The Estimation of the Costs to the Maltese Economy of Implementing EU Legislative Proposals related to Maternity and Paternity Leave

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The Estimation of the Costs to the Maltese Economy of Implementing EU Legislative Proposals related to Maternity and Paternity Leave

EXECUTIVE SUMMARY

This report seeks to provide an estimate of the costs of the possible introduction of EU legislative proposals related to parental leave including the extension of maternity leave and the introduction of paternal leave. The economic benefits of these legislative changes on the Maltese economy can be considered to be relatively marginal, given that there is already a significant extent of maternity leave being granted, while the costs tend to increase per week of additional parental leave granted, and possibly in an exponential manner. Furthermore, whereas the benefits can only be estimated with a very high degree of uncertainty, the direct costs in terms of loss of output can be quantified statistically.

In respect of the latter, it is found that increasing the maternity leave from the current statutory 14 weeks to 20 weeks would potentially cost the economy €7.5 million worth of value added in a year, equivalent to 0.18% of GDP. Of this, the cost to private business would amount to €5.3 million worth of value added in a year, equivalent to 0.14% of private sector GDP. In addition, introducing two weeks of paternity leave would cost the economy €4.8 million in terms of value added in a year, equivalent to 0.12% of GDP. Of this, the cost to private business would be €3.7 million in a year in term of value added, equivalent to 0.1% of GDP. These costs are subject to issues of take-up of leave and substitutability of workers. In total, these measures would dent the economy’s GDP by 0.29%, and reduce the value added of private business by 0.25%.

These costs in the Maltese economy will be especially relevant given the predominance of small and micro enterprises which will be especially hit in terms of the difficulties they face to substitute for absent workers who are on parental leave. Indeed, small and micro enterprises play a significant role in employment levels in Malta, accounting for over 70% of employment in the private sector. It is also found that firms which are relatively large employers and are especially vulnerable to competitiveness pressures will also be significantly affected by the proposals. Indeed, the Manufacturing, Wholesale and Retail and Hotels and Restaurants Sectors, which together account for around 40% of private sector jobs, have an especially pronounced dependence on small and micro enterprises and on female employees.

Loss € million % of GDP

value added lost to economy 7.5 0.18%

value added lost to private businesses 5.3 0.14%

value added lost to economy 4.8 0.12%

value added lost to private businesses 3.7 0.10%

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The study furthermore considers the fact that the extension of maternity leave could reduce the female employment rate which in Malta currently stands at 37.7% of the working age female population compared to 58.6% in the EU. This can also be compared to the male employment rate of 71.5% in Malta, which is above the EU 27 value of 70.7%1

The study finally argues that there may be a number of alternative policy approaches that might be better suited to achieve the objective of promoting an improved reconciliation of work, family and private life without indirectly having a secondary negative effect on female participation and wage differentials. In essence the argument is that the cost of these initiatives can be better spent elsewhere. Proposals of alternative measures focus on the improvement in the support structures that aid women and men to cope better with parenthood and manage the increased pressures to obtain a better work life balance. These support structures include increasing nursery and day-care provision or subsidisation of such services which allows women to return to the workplace after the birth of their child without the need to rely on an ever-contracting extended family for support or incurring high expenses for private provision of these facilities; introducing incentives to promote home working practices to allow women to better juggle their family needs with meeting work deadlines without the necessity of being at their work place and incentives to encourage private firms to provide better family friendly measures such as on-site nursery care, keeping women on maternity leave informed of work matters and introducing creative work solutions such as part time, flexitime, home working, compressed working week, job share, annualised hours, term-time work and shift working.

. The proposals render women less competitive in the market-place for jobs and would overall lead to deteriorating employment prospects for everyone by increasing the costs of operation to business. There is furthermore a serious risk that the persisting wage discrepancies that currently exist between female and male employees may widen as employers factor in the potentially increased burden of employing a woman. Indeed the wage gap is a concerning issue, as on average males earn €4,302 more than females in full time employment. This figure varies across industries rising to €11,759 in some industries.

1 EUROSTAT Labour Force Survey Main Indicators

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Contents

1. Introduction .................................................................................................................................... 1

2. The EU Policy Scenario .................................................................................................................... 2

3. The Approach of this Report ........................................................................................................... 4

4. Methodology ................................................................................................................................... 7

5. The Estimation of the Direct Costs of Maternity Leave .................................................................. 8

6. The Estimation of the Direct Costs of Paternity Leave ................................................................. 12

7. The Costs of the Measures Proposed in the Estrella Report ........................................................ 17

8. Sensitivity Considerations: Substitutability of Workers and Take-up Rate .................................. 18

9. Implications for Small and Micro Enterprises and for Vulnerable Sectors ................................... 21

10. The Challenges to the Future Labour Market and Alternative Policy Approaches ....................... 22

11. Conclusion ..................................................................................................................................... 24

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Acknowledgement

The Malta Business Bureau would like to acknowledge the contribution made by Dr Gordon Cordina and Ms Jana Farrugia in the drawing up of the technical sections of this report.

The views and opinions expressed are those of the Malta Business Bureau.

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The Estimation of the Costs to the Maltese Economy of Implementing EU Legislative

Proposals related to Maternity and Paternity Leave

1. Introduction

This study considers the implications surrounding the introduction of EU legislative proposals regarding the extension of maternity and paternity leave for the Maltese economy. A number of hypotheses can be put forward with respect to these proposals, in general terms and for the Maltese economy in particular.

These proposals can be viewed to produce benefits as well as costs to the economy and society. The benefits could emanate primarily from considerations of worker safety and, to an extent, from the provision of some incentive towards increased fertility. The direct costs originate primarily from a loss of output and cost competitiveness, which would be especially pronounced for small and micro enterprises for whom the substitution of workers is relatively more problematic, and for sectors which rely in a relatively stronger manner on women workers.

In this respect, it can be observed that the Maltese economy is especially reliant on small and micro enterprises, while sectors which are facing competitive difficulties, such as manufacturing, tourism and wholesale and retail, tend to rely relatively heavily on women workers. It is furthermore the case that in small jurisdictions, temping agencies and similar schemes which may alleviate the costs of the proposed extension of leave may be more costly and difficult to implement due to an insufficient scale of the labour market.

An over-riding consideration is the fact that the increase in maternity leave may put women workers at a relative disadvantage compared to male counterparts. This is a problem in its own right, in a situation where women workers already tend to occupy a lower professional status and hence suffer from lower average pay. Furthermore, the Maltese economy suffers from one of the lowest female participation rates in the EU and needs to increase this parameter considerably for it to converge to EU living standards. Competitive obstacles in the way of women’s participation in the labour force would be likely to hinder the achievement of this goal.

From a more general policy perspective, it can be stated that the priority for socio-economic policy across the EU and particularly in Malta at this stage is to increase worker, and especially female, employment rates at the same time that fertility is incentivised. The increase in maternity leave would have uncertain effects on fertility, and certainly deleterious effects on labour market participation. Other policy approaches should be sought to simultaneously improve employment rates and fertility, such as improving family support systems for mother and child health and general care, which would also be conducive to improving worker safety without however imposing the relatively high economic costs arising out of an increase in parental leave.

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The aim of this report is to analyse and assess the hypotheses put forward above. It is structured as follows. After this introduction, an explanation of the policy scenario in the EU with respect to the extension of parental leave is provided. The approach taken in this report is then amplified in further detail, followed by a description of the methodology to be employed. The methodology is subsequently applied to the estimation of the cost of additional weeks of maternity and paternity leave in Malta, which leads to the estimation of the costs of current policy proposals for the economy as a whole and for the private sector in particular. The sensitivity of the estimates derived is subsequently discussed. The implications emanating out of the prevalence of small and micro enterprises in Malta, the effects on the more vulnerable sectors of the economy, as well as the implications for the challenges of increase female employment rates are then amplified.

