A general equilibrium analysis of parental leave policies

Andres Erosa (), Luisa Fuster () and Diego Restuccia ()
Additional contact information
Diego Restuccia: University of Toronto, http://www.economics.utoronto.ca/diegor/

No 2009-10, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: Despite mandatory parental-leave policies being a prevalent feature of labor markets in developed countries, the aggregate effects of leave policies are not well understood. In order to assess the quantitative impact of mandated leave policies in the economy, we develop ageneral-equilibrium model of fertility and labor-market decisions that builds on the labormarket framework of Mortensen and Pissarides (1994). We find that females gain substantially with generous policies, but this benefit occurs at the expense of a reduction in the welfare of males. Mandated leave policies have important effects on fertility, leave taking decisions, and employment rate of mothers with infants. These effects are driven by how policy affects bargaining in job matches: Young females anticipate that there are some states in the future in which their threat point in bargaining will be higher. Because the realization of these states depend on the decisions of females to give birth and take a leave, the change in the threat point induced by the policy subsidizes fertility and leave taking. Unpaid parental leaves have a small impact on the time that mothers spend with their children but paid parental leaves can be an effective tool to encourage mothers to spend time with theirchildren after giving birth.

Keywords: human capital; labor-market equilibrium; parental-leave policies; fertility; temporary separations (search for similar items in EconPapers)
JEL-codes: E24 E60 J2 J3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-mic
Date: 2009-09-30

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Related works:
Working Paper: A General Equilibrium Analysis of Parental Leave Policies (2005)
Working Paper: A general equilibrium analysis of parental leave policies (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:imd:wpaper:wp2009-10

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