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A general equilibrium analysis of parental leave policies

Andres Erosa (), Luisa Fuster () and Diego Restuccia ()

No 05-08, Working Paper from Federal Reserve Bank of Richmond

Abstract: An important feature of the U.S. labor market is that, even after controlling for measurable differences in education and experience, the average wage of women with children is 89 percent of the average wage of women without children. This \"family gap\" in wages accounts for almost half the gender gap in wages. Proponents of mandatory-leave policies argue that career interruptions associated with fertility have long-lasting effects on female employment and are costly in terms of human-capital losses for females. Despite the fact that mandatory leaves are widely applied in developed countries, their effects on the economy are not well understood. We develop and calibrate a general-equilibrium model of fertility and labor-market decisions to study the quantitative impact of such policies. We build on the Mortensen and Pissarides (1994) labor-market framework by introducing male and female workers, general and specific human-capital accumulation on the job, and temporary separations between the worker and a job. We find that: (i) the loss of specific human capital accounts for a small fraction of the wage gaps and (ii) mandatory-leave policies have substantial aggregate and redistributive effects on fertility, employment, and welfare. Interestingly, we find that the general-equilibrium effect of mandatory-leave policies is a reduction in the amount of time females spend at home with children.

Keywords: Labor market; Labor economics (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-hrm and nep-lab
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Related works:
Journal Article: A General Equilibrium Analysis of Parental Leave Policies (2010) Downloads
Working Paper: A general equilibrium analysis of parental leave policies (2009) Downloads
Working Paper: A General Equilibrium Analysis of Parental Leave Policies (2009) Downloads
Working Paper: A General Equilibrium Analysis of Parental Leave Policies (2005) Downloads
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