2. The EU Policy Scenario

This study assesses the implications related to the current EU legislative proposals related to the protection of pregnant workers and workers who have recently given birth or are breastfeeding. The health and safety of pregnant and/or early childrearing mothers is governed at EU-level by Council Directive 92/85/EEC of 19th October 1992. This Directive further amended by Directive 2007/30/EC provides for a series of precautionary health and safety measures for pregnant and breastfeeding female employees ensuring minimum standards on the exposure of workers to dangerous elements and substances, night work, securing paid leave for ante-natal examinations, employment rights in relation to their contractual engagement and the defence of such rights. The original directive also mandates maternity leave for an uninterrupted period of at least 14 weeks before and/or after delivery, two of which must occur before the delivery.

A Commission proposal for a revision of Council Directive 92/85/EEC was adopted by the College of Commissioners on the 3rd October 2008. The proposal is published as Commission Communication (2008) 637 – Final. The underpinning aim of the text is twofold: to enhance the health and safety of pregnant and/or breastfeeding female workers and to further improve the reconciliation of professional and personal life.

The Commission text provides for the extension of maternity leave from 14 to 18 weeks, based on twelve non-compulsory weeks that women can choose to take before or after confinement and six compulsory weeks after confinement. Flexible arrangements are introduced whereby if the date of confinement differs from the presumed date, then the period of pre-natal leave would be extended without impinging on the six-week leave granted for the post-natal period. Extra leave may also be obtained in relation to special circumstances, namely premature childbirth, children hospitalised at birth, childbirths with disabilities and multiple births (twins/triplets).

The conciliation of work and family life is primarily addressed through the strengthening of the entitlement to equal payment pegged to the normal full salary throughout the maternity leave period or at least the equivalent pay as on sick leave. The Commission proposals direct the EU member-states governments’ to legislate in their implementing regulations for allowing pregnant and childrearing women to choose the time at which they make use of their non-compulsory part of

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their leave (that is before or after the actual birth of the child). The obligation to take a part of maternity leave before birth would be done away with. Within the context of work-life reconciliation, provisions are made incepting the right to return to work under equivalent conditions also allowing the female employee who is breastfeeding to lodge a request for a re-examination of her working hours - a request which is to be decided at the employer’s discretion.

The Commission proposals are not yet enacted into EU legislation given that the co-decision process involving the European Parliament has been a protracted one engendering controversy due to the EP’s own recommendations for amendments of the original Commission proposals. The Women’s Rights and Gender Equality Committee (FEMM) was appointed as the lead committee on this legislative item with the Employment Committee entrusted to deliver an advisory opinion in accordance with the enhanced co-operation procedure allowed by the European Parliament’s internal rules of procedure.

An initial report by the appointed rapporteur, MEP Edite Estrella was published in 2009 and after a vote in the May 2009 plenary, it was decided that the report be sent back to committee-stage. A second Estrella Report was consequently produced and published in March 2010. The Estrella Report carries a series of proposals going beyond the Commission’s original texts which undoubtedly have a considerable bearing on the competitiveness of businesses particularly those firms operating in sectors traditionally characterised by a high proportion of female employment.

Amongst the ‘novel’ proposals included in the Estrella Report, the most sensitive issues from a socio-economic perspective are the proposals dealing with the extension of maternity leave at full-pay conditions to a minimum of 20 weeks and the introduction of non-transferable two-week fully-paid paternity leave. Other contentious issues include the proposal for a “passerelle” clause permitting the merging of last 4 weeks of the 20-week minimum maternity leave with other forms of leave as long as certain conditions are met, a 6-month safety period after maternity leave with regard to potential preparations for dismissal by the employer and the effective prohibition of dismissals without written justification (always after the 6-month safety period).

The introduction of the proposal on paternity leave is alien to the original scope of the Commission proposal for a revision of Council Directive 92/85/EEC and it is consequently based on questionable legal grounds. There is no legal provision on paternity at community-level. It is however the intention of the Commission in accordance with its Work Programme for 2010-11 to conduct a cost-benefit study in 2010 with regard to a possible initiative on paternity leave. This cost-benefit study will be carried out by DG Employment and Social Affairs.

The other form of leave regulated at EU-level is parental leave. The Parental Leave Directive (96/34/EC) of the European Commission was adopted in 1995 and sets out the minimum requirements for parental leave to support the reconciliation of parental and professional responsibilities for working parents. The original Directive was based upon a Framework Agreement by the European Social Partners. The European social partners signed on the 18th June 2009 a revised framework agreement increasing the duration of parental leave from three to four months per parent – one month of which is non-transferable between the parents. The new Agreement applies to all categories of employees regardless of their type of contract and it is the first revision of the

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initial Framework Agreement on Parental Leave agreed in 1995, thus reflecting the changes to-date in society and on the labour markets over the past fifteen years.

In addition, EU maternity leave rights for self-employed female workers are also regulated at EU level through a directive on equal treatment between men and women for self-employed workers and their spouses (Directive 86/613/EEC). A legislative review of this Directive on the basis of a Commission proposal tabled in 2008 is currently reaching its conclusive stages via the co-decision procedure involving the European Parliament and the Council of Ministers. The draft directive on the application of the principle of equal treatment between men and women engaged in an activity in a self-employed capacity repeals the existing legal framework dating from 1986. It introduces new provisions prohibiting any direct or indirect discrimination in relation to the establishment of a self-employed business involving married spouses in terms of social protection for the helping spouses (very often women) and the entitlement of maternity leave for female self-employed spouses as regulated by the maternity leave directive (92/85/EEC).

Put simply, the new draft Commission rules, which have obtained the European Parliament’s green light at a plenary vote held on the 18th May, grant maternity protection to self-employed women and the wives or life partners of self-employed men. This means that any pregnant self-employed woman or self-employed worker’s spouse would be entitled to a sufficient maternity allowance to cover interruptions at their work of at least 14 weeks, which is the minimum paid maternity leave laid down for normal employees by the EU maternity leave directive. It is left up to the member-states’ governments to decide whether the leave is mandatory or voluntary. Equally important, it will be left to member-states’ to decide whether paying for membership of social insurance schemes (covering maternity leave, sickness, invalidity and old age) must be mandatory for self-employed women or whether the self-employed women (or the female assisting spouses) can access this system voluntarily.

In the meantime, the Council of Ministers is set to adopt the amendments stirred through the European Parliament on the 7th June 2010. Member-states will then have two years to implement the new EU rules. An allowance of up to four years is being considered if member-states find difficulties in securing the way to grant standard social protection to self-employed workers or spouses and partners of the self-employed.

EU regulation of maternity and paternal leave policies is comprehensive (covering also self-employed workers) with the ultimate aim being to improve the protection offered to pregnant workers including those who have recently given birth or are breastfeeding and to promote a better balance for childrearing parents between work and private life in order to achieve economic growth, prosperity and competitiveness. This is supplemented with the stated objectives voiced by the European Parliament to mutualise the costs of maternity and parental leave allowances. This is done in order to ensure that women no longer represent a more costly source of labour than their male counterparts and to combat discrimination against pregnant women on the labour market whilst taking all the necessary steps to ensure a high level of protection for mothers.

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3. The Approach of this Report

The introduction of any new policy warrants careful consideration on many levels. Policy is generally assessed on the effectiveness at achieving the desired outcome and on its efficiency – that is whether the outcome is achieved with the least cost burden on society.

The introduction of a policy requiring an increase in maternity and paternity benefits provided to employees has a number of costs and benefits for different stakeholders involved - employees, employers, governments, society at large and the economy as a whole. It can be expected, a priori, to have a considerable impact on the output, costs and profitability of business as well as a strong impact on economic value added and therefore, the generation of GDP. However, knowing the direction that these effects will take is not a complete assessment of the situation. There is a need to investigate the magnitude of the costs associated with these new proposals on the economy as a whole and on private business in particular in order to be able to adequately quantify the consequence of the proposed changes.

This report looks at the implementation of the main recommendations of the Estrella Report which relate to the extension of maternity and paternity leave. These recommendations can be subjected to an economic cost-benefit assessment. It is not doubted that the first few weeks of leave are essential to the well-being of individuals, families, society and the economy. It is however very probable that additional weeks of leave will produce benefits at a decreasing rate, until a situation is reached where the granting of additional weeks of leave will bring no additional significant benefits to society and the economy.

