Parental leaves and parents' labor market outcomes

Abstract

Parental leaves are widely implemented in most developed countries and have in part allowed women to enter the workforce in large numbers. Maternity leaves have been attributed to some of the increase in women’s employment rates and convergence of the gender wage gap in the past century. This master’s thesis provides a literature review on parental leaves, their impacts on parents’ labor market outcomes and their connections to the child penalties attributed to having children.

Recent empirical literature has found that having children leads to large, long run reductions in labor supply and earnings for women, while men are not impacted by children in these terms. This so-called child penalty can be found consistently in developed countries. Newer research also suggests that most of the gender wage gap may be attributed to child penalties. This master’s thesis adds to the discussion with a literature review on child penalties and the shows that child penalties range from 20-30% in Nordic countries to up to 60% in certain European nations. Child penalties are consistent even with same sex couples, adoptive parents and different fields of work, as highly educated women in competitive fields see a large child penalty. Recent literature suggest that long parental leaves have increased child penalties, and the ability of family policies to reduce child penalties is unclear.

Maternity leaves are on one hand suggested to increase women’s employment by upholding women’s human capital and reducing frictions to find employment after maternity leave. On the other hand, long maternity leaves could be inducing longer leaves and the long employment breaks could be harmful to mothers’ careers. Empirical literature indicates that maternity leaves have increased women’s employment and maternity leaves. Short maternity leaves (duration up to a year) have been connected to increasing mothers’ employment, in line with the theory. Longer maternity leaves, specifically without job protection seem to be harmful for women’s employment. The job protection-aspect of a maternity leave seems more influential to women’s employment. The earnings impacts of maternity leaves are mixed, but reducing leaves has been connected to positive earnings.

The current parental leave policies shift towards shared parental leaves, and fathers’ quotas have been introduced. The literature has found that even short paternity leaves are able to increase fathers’ leave taking and, in some cases, increase father’s share of household work. The impact of paternity leaves on mothers’ labor market outcomes are mixed. Recent literature on child penalties also suggest that paternity leaves might not be able to reduce child penalties in their current form.