare states supported wifely labour by measuring the support provided for a dual breadwinner family, in which the mother of young children was in full or part time employment. They found that the tax and benefit system treat the earnings of married women particularly generously in Netherlands and Italy – in all other countries the tax benefit system treats the earnings of the wife less generous than the earnings of the husband. Taking account of childcare costs (i.e. the support for mothers), in all countries except Belgium, Luxembourg and France, the net added value of mother’s earnings is lower. For example, in the USA, the mother only retains 35 percent of her net earnings after paying for childcare, and in Ireland, Netherlands and Spain and the UK, the costs of going to work offset over a third of the net earnings of a wife if the parents have to pay for childcare, acting as a disincentive to taking up paid work. Whilst this paper is useful in the sense that it compares the extent that welfare states facilitate access to an independent income by making work financial viable, it is rather out of date and does not analyse how financial incentives employed by welfare states might be influencing mothers’ behaviour.
Economists tend to hold to the view that employees respond to financial incentives. Or rather perhaps, that there is a trade-off between work and leisure and that the financial rewards from working are likely to shift the indifference curve in favour of work. Further if the financial rewards in exchange for working, or working more, are limited or non-existent then people will not work or work more. Unemployment compensation schemes are thought to have a negative affect on the unemployed worker’s behaviour and the incidence and duration of unemployment. This is because (the level of) unemployment benefits affect the so called ‘reservation wage’ (the wage below which the worker would not be willing to accept a job offer). The higher the benefit replacement rate (i.e. the proportion of in-work income, replaced by out of work income), the lower the opportunity cost of remaining unemployed. Therefore, the worker’s probability of exiting unemployment is reduced. Financial incentives to work and to work more are a preoccupation of policy makers, particularly perhaps in the Anglophone countries. There is considerable anxiety in these countries that high replacement rates produce an unemployment trap. Since 1996 there has been a general policy trend to discourage welfare dependency and to encourage movement into work - by ‘making work pay’. If economic theory is correct, the variation in mother’s employment rates can be related to variation in financial incentives.
Kilkey and Bradshaw (1999) and (2001) adopted the concept of defamiliarisation in an attempt to conduct ore gender –sensitive analysis of welfare state variation. Kilkey and Bradshaw (1999) assumed that welfare states can not claim to provide women’s social rights to uphold a socially acceptable standard of living independently of men if they do not facilitate lone mothers capacity to live independently of men, out of poverty, and if they force lone mothers to chose between paid work or full time care to avoid poverty. They focused on lone mothers to investigate this, since their treatment represents how welfare states construct the relationship between paid work and caring – and the degree to which welfare states enable women to live independently of men.
To test the degree to which welfare states enable women to live independently of the family (men), they investigated the extent that financial incentives encourage mothers to enter employment. To do this they compared replacement rates and marginal tax rates between welfare states and related them to employment rates. They found that Belgium, Denmark, Luxembourg and Sweden had a particularly high replacement rate – and therefore low financial incentives for lone mothers to enter employment, whilst the financial incentive was higher in France, Ireland, Austria and the UK, where the replacement rates were less than 60 percent. They also investigated that marginal tax rate, which is the poverty trap, faced by lone parents in employment – which may impact incentives to work more hours or earn more. By increasing earnings from half average to average, lone parents in Luxembourg and Portugal more than double their net disposable income – and therefore have negative marginal tax rates. In Finland, lone mothers had the least financial incentive to double their earnings, increasing her net disposable income by only 37 percent. Accounting for childcare increases the marginal tax rates in the UK from 33 to 49 percent and is also very high in Finland, Netherlands, and Italy. Lone mothers in Ireland needing childcare would actually be slightly worse off through doubling their earnings. But Kilkey and Bradshaw (1999) found little association between lone mothers’ replacement rates and their labour supply rates, and concluded that other factors have an impact on labour-supply behaviour apart from purely financial incentives.
In their later paper, which investigated the factors designed to push and pull lone mothers into employment in six countries, Kilkey and Bradshaw (2001) concluded, unsurprisingly, that the higher the lone parent’s potential earnings the more heavily skewed the structure of financial incentives in favour of paid work. When childcare costs are accounted for, the balance of financial incentives shifts more in favour of not working across all countries, although to different degrees depending on the country. Again, they found little relationship between financial incentives to work and the lone parent employment rate, even when examined dynamically.
So the comparative literature that examines financial incentives and their relationship with employment rate has suggested that caution is needed in assuming that financial incentives will affect mothers’ employment rates. We aim to build upon and update this work and provide a more comprehensive analysis of the relationship between mothers labour supply and financial incentives (replacement rates and average marginal tax rates) – does state support in the form of financial incentives actually translate into mothers’ earnings an independent income? We shall start with a comparison of mothers’ labour supply.
Mothers labour supply
Over the last few decades, the employment rates of mothers have increased but much cross-national variation still exists. In contrast, fathers’ employment rates vary to a much smaller degree. Mothers are also still less likely to be employed, and more likely to be employed part time than fathers, especially when the child is young (Gornick, 1999). Table 1 gives the individual employment status of married/cohabiting mothers and lone mothers1. The employment rate for mothers in couples is highest in Norway (81 per cent) and lowest in Ireland (42 per cent). The UK has the second highest employment rates: 68 per cent. For lone mothers, the employment rate is highest in Portugal (88 per cent) and Japan (83 per cent)2 and lowest in the Netherlands (42 per cent) and the Anglophone countries.
Variation also exists according to the age of the youngest dependent child, as well as the number of hours worked, although comparable data is hard to come by. In some countries, such as Finland and Portugal, married/cohabiting mothers work for relatively long hours, whereas in the USA and UK, they work for relatively short hours. Lone mothers work for relatively short hours in the UK and USA and relatively long hours in Finland and Luxembourg.

Table 1 Employment status of married/cohabiting mothers and lone mothers of dependent children (%)





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