The costs to the economy arising out of the granting of such leave emanate primarily out of the loss in output. Such costs, viewed on a weekly basis1

The cost-benefit assessment can thus be viewed to be subject to the relationships as shown in the Figure below. The left panel shows important benefits for the initial weeks, later tapering off, with costs progressing linearly for every week of leave, in order to adopt a conservative approach to the estimation of such costs, which, however, may increase exponentially as discussed above. The right panel shows that this implies that the net of benefits and costs would be positive for the first few weeks of leave, but that such net benefits would fall after a certain number of weeks, to later turn negative. Thus, there exist an optimum number of weeks of maternity leave to be granted.

, do not decline with the granting of additional weeks of leave, as the loss in output is likely to be proportional to the number of weeks of leave being granted. It may furthermore be hypothesised that the costs would actually increase in an exponential manner with the number of leave weeks being availed of, possibly due to a reduction in employee skills and motivation which would occur as a result of a prolonged absence from work.

It is however to be stated at the outset that the estimation of the optimum number of weeks cannot in practice be undertaken, due mainly to the extremely high degree of uncertainty in providing a 1 Given the potential variability in the extension of parental weeks as proposed by the EU Commission and the Estrella report, this report is based on the estimation of such costs on a weekly basis.

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monetary value to the estimates of benefits. This is especially due to the psychological nature of such benefits, the individual subjectivity in their perception and estimation, and the fact that they fall considerably at the margin for every additional week of leave availed of.

It is for this reason that this study focuses on the quantification of the cost side of the issue, to highlight the possible effects of an increase in leave from the already relatively high level. On the basis of the existing level of leave, it is highly probable that while costs will continue to impinge significantly for each and every additional week of leave granted, the extra benefits which would emanate from more leave are likely to be minimal, if any at all.

This cost issue can be centred around two basic research questions:

1. How much would the cost of the extension in maternity and paternity leave be?

2. Where will the burden of such costs fall?

The first question may have multiple facets, extending from the direct loss of output of workers on leave to the possibility of dynamic effects including loss of skills, lower value added emanating from a more generous welfare system in general, reduced demand for female employment, effects on female participation rate and possibly, on wage differentials. While all these costs are important in the analysis of the impact of the new proposals, from a quantitative perspective, this report focuses exclusively on the issue of direct loss of output, which is the main economic cost borne by the economy. The other issues are dealt with from a more qualitative perspective.

The second question focuses on the way in which the total costs to the economy would be borne. From a quantitative perspective, there is certainly the loss of profits to the enterprises involved in output reduction, at least on a temporary basis for the duration of the leave. Such losses could however be larger, and assume a permanent nature in the case of micro enterprises losing critical workers for a relatively long time period. There are also issues of input-output effects and induced deadweight losses to the economy, including a reduction in Government revenue, out of the output reduction that is occasioned by an increase in leave.

This paper addresses these issues from the perspective of the Maltese economy. Estimates of costs and their distribution are provided on the basis of each week of leave granted in quantitative terms. The report also delves into other important issues from a qualitative approach in terms of a wider policy perspective. In particular, the issue of parental leave can be viewed within the context of the necessity to achieve, across the European Union, the seemingly contradictory goals of raising

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employment rates, particularly of females, while enhancing fertility rates. It is argued that the increase in parental leave is not among the measures to pursue in order to achieve these two goals simultaneously, and such an increase in leave may actually have deleterious effects in this respect. It is furthermore shown that in the Maltese economy in particular, the extension of maternity and paternity leave may be problematic due to the prevalence of small and micro enterprises, while the extension of maternity leave may particularly affect vulnerable sectors due to their dependence on women employees and hamper the required increase in female employment rates.

4. Methodology

The paragraphs below outline the methodology used to quantify the direct loss of output per week of maternity and paternity leave extension. In this process, there is an assumption that is being made, that workers given maternity or paternity leave will not be replaced by others during their absence. A degree of substitution by other workers has to be allowed for, where some of the responsibilities and duties carried out by the employee, who is on maternity or paternity leave, are incorporated into the responsibilities of their colleagues. This will be included in the analysis only to the extent that work is being done on a temporary basis by other workers who will work over and above normal hours. The employment of temping workers, whose main line of work is to replace workers on leave, will present us with two alternative scenarios. If these temping workers are recruited into this sector from another productive sector then this would represent a deadweight loss to the economy, as these workers would be forgoing other employment opportunities. However, if the market for temping workers were to increase and draw its labour from the inactive portion of the labour force, then this would constitute an increase in value added. The repercussions of such effects are discussed further on by way of a sensitivity analysis of the baseline results.

The issue of take-up rates is also addressed in this report. This refers to the fact that not all women and men who are entitled to maternity or paternity leave will make use of this entitlement. The possibility for take-up rates that are below 100% will be included in the report, to be also later relaxed in the sensitivity analysis of the baseline results.

The costs of maternity and paternity leave have been estimated through the consideration of the number of births, the workers that are involved, their professional status and the economic sectors in which they are working. Moreover, special consideration is given to the output loss by micro enterprises which could experience increased difficulties in substituting workers on leave by others. Likewise, such special consideration is given to those vulnerable economic sectors which rely relatively strongly on women workers.

The workings have been conducted using data for reference year 2008. Where data was produced on a quarterly basis, this data has been averaged to obtain a value for the whole year. The year 2008 is assumed to be a fairly representative year for the near future.

While the provisions in the report are also applicable to couples who adopt a child under the age of 12 months, data on adoptions by father’s occupation do not specify the age of the child. From other

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data sources, on the age distribution of adoptions, it results that only 13 out of 71 adoptions in 2008 were of children under the age of 12 months. This represents a small number compared to the 4,126 births in 2008. Therefore, the number of adoptions would provide for a negligible variation to the costs computed in this study.

It is also to be noted that data availability for the calculation of the costs of maternity leave is different to that available for paternity leave. The main difference is that, while the number of births each year is presented by the occupation of the father, no such records exist for the occupation of the mother. This necessitates two sets of workings, one for each parent, as discussed in the next two sections.

The results are presented for the two recommendations proposed in the Estrella report; that of increasing maternity leave by 6 weeks and of introducing 2 weeks of paternity leave. In addition, the impact of the Commission’s original recommendation of increasing maternity leave by 4 weeks, which has been presented in the opening chapter above, is also presented.

5. The Estimation of the Direct Costs of Maternity Leave

The final aim of the calculation presented in this section is to obtain the cost per week, in terms of loss of output produced, for women on maternity leave. The process to obtain this figure can be segmented into three stages.

Stage one involves the calculation of the value added of women in each sector of the economy per week. The second stage involves calculating the number of women entitled to maternity leave in paid employment when they give birth. The third stage involves calculating the cost of these women being absent from work on maternity leave per week of absence.

Stage one starts with the data on the number of women employed in each sector of the economy and the average wage that women receive2

The value added of a worker is not equal to the wage they are paid but also to the contribution to the profits they generate for their employer. Therefore once the total labour cost is calculated we proceed to calculate the contribution to GDP that the female employees generate. A simplifying assumption is made, that the value added is proportionate to the wage an employee receives, therefore a more productive employee will receive a higher wage and vice versa. This allows us to apportion the GDP generated in 2008

. The multiplication of these two data variables provides us with the female wage bill, the total value in €000 of employing the 49,773 women in various sectors of the Maltese economy.

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2 Labour Force Survey; NSO

to the women employed in the sector. As is the nature of simplifying assumptions this may not be a true depiction of the contribution to GDP generation as the situation might prevail that although women contribute equally to men they are underpaid. This situation would result in an underestimation of cost of the absence of women from the workplace.

3 News Release, Gross Domestic Product 2008; NSO

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Employees Av Wage €Female Wage bill

€000

Agriculture, Hunting &Forestry 108 7,978 863.7 Fishing 10 2,665 27.3 Mining & Quarrying 14 2,934 40.3 Manufacturing 4,975 11,702 58,212.5 Electricity, Gas & Water Supply 191 11,994 2,287.9 Construction 428 11,361 4,859.6 Wholesale & Retail 6,919 9,717 67,228.8 Hotels& Restaurants 5,125 9,419 48,273.6 Transport, Storage & Comms 3,127 13,008 40,680.4 Financial Intermediation 3,206 14,175 45,441.1 Real Estate, Renting & Business 3,520 12,115 42,646.2 Public Admin & Defence 4,580 13,648 62,505.2 Education 8,698 13,884 120,761.3 Health & Social Work 6,673 11,910 79,475.6 Other Community 2,199 10,622 23,357.9

49,772.50 596,661.3 4

The apportionment of GDP generated is computed though the division of total GDP in the Maltese economy by the total wage bill of women and men. This allows us to compute the contribution to GDP generation per € wage paid to employees. The contribution to GDP generation by women can be computed by multiplying the wage bill paid to women by the GDP generation per € wage.

