Objective This study examined hospitalisations and associated in-patient costs for babies during the first year of life following spontaneous labour, compared with labour induction or prelabour Caesarean section, at each gestational age. Methods Birth data for singleton liveborn babies from 33 weeks gestation in New South Wales from 2005 to 2014 were linked to hospital and death data. Generalised linear models were used to examine the association between the type of labour and the length of hospitalisations and hospital costs. Results From 2005 to 2014, 598640 women gave birth to 1187451 liveborn singleton babies. The mean total length of hospitalisations and costs of hospitalisations for babies in the first year of life decreased significantly as week of gestational age increased to 39 weeks, then plateaued. Overall, the total length of hospitalisations and hospital costs were significantly (P<0.001) lower for babies born after spontaneous labour (5.6 days and A$8405 respectively) than for babies born following labour induction (6.1 days and A$9452 respectively) or prelabour Caesarean section (8.2 days and A$12320 respectively). Conclusions Babies born following spontaneous labour spend less time in hospital and have lower hospital costs than those born following labour induction or prelabour Caesarean section. Hospitalisations and costs decrease with each week of gestational age until 39 weeks. What is known about the topic? It is known that induction of labour and prelabour Caesarean sections are increasing, and this increase has changed the distribution of gestational age towards birth at earlier ages. It is also known that babies born before 39 weeks of gestation are at increased risk of mortality and morbidity. What does this paper add? This study shows that babies born following spontaneous labour spend the least amount of time in hospital and subsequently have the lowest hospital costs at each week of gestation compared with babies born following labour induction or prelabour Caesarean section. This study also shows a small but significant economic advantage of labour induction compared with prelabour Caesarean delivery. This study quantifies the mean time babies spend in hospital in their first year of life, by week of gestational age and mode of birth. What are the implications for practitioners? The findings from this study can assist clinicians in judicious decision making when balancing the risks and benefits of early planned births. Clinicians can use the results of this study to inform women who are intending to have a planned birth of risks they may not have anticipated, such as the increased risk of rehospitalisation. The finding that hospitalisations and costs continue to decline until 39 weeks gestation can be used to reinforce the importance of continuing the pregnancy beyond 37 weeks if safe to do so, even though 37 weeks is considered term.