Mothers continue to leave workforce – what it costs companies and the way forward
Most companies looking to identify and analyze the major cost drivers in their labor force encounter the usual culprits – rising health care costs, competition for talent and wider benefit offerings. However, a trend that often gets overlooked, but should be of great concern to employers, is the cost related to women who leave the workforce to raise children.
While women have several well-intentioned motivations to take this decision, it has distinct negative consequences for companies. These include replacement and retraining costs, and reduced diversity especially in the upper ranks. Also, when companies do not provide adequate support to women returning to work after maternity leave, they are unable to assimilate, so leave, and are subsequently labelled as quitters who could not handle the workload. With this cycle, companies are inadvertently perpetuating a stigma that has negative consequences for them and the overall economy.
This paper will analyze the current trends which are causing increasingly negative outcomes for both businesses and female employees. It will also offer workable solutions for large and small companies seeking to tackle these “shadow” costs that not only adversely affect the bottom line, but also have negative social consequences.
Losing qualified women impacts the bottom line
The naysayers can argue that there is limited comprehensive study and survey work to indicate that this is a problem of scale for the economy. However, we have used publicly available information to prove that the cost to the economy is real and substantial. Historically it has been an accepted trend that women will leave the workforce to raise children. The attitude towards this long-standing trend is; “if it ain’t broke, don’t fix it.” However, our work suggests that not only are women needed more than ever as a working member of the family, but changing gender roles driven by women obtaining advanced degrees and in many cases becoming the higher earning spouse requires us to completely rethink traditional attitudes.
Take the most recent Bureau of Labor Statistics employment report from July 2018. It showed a continuing trend of more women leaving jobs and a staggering 287k decline in reentries. For companies, the cost of recruiting, hiring, re-benefiting and retraining replacement employees can be between 1.5-2.0x the former employees’ salary.
Additionally, a Harvard Business School survey of 610 CEOs estimated that typical mid-level managers require over six months to “break-even.” Based on the average salary range of an urban, educated, professional employee, the aggregate annual cost of this attrition is potentially between $18-24bn with many months required to adequately complete workplace integration. It is likely that these costs are mostly borne not only by established large corporations but also smaller high growth firms who cannot afford delays and additional costs of workplace churn.
The gender gap explained in numbers
Traditional attitudes about women’s place in the workforce likely inhibits a constructive discussion about the problems of exit and reentry. There are 250mm people of working age in the U.S. and while women are nearly 52% of this population, they represent 57% of all workplace participants. More striking is the fact that 70% of women with children under the age of 18 work compared to a total workforce participation rate of 63%. Despite these statistics, which clearly show that women are over-indexed, they encounter a nearly 22% wage gap and face significant reentry hurdles.
A recent McKinsey study demonstrated that as women progress through their careers, they become significantly underrepresented relative to their male counterparts. Add to this the fact that many dynamic women take a career break for a few years to raise young children, and the ability to overcome that “setback” seems insurmountable. Women looking to reenter and even regain their previous career tracks are more likely to end up being underutilized, feeling discouraged, or deciding to permanently exit the workplace.
Robust parental leave and cultural changes are the way forward
Based on this data, it is clear that we have a major problem. What is the solution? While there is no one-size-fits-all approach, but two actionable ideas, one on the policy level and the other on the corporate culture level could provide avenues for improvement. These include mandated paid parental leave and customized roles to make workforce reentry more appealing for women.
Paid parental leave gained a renewed importance during the 2016 presidential election when then-candidate Donald Trump made six weeks of paid maternity leave an official campaign promise. Current federal policy is dictated by the Family and Medical Leave Act (FMLA) of 1993 which mandates 12 weeks of unpaid family leave. While 25 states have expanded benefits, namely longer leave and broader eligibility requirements, only a handful of states actually offer paid leave.
While increased costs for companies has long been a counter argument to a government mandate, California is one of three states to offer mandated paid family leave and has seen very little in the way of cost increases. There is likely a netting effect of “investing” in an already trained employees’ temporary leave rather than the cost previously identified to replace that employee. Research has shown that paid leave not only increases the chances that a worker will return after childbirth, but also helps them maintain better wages over the longer term, removing the need to go on public assistance. For the employer it has ancillary benefits like better employee morale, no discernable negative impact to productivity, and lower costs.
The second idea is to work with employers to create customized roles for mothers looking to reenter the workforce. Companies such as Uma are attempting to spearhead this effort at both large and small companies. The benefits for employers include lower costs (reduced hours, reduced benefit requirements) and higher productivity (more during less time) all the while creating a positive environment for women to reengage with the workforce strengthening families and incomes.
Research shows that when mothers reenter an organization after their maternity leave, that career phase poses various demands on them from both domains – work and family. At this time, social support from the organization can play a pivotal role in helping them succeed. This support can include coaching/mentoring and extra training, all of which increase the chances of a successful transition. Most companies will find that investing in maternity coaching and other such measures that help women re-enter and remain in the workforce, are well worth the investment.
While there is much work to be done, identifying and addressing the core issues affecting qualified women attempting to return to the workforce is an important start. It is critical for companies looking to reduce costs and improve employee productivity and morale to take this issue seriously as it is clearly quantifiable and real. We believe as more and more companies take the lead the U.S. can be a global leader in realizing the vast potential of some of its most talented and productive people.