GDP €000Total Wage bill

€000

GDP generated by women employees

€000

Agriculture, Hunting &Forestry 70,940.1 18,740.6 4,320.8

Fishing 6,431.4 6,242.0 37.2

Mining & Quarrying 14,823.9 4,652.3 169.9

Manufacturing 686,070.4 449,082.0 117,535.4

Electricity, Gas & Water Supply 49,186.3 49,186.3 3,023.8

Construction 155,963.2 91,342.8 10,966.3

Wholesale & Retail 522,699.1 236,846.4 196,087.3

Hotels& Restaurants 191,786.7 162,762.9 75,176.5

Transport, Storage & Comms 387,340.2 205,390.7 101,392.5

Financial Intermediation 211,783.7 178,688.7 71,179.2

Real Estate, Renting & Business 693,103.7 195,873.5 199,439.7

Public Admin & Defence 284,583.4 284,583.4 82,608.7

Education 276,316.8 247,878.6 177,912.1

Health & Social Work 259,461.4 233,642.7 116,644.3

Other Community 449,763.9 124,019.8 111,953.2

4,260,254.1 2,488,932.7 1,268,446.8 5

4 Labour Force Survey; NSO

5 News Release, Gross Domestic Product 2008; NSO

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The GDP contribution per female employee per week worked can be observed from the Table below which is represented for each sector of the economy. The number of working weeks in a year is taken to be 46 weeks.

GDP generated by women employees

€000

GDP generated per female employee in

€

GDP generated per week in €

Agriculture, Hunting &Forestry 4,320.8 39,914.8 867.7

Fishing 37.2 3,629.5 78.9

Mining & Quarrying 169.9 12,355.3 268.6

Manufacturing 117,535.4 23,627.6 513.6

Electricity, Gas & Water Supply 3,023.8 15,852.0 344.6

Construction 10,966.3 25,637.1 557.3

Wholesale & Retail 196,087.3 28,340.4 616.1

Hotels& Restaurants 75,176.5 14,667.9 318.9

Transport, Storage & Comms 101,392.5 32,422.3 704.8

Financial Intermediation 71,179.2 22,203.6 482.7

Real Estate, Renting & Business 199,439.7 56,655.0 1,231.6

Public Admin & Defence 82,608.7 18,037.8 392.1

Education 177,912.1 20,455.0 444.7

Health & Social Work 116,644.3 17,479.4 380.0

Other Community 111,953.2 50,910.9 1,106.8

1,268,446.8 382,188.5 8,308.4

The total contribution to GDP by employed women is 30% of the total GDP, even though women account for 36% of the total population in employment. This makes it even more likely that our simplifying assumption of linking wages earned to the value added of an employee underestimates women’s contribution to GDP generation. Consequently this also results in an underestimation of the costs associated with additional weeks of maternity leave.

As indicated above, stage two involves using the data of births by mother’s age to obtain an estimate of the amount of women that would be entitled to maternity in any given year. This is done through the use of data on the number of women employed by age group6

The percentage of women that are employed in each age group also reflects the probability that a woman who is within an age group is employed. Therefore by example the probability of a 20 year old woman who is employed is 46%. This probability is further used to assess the number of women who in 2008 gave birth and were also employed. This is done by using the number of births in each age group and multiplying by the probability that these mothers are in employment. This allows us to obtain an estimate of the number of women who in 2008 were entitled to maternity leave, i.e. the women who gave birth and were also employed at the same time.

. This data is further used to obtain the percentage of women in each age group that is employed.

6 Labour Force Survey; NSO

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AgesFemales

employed Female

Population

% of Women in Age Group that are Employed

Total Births by Age of Mother

Females Entitled to Maternity

Leave

Females Giving Birth not in

Employment

% of Employed Women Entitled to

Maternity Leave

No No No No No15-24 12,390 27,216 46% 885 402.89 482.11 3%25-34 16,942 28,009 60% 2,708 1,637.96 1,070.04 10%35-44 10,190 23,715 43% 526 226.01 299.99 2%45-54 8,622 28,345 30% 5 1.52 3.48 0%55-64 3,710 28,842 13% - - - 0%65+ 172 32,383 1% - - - 0%unspecified 2.00 - 2.00

52024 168,510.00 4,126.00 2,268.37 1,857.63 4%

One will note from the above table that the age group within which women are most likely to be working is the 25-34 age cohort, where 60% of women within this group are in employment. It is also important to note that this is also the age group to which most children are born, with 2,708 of the 4,126 children born in 2008 being born to mothers in this age group.

A clarification of the assumptions undertaken is necessary at this point. It has been assumed that the probability of a women in a particular age group is not dependent on whether she is having a child, and therefore these are separate and sequential events, so it is just as probable that a woman of the age of 20 who just gave birth is working as it is that a woman of 20 is working.

It has also been assumed that there is one to one relationship between the children born and the number of mothers. In reality there are a number of multiple births that occur every year resulting in a fewer number of mothers than children born.

The table below shows data on multiple births. Given the availability of data it is not possible to distinguish between twins, triplets and other multiples in this dataset. The workings assume that each child is matched with a different mother. However this is not considered an unrealistic assumption, for two reasons. The first is that the number of multiple births is small compared to the total births, and the second is that there is a legal entitlement for women having multiple births to longer maternity leave. Therefore the working above requires no amendment to reflect multiple births.

Multiple births:

Infants 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09

Total multiple b irths 131 73 106 115 120 119 135 87 144 133

7

The third stage involves calculating the cost of maternity leave taken by women which is based on the number of women employed in each sector and the distribution of women in employment. This represents the probability that a woman in employment works in any particular sector. This is used to distribute the total women entitled to maternity leave in 2008, that is 2,268, by the sector in which they are employed in. Consequently given the weekly value added per female worker of each sector calculated in stage one, the estimate of the total cost per week of the 2,268 women entitled to maternity leave in 2008 is estimated and shown in the Table below.

7 http://www.timesofmalta.com/articles/view/20100420/local/133-multiple-births-last-year

12

Sector

No of employees per sector

% of all females working that are employed in this sector

GDP generated per week in €

No of women entitled to mat leave by sector

Cost of maternity leave per week (GDP lost)

Agriculture, Hunting &Forestry 108 0% 867.7 4.93 4,280.8 Fishing 10 0% 78.9 0.47 36.86Mining & Quarrying 14 0% 268.6 0.63 168.31Manufacturing 4,975 10% 513.6 226.71 116,449.08

Electricity, Gas & Water Supply 191 0% 344.6 8.69 2,995.83Construction 428 1% 557.3 19.49 10,864.92Wholesale & Retail 6,919 14% 616.1 315.33 194,274.95Hotels& Restaurants 5,125 10% 318.9 233.58 74,481.67Transport, Storage & Comms 3,127 6% 704.8 142.52 100,455.42Financial Intermediation 3,206 6% 482.7 146.10 70,521.34Real Estate, Renting & Business 3,520 7% 1,231.6 160.43 197,596.40Public Admin & Defence 4,580 9% 392.1 208.72 81,845.16Education 8,698 17% 444.7 396.40 176,267.73Health & Social Work 6,673 13% 380.0 304.13 115,566.23Other Community 2,199 4% 1,106.8 100.22 110,918.44

49,773 100% 2,268.37 1,256,723.18

The total cost of women taking maternity leave per week can thus be estimated, on the basis of 2008 data, at €1.25 million worth of value added. With GDP in 2008 reaching a total of €4,192.77 million, the weekly cost of maternity leave represents 0.03% of annual GDP.

