The growth of women’s participation in the labor market in the world, and also in the Republic of Serbia, besides the undoubtedly positive effects on economic growth and development, improvement of living standards, and reduction of the risk of poverty, has also had its negative effects. Unpaid household work has mostly remained on women’s shoulders, so women, in addition to paid jobs, also take care of the household, family, children, and elderly members of the household.
This has also influenced the increasingly common decision to have smaller families, with one or two children. The employment rate of women follows the trend of women’s participation in the labor market. Both have been growing throughout the 20th century, while the growth trend has slowed down in the last 20 years. Women do much more unpaid work at home or work in the informal economy in less developed countries. Policies that establish a balance between private and professional life and encourage the sharing of household duties can positively affect women’s activity in the labor market.
In order to raise awareness in society about the burden that women carry and to ease it, developed countries have started to develop social policies aimed at families with children. European countries, in the period after World War II, have increasingly worked on developing and improving these policies. They expected that the development of social policies would reduce the effect of depopulation.
However, it turns out that it is necessary to work in many areas in order to reduce these effects. Despite developed policies, in most European countries the fertility rate is lower than what is needed for simple population replacement.
Many factors lie behind this fact, and some of them are: the need of families to provide a better standard of living for their children, greater dedication through families with fewer children, education of women which enables them to have better-paid jobs, etc. There are also risks of career stagnation or slowing down after childbirth, loss of status at work, reduction of salary, and similar issues. For these reasons, women in developed countries decide to have children later and have fewer children.
Serbia, as a developing country, has a very low fertility rate. In order to increase the fertility rate, in the previous period many policies have been introduced that should provide support to mothers. However, it is necessary to develop additional policies, in the direction of long-term provision of economic security for mothers. This can be achieved by providing incentives to employers to keep mothers in their jobs after returning from maternity leave and/or leave for child care.
Therefore, the task of the Institute for Development and Innovation was to study existing policies towards parents in developed countries, to see their impact on the fertility rate, and to propose an economic policy measure that has the potential to positively affect the fertility rate in the Republic of Serbia.
Serbia, as a developing country, has a very low fertility rate of 1.48, and in order for this rate to increase, it is necessary to develop additional policies aimed at ensuring the long-term economic security of mothers.
The economic policy measure proposed by the Institute for Development and Innovation, in order to protect women after returning from child care leave, is the subsidizing of mandatory social security contributions. Policies that reduce labor costs, which can positively affect the position of women after childbirth in the labor market, include subsidizing total contributions for pension and disability insurance, health insurance, and unemployment insurance.
The measure includes a three-year reduction of contributions for pension, disability, and health insurance and unemployment insurance for women who return to work after maternity leave and/or leave for child care. Also, the measure would include unemployed or inactive mothers who find employment until the child reaches two years of age. In the first year, the subsidy of mandatory social security contributions would amount to 65%, in the second 60%, and in the third 50%.
The measure includes a reduction of contributions both on the employer’s side and on the employee’s side. For example, if such a measure existed in 2022, if the total cost for the employer (gross 2) of an employed mother with a net salary of 57,735 dinars was 92,465 dinars, after the introduction of subsidies it would amount to 65,454 dinars in the first year, 67,531 dinars in the second year, and 71,687 dinars in the third year. The use of this measure would be accompanied by the obligation of the employer not to dismiss the mother after returning from child care leave as long as they receive the state subsidy. In case the employee voluntarily leaves the job due to finding another job, she carries the subsidy with her, and the employer is not obliged to return the funds received based on the subsidy.
However, in the case of mutual termination of employment, if the employee does not have a new job, the employer will be obliged to return the full amount of the received subsidy to the state. In this way, an additional measure of protection for mothers after returning to work is introduced. The measure would also include women entrepreneurs, as well as unemployed and inactive mothers who find employment in the period after childbirth until the child reaches two years of age.
Multiple positive effects include long-term job retention of mothers, incentives for employment of those who were unemployed before childbirth, reduction of financial dependence of mothers, and the possibility of their career development. The mentioned measure represents an incentive for employers to keep mothers in their jobs in the long term.
A positive effect will also be achieved by employers who hire mothers who were unemployed or inactive in the labor market before childbirth. In this way, unemployment among mothers will be reduced and the possible risks of exposure to financial dependence and poverty will be lowered. By introducing the proposed measure, a clear signal is sent to women that the state cares about their financial future and understands the problems they face in the labor market. By introducing this measure, the state would show that it supports women in their career development.
In the first year, the subsidy of mandatory social security contributions would amount to 65%, in the second 60%, and in the third 50%.
The proposed measure is also beneficial for companies, whose operating costs will be reduced. Considering that the measure is intended for companies, the state shows that it has understanding for employers and the challenges they face in the business process. In the Serbian economy, micro, small, and medium-sized enterprises dominate (99% of the economy), contributing nearly 58% to the gross domestic product. This group of enterprises employs 65% of all employees. Therefore, it is important to enable their survival in the market and to make their operations as easy as possible.
An important element of that process is the possibility of reducing labor costs. In order for micro, small, and medium-sized enterprises to have an incentive to retain mothers after returning from maternity leave and/or leave for child care, it is necessary to provide a certain type of incentive. The subsidy for mandatory social security contributions is a type of incentive that will be important for companies precisely because it reduces labor costs, that is, operating costs.
The proposed measure would bring benefits to society, but it also requires costs. Improving the position of mothers in the labor market can be achieved by introducing a fiscal policy measure of subsidies on mandatory social security contributions on both the employee’s and employer’s side. In order to estimate the costs, we created three scenarios. The first scenario is a conservative one, which assumes that the introduction of the measure does not lead to significant changes in the labor market, and the cost of the subsidy in the third year would be 298.1 million euros, while about 118 thousand mothers would be covered by the measure.
According to the second scenario, the positive effects of the measure on the labor market are more noticeable in the second and third year compared to Scenario 1. The moderately optimistic Scenario 2 predicts that the costs of the introduced subsidy in the third year will reach 321.2 million euros, and 127 thousand mothers would be covered by the measure. The third scenario is the most optimistic, in the sense that significant effects of the introduced measure on the labor market are visible already in the first year. The costs of the measure in the third year according to Scenario 3 amount to 336.4 million euros, and it is estimated that 133 thousand mothers would be covered.
Depending on the scenario, the costs of implementing the proposed measure would range from 298 to 336 million euros per year.
Subsidizing the payment of mandatory social security contributions should provide mothers with three-year protection from job loss, and it will positively affect female entrepreneurship, as well as the reduction of the risk of poverty and the improvement of working conditions for mothers. Reducing the labor costs of employed mothers will lower their cost of work, which opens space for increasing their wages and reducing the gender pay gap. Considering that the labor supply in Serbia is modest, all measures that encourage the growth of the workforce are welcome. Additional labor engagement of mothers will also have a positive impact on the country’s gross domestic product.
The proposed measure of introducing subsidies for the payment of mandatory social security contributions is unique in combining labor market policy, gender equality, and demography. In Europe, there is no country that has chosen to implement such a policy to improve these three very important social areas. Serbia would be the first country that, through the introduction of subsidies for mandatory social security contributions, would stimulate demography, gender equality, and economic activity. In the short term, the costs of the measure will be higher than the benefits, but in the long term, the whole society will benefit.
Author: Nenad Jevtović, economist, Institute for Development and Innovation
