Can a Tax on Organised Private Firms Help Achieve Gender Parity?

Indian women are disproportionately concentrated in jobs that pay lower wages and are often compelled to drop out of paid employment. Several factors are responsible for this, of which the most noteworthy is the compulsion for women to do unpaid domestic work. These can be divided broadly into maternity, paternity, and childcare work, though there are other kinds of work primarily women do.

Female government employees, permanent or temporary, are eligible for six months of maternity leave in India. This includes teachers, who comprise a sizeable segment of the government workforce. Maternity leave was recently extended to ad hoc female government employees, and unions are trying to get this provision implemented for all employees. Permanent male government employees are eligible for fifteen days of paid paternity leave. Gender equality and parity in paid employment depend on the government increasing paid maternity leave for women to twelve months. Besides, it must augment paid paternity leave for male employees to six months.

Given the rapidly changing family structures in the country, extended family members are increasingly unavailable for care work. Therefore, the duration of paid childcare leave should be increased to five years. This provision must apply to all women and men in government jobs who need it.

Indeed there are inadequacies in the government sector from the gender parity perspective. However, at least it has a structure for family-support leaves. It is available because women and men need time off to perform care work. It is due to the unions’ efforts that there is a policy-level “acceptance” of such leave in India.

Legal provisions for paid maternity and paternity or childcare leave are absent in the organised private sector. Organised private sector employers tend to under-employ women, creating numerous systemic biases against them, both at the workplace and while women search for a job. For example, employers expect pregnant employees to “disengage” from their work or “brave it out”. Both these so-called choices undermine the ability of women to join work or remain employed.

These “microeconomic” impacts on individual female workers nevertheless amount to systemic deprivations since they have deleterious “macroeconomic” consequences. The foremost adverse effect is on maternal and infant health, irrespective of which of the two “options”—disengaging or braving it out—the employed woman chooses. Second, such a false choice may compel female private-sector employees in the organised sector to postpone pregnancy until child-bearing has adverse effects on their and the child’s health. Third, if a woman employee “disengages” from her job during pregnancy, the firm she works in will incur adjustment costs, such as replacing her with another employee.

These three factors hurt women’s future potential productivity—“potential” productivity, because such women may not necessarily find a job in the future in the organised private sector! Of course, those who remain unemployed constitute a waste of social resources. If some organised private sector firms decide not to employ females, they (and the economy) forfeit the positive impact of gender diversity on innovation and labour productivity. Not providing care support measures may reduce how engaged employees feel in their jobs. Therefore, it can end up lowering both—productivity and innovation.

Can organised private sector firms overcome these challenges by voluntarily adopting family support leaves based on their own notions of ‘best practices’? More engaged employees, greater workplace diversity, and decreased turnover will surely help boost labour productivity and innovation. However, a single firm or multiple firms individually adopting care leaves will not have desired effects. Such changes tend to have a significant “externality” component. In other words, even if some “sentient” firms move towards paid maternity, paternity and childcare leave, their costs relative to revenues—compared with firms that don’t adopt these leaves—will be higher. Therefore, the prospects of ‘spontaneous diffusion’ of care leaves will prove limited.

After investigating various possibilities, these authors conclude that government intervention in the organised private sector through a tax and subsidy system can overcome these challenges. The government must devise such a system to ensure all employees get paid child-rearing leave. A cess on corporate tax could raise the required funds payable by all organised private sector firms. This cess can be in direct proportion to their profits. It would be irrespective of the gender distribution of employees among firms.

In turn, the government would distribute the revenue accrued from the cess amongst all workers who require family support leave. Suppose a firm does not engage employees who need such leaves in a given time frame, say, one year. In that case, the firm would lose out relative to firms that employ those who need such leave.

In effect, such a policy would be optimal for firms in the organised private sector, for they continuously aspire to enhance their post-tax profits. In the proposed system, employing female employees and providing paid maternity leave would benefit the firms.

The total value-added by the organised private sector will remain unchanged in a tax plus cross-subsidy system. The measure would be more equitable if the tax is progressive, with larger firms that earn higher overall profits paying a higher cess. Lastly, if tax revenue raised through this policy is less than required for the subsidy, the government can adjust the cess rate to balance these two. The consequent rise in diversity in the employed workforce (and reduced labour turnover, other than higher employee engagement) would mean more productivity and innovation. Profit and private investment would rise—provided demand remains stable. Since this tax cum cross-subsidy involves redistribution from profits to salaries, it would stimulate demand. After all, employees spend a larger fraction of their incomes than firms.

If this policy is successfully implemented, an informed debate on gender parity in the unorganised private sector can also occur. The caveat is that the unorganised private industry will likely be unable to make these payments. In that case, the government should raise the required tax revenue from the organised private sector. Even this will increase demand, output, investment and profits since unorganised sector workers have similar spending patterns as those in the organised private sector.

The policy impact of this cross-subsidy will encourage a much-needed structural shift in employment patterns. It will help reduce gender discrimination at workplaces and in the process of looking for work—and consequently, within the family. One of its results could be a gender-symmetric allocation of family resources. Such a policy could advance India towards the constitutional imperative of gender equality.

Shirin Akhter is an associate professor at the Department of Economics, Zakir Husain Delhi College, University of Delhi. C. Saratchand is a professor at the Department of Economics, Satyawati College, University of Delhi. The views are personal.