On the assumption that, from the data presented in the Table above, the sectors of Public Administration and Defence, Education and Health and Social Work, fall mainly in the public sector, an estimate of the cost of a week of maternity leave on the private sector can be derived. On the basis of this assumption and the foregoing calculations, there would be 1,360 women entitled to maternity leave in the private sector in a representative year, with a total relative output loss of €884,00 per week worth of value added, equivalent to just over 0.02% of private sector GDP.

6. The Estimation of the Direct Costs of Paternity Leave

The aim of this calculation is to obtain the cost per week, in terms of loss of output produced, of men being away on paternity leave. The process to obtain this figure is once again divided into three stages.

Stage one involves the calculation of the value added of men in each sector of the economy per week. The second stage involves transforming the value added per sector into value added per employment category. The third stage involves calculating the cost of these men being absent from work on paternity leave per week of absence.

Stage one involves an assessment on number of men employed in each sector of the economy and the average wage that these men receive as shown in the Table below8

8 Labour Force Survey; NSO

. The multiplication of these

13

two data sets provides us with the male wage bill, the total value in €000 of employing the 88,775 men in the various sectors of the Maltese economy.

Employees Av Wage €Male wage bill in €000

Agriculture, Hunting &Forestry 1,157.50 12,631.14 14,620.54Fishing 72.75 11,951.26 869.45Mining & Quarrying 553.25 14,693.04 8,128.92Manufacturing 17,333.25 13,710.71 237,651.21Electricity, Gas & Water Supply 3,435.50 14,657.34 50,355.29Construction 8,366.75 12,012.08 100,502.09Wholesale & Retail 11,088.25 13,085.58 145,096.15Hotels& Restaurants 6,934.25 12,463.48 86,424.89Transport, Storage & Comms 8,440.75 16,048.61 135,462.26Financial Intermediation 2,732.50 21,727.34 59,369.96Real Estate, Renting & Business 5,521.75 16,673.42 92,066.47Public Admin & Defence 9,397.25 14,703.69 138,174.20Education 4,601.00 16,897.21 77,744.07Health & Social Work 5,243.00 16,045.31 84,125.55Other Community 3,897.00 14,364.80 55,979.64Total 88,774.75 221,665.00 1,286,570.70 9

The value added of a worker is not equal to the wage they are paid but also to the contribution to the profits they generate for their employer. Similar to the estimation provided for the female wage bill presented in the previous section, a simplifying assumption made in this regard is that the value added is proportionate to the wage an employee receives, therefore a more productive employee will receive a higher wage and vice versa. This allows the apportionment of the GDP generated in 2008

10

The apportionment of GDP generated is computed though the division of total GDP in the Maltese economy by the total wage bill of women and men. This allows for the estimation of the contribution to GDP generation per € wage paid to employees. The contribution to GDP generation by men is thus calculated through the multiplication of the wage bill paid to men by the GDP generation per €1 wage.

per sector to the number of men employed within the same sector. As is the nature of simplifying assumptions this may not be a true depiction of the contribution to GDP generation as the situation might prevail that although men contribute equally to women they are overpaid. This situation would result in an overestimation of the cost of the absence of men from the workplace.

9 Labour Force Survey; NSO 10 News Release, Gross Domestic Product 2008; NSO

14

GDPTotal Wage bill €000

GDP generated by male employees €000

Agriculture, Hunting &Forestry 70,940.1 18,740.6 73,144.3

Fishing 6,431.4 6,242.0 1,184.0

Mining & Quarrying 14,823.9 4,652.3 34,232.5

Manufacturing 686,070.4 449,082.0 479,835.5

Electricity, Gas & Water Supply 49,186.3 49,186.3 66,551.0

Construction 155,963.2 91,342.8 226,794.3

Wholesale & Retail 522,699.1 236,846.4 423,204.4

Hotels& Restaurants 191,786.7 162,762.9 134,589.5

Transport, Storage & Comms 387,340.2 205,390.7 337,628.8

Financial Intermediation 211,783.7 178,688.7 92,997.5

Real Estate, Renting & Business 693,103.7 195,873.5 430,559.6

Public Admin & Defence 284,583.4 284,583.4 182,614.9

Education 276,316.8 247,878.6 114,536.8

Health & Social Work 259,461.4 233,642.7 123,469.0

Other Community 449,763.9 124,019.8 268,307.7

Total 4,260,254.1 2,488,932.7 2,989,649.6 11

Consequently the GDP contribution per male employee per week is estimated as shown in the Table below for each of the sectors in the Maltese economy. Once again, the number of working weeks in a year is taken to be 46 weeks.

GDP Generated by Male Employees €000

GDP Generated per Male Employee in €

GDP Generated per Male Employee per week in €

Agriculture, Hunting &Forestry 73,144.3 63,191.7 1,373.73 Fishing 1,184.0 16,274.3 353.79 Mining & Quarrying 34,232.5 61,875.3 1,345.11 Manufacturing 479,835.5 27,682.9 601.80 Electricity, Gas & Water Supply 66,551.0 19,371.6 421.12 Construction 226,794.3 27,106.6 589.27 Wholesale & Retail 423,204.4 38,166.9 829.72 Hotels& Restaurants 134,589.5 19,409.4 421.94 Transport, Storage & Comms 337,628.8 39,999.9 869.56 Financial Intermediation 92,997.5 34,033.9 739.87 Real Estate, Renting & Business 430,559.6 77,975.2 1,695.11 Public Admin & Defence 182,614.9 19,432.8 422.45 Education 114,536.8 24,893.9 541.17 Health & Social Work 123,469.0 23,549.3 511.94 Other Community 268,307.7 68,849.8 1,496.73 Total 2,989,649.6 561,813.4 12,213.3

The total contribution to GDP production by men employed is thus 70% of the total GDP, even though men account for 64% of employment. This makes it even more likely that the simplifying assumption of linking wages earned to the value added of an employee might be overestimated such that the costs associated with the introduction of paternity leave might also be overestimated.

As indicated above, stage two involves transforming the value added of men per sector of the economy to the value added of men per employment category. This transformation is necessary due to the fact that the data on births by occupation of father is compiled using employment categories rather then sectoral categories. This transformation is computed by mapping the employment levels 11 News Release, Gross Domestic Product 2008; NSO

15

in each sector to the employment categories. This process starts with an initial assumption on the distribution of workers in each sector by category backed by expert knowledge. Following an iterative process, the workers in each sector and in each employment category are matched. The result of this process can be seen in the table below.

Armed Forces

Legislators, Senior Officials & Management

ProfessionalsTechnicians & Associate Professionals

Clerks

Service Workers & Shop & Market Sales Workers

Skilled Agriculture & Fishery

Craft & Related Trades

Plant & Machine Operators

Elementary Occupations

Total TARGET

TOTAL ACTUAL

Agriculture, Hunting &Forestry - - - 183.85 18.94 - 771.68 - - 141.02 1,157.50 1,115.49

Fishing - - - 11.55 1.19 - 48.50 - - 8.86 72.75 70.11

Mining & Quarrying - - - 8.84 0.61 - - 923.31 6.42 6.33 553.25 945.52

Manufacturing - 875.09 925.65 6,795.34 350.04 - - - 5,924.16 1,563.76 17,333.25 16,434.04

Electricity, Gas & Water Supply - 171.23 120.75 1,329.68 68.49 - - - 1,159.22 407.99 3,435.50 3,257.37

Construction - 22.88 8.07 177.65 9.15 - - 13,911.75 77.44 68.13 8,366.75 14,275.07

Wholesale & Retail - 690.49 243.46 1,340.46 276.20 5,909.40 - - - 1,645.17 11,088.25 10,105.18

Hotels& Restaurants - 447.66 157.84 869.05 179.06 2,554.12 - - - 2,133.19 6,934.25 6,340.92

Transport, Storage & Comms - 440.85 310.88 3,423.30 176.34 - - - 1,492.21 2,100.74 8,440.75 7,944.31

Financial Intermediation - 498.11 614.71 - 697.36 355.25 - - - 296.70 2,732.50 2,462.13

Real Estate, Renting & Business - 1,006.57 1,242.18 - 1,409.21 717.88 - - - 599.57 5,521.75 4,975.40

Public Admin & Defence 1,725.90 1,606.12 1,132.61 - 1,927.35 - - - - 2,069.55 9,397.25 8,461.53

Education - 481.39 2,036.82 - 770.23 - - - - 860.23 4,601.00 4,148.66

Health & Social Work - 548.56 2,321.02 - 877.70 - - - - 980.26 5,243.00 4,727.55

Other Community - 355.96 1,004.07 - 711.92 1,015.47 - - - 424.06 3,897.00 3,511.47 TOTAL TARGET 1,725.90 7,144.92 10,118.06 14,139.72 7,473.79 10,552.11 820.18 14,835.07 8,659.45 13,305.56 88,774.75 88,774.75 TOTAL ACTUAL 1,725.90 7,144.92 10,118.06 14,139.72 7,473.79 10,552.11 820.18 14,835.07 8,659.45 13,305.56

Workings shown in this table are used as a tool to compute the value added per worker in each employment category. The GDP generated per male employee per week for each sector has been transformed into the GDP generated per male employee per week for each employment category by multiplying the former by the number of employees in each job category, summing up the GDP contributions per job category and then dividing this sum by the number of employees in each job category. This produces the average GDP generated per male employee in each employment category.

16

GDP generated per male employee per week in €

Armed Forces

Legislators, Senior Officials & Management

ProfessionalsTechnicians & Associate Professionals

Clerks

Service Workers & Shop & Market Sales Workers

Skilled Agriculture & Fishery

Craft & Related Trades

Plant & Machine Operators

Elementary Occupations

Agriculture, Hunting &Forestry 1,373.73 - - - 252,555.05 26,019.02 - 1,060,075.24 - - 193,728.28

Fishing 353.79 - - - 4,088.00 421.16 - 17,158.97 - - 3,135.79

Mining & Quarrying 1,345.11 - - - 11,894.61 816.95 - - 1,241,964.22 8,641.41 8,515.77

Manufacturing 601.80 - 526,634.15 557,060.84 4,089,455.50 210,654.29 - - - 3,565,178.73 941,073.85

Electricity, Gas & Water Supply 421.12 - 72,110.56 50,851.20 559,957.86 28,844.31 - - - 488,170.09 171,811.53

Construction 589.27 - 13,481.02 4,753.30 104,683.74 5,392.42 - - 8,197,840.50 45,631.53 40,150.06

Wholesale & Retail 829.72 - 572,910.45 202,003.59 1,112,200.83 229,164.87 4,903,122.60 - - - 1,365,023.61

Hotels& Restaurants 421.94 - 188,886.30 66,599.78 366,688.20 75,554.75 1,077,693.37 - - - 900,085.73

Transport, Storage & Comms 869.56 - 383,343.97 270,327.97 2,976,768.78 153,338.05 - - - 1,297,570.39 1,826,720.30

Financial Intermediation 739.87 - 368,537.58 454,801.81 - 515,954.16 262,837.03 - - - 219,520.57

Real Estate, Renting & Business 1,695.11 - 1,706,253.46 2,105,639.13 - 2,388,762.00 1,216,881.56 - - - 1,016,335.22

Public Admin & Defence 422.45 729,109.72 678,508.88 478,473.50 - 814,213.10 - - - - 874,287.75

Education 541.17 - 260,515.23 1,102,266.79 - 416,825.62 - - - - 465,530.15

Health & Social Work 511.94 - 280,831.71 1,188,227.90 - 449,332.08 - - - - 501,834.87

Other Community 1,496.73 - 532,776.75 1,502,822.20 - 1,065,556.69 1,519,882.52 - - - 634,700.28 TOTAL TARGET Total 729,109.72 5,584,790.07 7,983,828.00 9,478,292.57 6,380,849.46 8,980,417.09 1,077,234.22 9,439,804.73 5,405,192.16 9,162,453.77

TOTAL ACTUALper person per week 422.45 781.64 789.07 670.33 853.76 851.05 1313.42 636.32 624.20 688.62

The third stage involves calculating the weekly cost of these men taking paternity leave as shown in the Table below. This process is more accurate for men compared to women since data on the number of births per year by occupation of father is available12

Births by Occupation of Father

GDP Generated per Week per Occupation

Total cost of Paternity Leave per Week (GDP Loss)

Armed Forces 76.00 422.45 32,106.38

Legislators, Senior Officials & Management 352.00 781.64 275,139.02

Professionals 475.00 789.07 374,806.93 Technicians & Associate

f l452.00 670.33 302,989.67

Clerks 227.00 853.76 193,804.36

Service Workers & Shop & Market Sales Workers 413.00 851.05 351,485.29

Skilled Agriculture & Fishery 71.00 1,313.42 93,252.68

Craft & Related Trades 586.00 636.32 372,881.67

Plant & Machine Operators 288.00 624.20 179,768.40

Elementary Occupations 356.00 688.62 245,148.14 Total 3,296.00 2,421,382.54

. The weekly cost of paternity leave to the Maltese economy has been derived based on number of fathers per employment category and the average wage per category

13

One can note from the table above that the number of men registered as having a child in 2008 at 3,296, is much lower than the number of women who gave birth registered at 4,126. This discrepancy is due chiefly to that fact that the father is not always known, and hence not entitled to

12 Demographic Review 2008; NSO 13 Demographic Review 2008; NSO

17

paternity leave. On the other hand, given the higher employment ratio for males, the number of fathers who can claim paternity leave at 2,268 is significantly higher than that of mothers.

The total cost of men taking paternity leave per week in 2008 is estimated at €2.42 million worth of value added representing 0.06% of the GDP. The cost of a week of paternity leave in the Maltese economy is thus just under twice that for women, reflecting the higher employment and wage rates for men.

Following an approach similar to that carried out for maternity leave, the cost of a week of paternity leave for the private sector can be estimated at €1.86 million worth of value added, which is equivalent to 0.05% of annual private sector GDP.

7. The Costs of the Measures Proposed in the Estrella Report

Following the calculation of the weekly costs of maternity and paternity leave, the cost to the Maltese economy of the measures proposed in the Estrella report can be estimated as follows:

• Increasing maternity leave from the current 14 weeks to 20 weeks: Taking the weekly cost of maternity leave of €1.26 million and multiplying this by the extra 6 weeks that are currently being proposed, the cost of increasing maternity leave amounts to €7.5 million worth of value added, equivalent to 0.18% of GDP.

• Introducing 2 weeks of paternity leave: Taking the weekly cost of paternity leave of €2.42 million and multiplying this by the 2 weeks that are currently being proposed, the cost of introducing paternity leave amounts to €4.8 million worth of value added, equivalent to 0.12% of GDP.

For the private sector of the economy, the cost can be estimated as follows.

• Increasing maternity leave from the current 14 weeks to 20 weeks: Taking the weekly cost of maternity leave of €0.88 million and multiplying this by the extra 6 weeks that are currently being proposed, the cost of increasing maternity leave amounts to €5.3 million worth of value added, equivalent to 0.12% of private sector GDP.

• Introducing 2 weeks of paternity leave: Taking the weekly cost of paternity leave of €1.86 million and multiplying this by the 2 weeks that are currently being proposed, the cost of introducing paternity leave amounts to €3.7 million worth of value added, equivalent to 0.1% of GDP.

It should be noted that the significant discrepancy between the weekly cost of maternity leave and the weekly cost of paternity leave is essentially due to two main factors. The first being that the value added of women, as reflected by the wages women receive in Malta, is lower than that of men. The second reason is that the number of new fathers in employment is larger than the number of new mothers in employment. This means that there are more men entitled to paternity leave,

18

80% of men having a child in 2008 were employed, than women entitled to maternity leave, 55% of women having a child in 2008 were employed. This reflects the costs of these measures to the economy.

Therefore, from an aggregate perspective, these measures are estimated to potentially reduce the economy’s GDP by 0.29%, and hamper the value added of private business by 0.25%14

. These are relevant results especially against the backdrop of an economy that is struggling to continue emerging from a recession, and that the post-recessionary environment will impose significant additional challenges related to competitiveness, climate change, costs and population ageing.

8. Sensitivity Considerations: Substitutability of Workers and Take-up Rate

Substitutability

It has so far been assumed that the total value added of a worker on maternity or paternity leave is lost. However there may exist some degree of substitutability, whereby colleagues may temporarily increase their output as they take on a number of responsibilities of the parent on maternity or paternity leave. Such substitutability would alter the cost of maternity and paternity leave considerably.

Take-up rate

A note about the assumed take up rate is also warranted. In the above calculations no allowance has been made for women and men who are entitled to the maternity or paternity leave but do not take the full leave entitlement for any number of reasons. If new parents should not use their entitled time away from work then this would also impact considerably the above calculations.

For the two reasons noted above the cost workings are also presented under a number of scenarios. The first scenario, displayed in the top left corner of the tables below, is the baseline described throughout this document, with a 100% take-up rate and no element of substitutability. Both the take-up rate and the substitutability have been changed along the rows and columns to provide a measure of the costs involved in the different scenarios. With a take-up rate varying between 50% to 100% and work substitutability varying from 0% to 10% the cost of the 6 extra weeks varies from €3.39 million to €7.54 million, while the cost of an extra 4 weeks of maternity leave varies from €2.26 million to €5.03million.

14 The final percentages may not tally with the two components that are within it for reasons of rounding off. The totals are presented in their actual values and have not been amended to tally with the components.

19

Increasing Maternity Leave by 6 Weeks

0% 5% 10%100% 7,540,339.11 7,163,322.15 6,786,305.20

90% 6,786,305.20 6,446,989.94 6,107,674.68 75% 5,655,254.33 5,372,491.62 5,089,728.90 50% 3,770,169.55 3,581,661.08 3,393,152.60

Take

up

Substitutability

Increasing Maternity Leave by 4 Weeks

0% 5% 10%100% 5,026,893 4,775,548 4,524,203

90% 4,524,203 4,297,993 4,071,783 75% 3,770,170 3,581,661 3,393,153 50% 2,513,446 2,387,774 2,262,102

Substitutability

Take

up

With a take-up rate of the 2 weeks of paternity leave varying between 10% to 100% and the work substitutability varying from 0% to 10%, the cost of the introduction of the 2 weeks varies from €0.44 million to €4.84 million.

Introducing 2 Weeks of Paternity Leave

0% 5% 10%100% 4,842,765.08 4,600,626.83 4,358,488.58

50% 2,421,382.54 2,300,313.41 2,179,244.29 20% 968,553.02 920,125.37 871,697.72 10% 484,276.51 460,062.68 435,848.86

Substitutability

Take

up

Taking these costs as a proportion of GDP as at 2008, and the expenditure on wages in the same year further illustrates the implications of these proposals.

Indeed, the following tables present the costs as a proportion of GDP of the extra 6 weeks and 4 weeks of maternity leave.

Cost of 6 weeks maternity leave as % of GDP

0% 5% 10%100% 0.18% 0.17% 0.16%

90% 0.16% 0.15% 0.14%75% 0.13% 0.13% 0.12%50% 0.09% 0.08% 0.08%

Substitutability

Take

up

20

Cost of 4 weeks maternity leave as % of GDP

0% 5% 10%100% 0.12% 0.11% 0.11%

90% 0.11% 0.10% 0.10%75% 0.09% 0.08% 0.08%50% 0.06% 0.06% 0.05%

Substitutability

Take

up

The table below presents the cost of the introduction of 2 weeks paternity leave as a percentage of the GDP of the Maltese economy which varies according to the scenarios established above.

0% 5% 10%100% 0.11% 0.11% 0.10%

50% 0.06% 0.05% 0.05%20% 0.02% 0.02% 0.02%10% 0.01% 0.01% 0.01%

Substitutability

Take

up

The table below presents the costs of the extra 6 and 4 weeks of maternity leave as a percentage of the total wage bill of the Maltese economy.

Cost of 6 weeks maternity leave as % of wage bill

0% 5% 10%100% 0.30% 0.29% 0.27%

90% 0.27% 0.26% 0.25%75% 0.23% 0.22% 0.20%50% 0.15% 0.14% 0.14%

Substitutability

Take

up

Cost of 4 weeks maternity leave as % of wage bill

0% 5% 10%100% 0.20% 0.19% 0.18%

90% 0.18% 0.17% 0.16%75% 0.15% 0.14% 0.14%50% 0.10% 0.10% 0.09%

Substitutability

Take

up

Similarly the table below presents the cost of the introduction of 2 weeks of paternity leave as a percentage of the total wage bill of the Maltese economy.

0% 5% 10%100% 0.19% 0.18% 0.18%

50% 0.10% 0.09% 0.09%20% 0.04% 0.04% 0.04%10% 0.02% 0.02% 0.02%

Substitutability

Take

up

21

9. Implications for Small and Micro Enterprises and for Vulnerable Sectors

The workings presented in this report highlight the cost that will be borne by the Maltese economy and the enterprises in Malta as a consequence of the introduction of the measures that have been proposed. These costs appear to be substantial, especially when related to the levels of GDP generated by the Maltese economy. It is also considered precarious to impose relatively large additional costs on an economy when it has just gone through a period of very low growth as has been the case recently. This is considered to seriously jeopardise the competitiveness of the national economy and could also have a considerable impact on the prospects for recovery.

The issue is further compounded by the business size composition of the Maltese economy. In 2008 there were 28,285, or 54% of businesses, which employed nine persons or under and therefore are considered micro enterprises. When the number of small enterprises15 is added, this results in a total of 56% of all businesses falling under the category of being either micro or small enterprises16. The dominance of small and micro enterprises is not only displayed in the number of such enterprises but also in the people employed within such enterprises. Micro enterprises play a significant role in employment levels in Malta, with 44,624 people employed within micro enterprises and 22,685 people employed within small enterprises17

These enterprises are especially vulnerable when it comes to the issue of maternity and paternity leave. Small and micro enterprises suffer disproportionately from the burden of providing maternity and paternity leave due to their relatively smaller size which makes the financing of such leave and the loss of output associated with such leave a significant proportion of their total output. Small and micro enterprises also suffer disproportionately due to their reduced ability for substitutability between workers whereby a high dependence of the work falls on their restricted pool of employees. This results in the erosion of business competitiveness when essential human resources are lost. This is supported by a study by Alewell and Pull (2003) which indicates that firms of a small size and those with a large percentage of key un-substitutable workers will suffer disproportionate burdens in terms of maternity leave. The authors suggest that policymakers consider differentiating support to take into account employer size and types of jobs. In addition they also recommend that policy makers could alleviate the costs of maternity leave for employers and decrease the female-male wage differential by looking for other ways of financing maternity pay. International comparisons of maternity pay solutions may serve as helpful examples.

(2004), out of a total of 92,000 people employed. The gross value added (GVA) produced by small and micro enterprises in 2004 amounted to €1,665 million, equivalent to 44.7% of the total GVA generated in 2004. These statistics verify the importance of the small and micro enterprise portion of the economy and the dependence of the Maltese economy on such enterprises.

18

15 The definition of ‘Small enterprises’ follows the NSO definition of enterprises that employ between 10 and 49 persons. The data on business demographics contains a large number of nil or missing categories which leads the authors to believe that the value of small enterprises are underestimated.

16 News Release, Business Size; NSO 17 A review of micro and small enterprises: 2002-2004; NSO 18 Alewell D & Pull K. (2003), "An International comparison and assessment of maternity leave legislation" Comparative Labour Law and Policy Journal

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The costs of the proposed measures, unless adequately mitigated, will be disproportionately heavy on small and micro enterprises. This can be illustrated further in the table below, which displays the female employment intensity in various sectors as well as the proportion of small and micro enterprises in the same economic sectors. The effect of the proposals are not limited to any specific sectors, as shown from the table but the effect is spread over many sectors, depending either on the female intensity of their workforce or from the concentration of small and micro enterprises in their sector.

Female Employees

Total Employees

Female Intensity

Distribution of Small & Micro enterprises

Agriculture, Hunting &Forestry 108 1,266 9% 0%Fishing 10 83 12% 0%Mining & Quarrying 14 567 2% 0%Manufacturing 4,975 22,308 22% 17%Electricity, Gas & Water Supply 191 3,626 5% 0%Construction 428 8,795 5% 10%Wholesale & Retail 6,919 18,007 38% 38%Hotels& Restaurants 5,125 12,060 42% 10%Transport, Storage & Comms 3,127 11,568 27% 8%Financial Intermediation 3,206 5,938 54% 2%Real Estate, Renting & Business 3,520 9,042 39% 16%Public Admin & Defence 4,580 13,977 33% 0%Education 8,698 13,299 65% 0%Health & Social Work 6,673 11,916 56% 0%Other Community 2,199 6,096 36% 0%

49,773 138,547 100%

The analysis presented in the above Table presents a very important consideration. The sectors which in recent years have been most vulnerable to competitiveness pressures but which as yet remain major employers (generating around 40% of jobs in the private sector) in Malta are Manufacturing, Wholesale and Retail and Hotels and Restaurants. These, however, are also among the sectors which present, in the private sector, the highest degrees of female employment intensity coupled with the prevalence of small and micro enterprises. It is therefore very likely that these vulnerable sectors will be significantly adversely affected by the costs of the extension of parental leave as identified in the previous section.

10. The Challenges to the Future Labour Market and Alternative Policy Approaches

There is a final important point to make in relation to the analysis conducted in this report with respect to the extension of parental leave. This relates to the fact that the proposed measures are in a way intended to incentivise the participation of women in the labour force by providing them with a better arrangement in the case of becoming parents. This could also lead to some increase in employment through the requirement of the introduction of temping practices work19

19 Temping work refers to short-term jobs that are used to fill in vacant posts for a short period of time and are often used to fill in for employees on maternity or paternity leave.

.

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On the other hand, it can be equally argued that the extension of parental leave would actually reduce the female employment rate which currently stands at 37.7% of working age female population in Malta, significantly lower than the EU 27 ratio of 58.6%. This can also be compared to the male employment rate of 71.5%, which is above the EU 27 value of 70.7%20. The proposals render women less competitive in the market-place for jobs, and would overall lead to deteriorating employment prospects for everyone by increasing the costs of operation to business, particularly those depending on small and micro enterprises. This is because the issue of who bears the cost of the measures proposed is central to the effectiveness of the measures to achieve the stated objectives. If these costs are borne by the employers, there is a serious risk that the persisting wage discrepancies that currently exist between female and male employees may widen as employers factor in the increased burden of employing a woman. In addition, it may also fuel preferences to assign male employees to positions of strategic importance to the firm, and may also put firms off employing women at all. Although such action is not legally acceptable, it is known to be reflected in the decisions made by employers. This is in fact reflected in the lower presence of women in positions of prominence and of the continuing pay discrepancy reported in every single sector of the Maltese economy as can be seen below21

Econonomic activity Males Females DifferenceNo Av Wage € No Av Wage € Av Wage €

Agriculture hunting and fores 1,157.50 12,631.14 108.25 7,978.41 4,652.73Fishing 72.75 11,951.26 10.25 2,665.35 9,285.92Mining and quarrying 553.25 14,693.04 13.75 2,933.91 11,759.13Manufacturing 17,333.25 13,710.71 4,974.50 11,702.19 2,008.53Electricity gas & water supply 3,435.50 14,657.34 190.75 11,994.32 2,663.02Construction 8,366.75 12,012.08 427.75 11,360.89 651.20Wholesale and retail 11,088.25 13,085.58 6,919.00 9,716.55 3,369.03Hotels & restaurants 6,934.25 12,463.48 5,125.25 9,418.78 3,044.70Transport storage & comms 8,440.75 16,048.61 3,127.25 13,008.35 3,040.25Financial intermediation 2,732.50 21,727.34 3,205.75 14,174.86 7,552.48Real estate renting and bus 5,521.75 16,673.42 3,520.25 12,114.53 4,558.90Public admin and defence 9,397.25 14,703.69 4,579.75 13,648.17 1,055.51Education 4,601.00 16,897.21 8,697.75 13,884.20 3,013.01Health and social work 5,243.00 16,045.31 6,673.25 11,909.57 4,135.74Other community 3,897.00 14,364.80 2,199.00 10,622.05 3,742.76

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There may be a number of alternative policy approaches that might be better suited to achieve the objective of promoting an improved reconciliation of work, family and private life without indirectly having a secondary negative effect on female participation and wage differentials. Such routes include improvements in the support structures that aid women and men to cope better with parenthood and manage the increased pressures to obtain a better work life balance. Such support structures include affordable childcare support for younger children, which allows women to return to work following the birth of a child, support for flexible working hours and of remote-work practices to allow women the flexibility of raising children while working at the same time. This need for a family-friendly environment is especially strong in Malta, which for many years has relied on informal extended family support for child rearing working women. Malta is also lacking in the

20 EUROSTAT Labour Force Survey Main Indicators 21 The definition of ‘employed’ according to the Labour Force Survey is: anyone who worked at least 1 hour in the reference week for a wage or salary. This would therefore include part-time workers too. 22 Labour Force Survey; NSO

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provision of flexible working conditions that would facilitate the multiple roles of working mothers and fathers and improve their work life balance. This gap in provision of support structures and flexible working environments are likely to achieve the aims supported in these proposals without the associated heavy burden on the economy and private enterprises and without the counterproductive effect on female participation and wage differentials that the current proposals are likely to bring about. These support structures would furthermore complement and further valorise recent fiscal initiatives which provide substantial incentives to women to continue working after childbirth or to return to the labour market after an absence related to child care. On the other hand, it may be argued that the extension of maternity leave may actually run counter to the aims of implementing such fiscal incentives in the first place.

11. Conclusion

The conclusion of this study summarises its findings in respect of the stated hypotheses on the EU legislative proposals regarding the extension of maternity and paternity leave for the Maltese economy.

The study argues that the benefits from these proposals are relatively marginal, given that there is already a significant extent of maternity leave being granted, while the costs tend to increase per week of additional parental leave granted, and possibly in an exponential manner. Furthermore, whereas the benefits can only be estimated with a very high degree of uncertainty, the direct costs in terms of loss of output can be quantified statistically.

In respect of the latter, it is found that increasing the maternity leave from the current 14 weeks to 20 weeks as proposed in the Estrella report would potentially cost the economy €7.5 million worth of value added in a year, equivalent to 0.18% of GDP. Of this, the cost to private business would amount to €5.3 million worth of value added in a year, equivalent to 0.14% of private sector GDP. Introducing two weeks of paternity leave would cost the economy €4.8 million in terms of value added in a year, equivalent to 0.12% of GDP. Of this, the cost to private business would be €3.7 million in a year in terms of value added, equivalent to 0.1% of GDP. These costs are subject to issues of take-up of leave and substitutability of workers.

In total, these measures would dent the economy’s GDP by 0.29%, and reduce the value added of private business by 0.25%23

These costs in the Maltese economy are especially relevant given the predominance of small and micro enterprises which will be especially hit in terms of the difficulties they face to substitute absent workers. Small and micro enterprises play a significant role in employment levels in Malta,

. These figures are significant when it is considered that the economy is struggling to continue emerging from a recession, and that the post-recessionary environment will impose significant additional challenges related to competitiveness, climate change, costs and population ageing.

23 The final percentages may not tally with the two components that are within it for reasons of rounding off. The totals are presented in their actual values and have not been amended to tally with the components.

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accounting for over 70% of employment in the private sector. It is also found that firms which continue to be relatively large employers and are especially vulnerable to competitiveness pressures will be more significantly affected by these proposals. The Manufacturing, Wholesale and Retail and Hotels and Restaurants Sectors, which together account for around 40% of private sector jobs, have an especially pronounced dependence on small and micro enterprises and on female employees.

The study furthermore considers the fact that the extension of maternity leave could reduce female employment rates by rendering women less competitive in the market-place for jobs. This would overall lead to deteriorating employment prospects for everyone by increasing the costs of operation to business. Furthermore, there is a serious risk that the persisting wage discrepancies that currently exist between female and male employees may widen as employers factor in the potentially increased burden of employing a woman.

The study finally argues that there may be a number of alternative policy approaches that might be better suited to achieve the objective of promoting an improved reconciliation of work, family and private life without indirectly having a secondary negative effect on female participation and wage differentials. Such routes include improvements in the support structures that aid women and men to cope better with parenthood and manage the increased pressures to obtain a better work life balance.