Employer Responses to Family Leave Programs

Abstract

Search frictions make worker turnover costly to firms. A three-month parental leave expansion in Sweden provides exogenous variation that we use to quantify firms' adjustment costs upon worker absence and exit. The reform increased women's leave duration and likelihood of separating from pre-birth employers. Firms with greater exposure to the reform hired additional workers and increased incumbent hours, incurring additional wage costs. These adjustment costs varied by firms' availability of internal and external substitutes. Economy-wide analyses show that a higher reform exposure is correlated with fewer hires and lower starting wages of young women compared to men and older women.

Maternity Leave and Paternity Leave: Evidence on the Economic Impact of Legislative Changes in High-Income Countries

“…Schmutte & Skira (2020) find that in Brazil-a country with rigid labor laws-firms exposed to leave-taking only slightly increase their hiring and could not replace the absent worker at a one-to-one rate. Ginja, Karimi, & Xiao (2020) also provide evidence that labor market conditions a↵ect how firms replace workers on leave. They show that in thick local labor markets, employers mainly increase hiring of new workers and do not change their existing workers' work hours-with the opposite e↵ects occurring in thin labor markets.…”

“…Finally, the substitutability of a firm's employees a↵ects how they fare with a coworker's leave-taking. Ginja, Karimi, & Xiao (2020) show that firms with a high fraction of sameoccupation employees primarily increase work hours of their employees in response to leavetaking, while other firms rely more heavily on new hires. Brenøe et al (2020) further find that firms with no other workers in the same occupation as the absent employee cannot fully adjust to leave-taking-despite having anticipated the leave.…”

“…The unexpected nature of these reforms implies that firms are unable to plan in advance for worker absence, which can in turn limit their ability to e ciently compensate for lost labor input and can therefore hurt their performance. Ginja, Karimi, & Xiao (2020) focus on such a reform in Sweden, which extended the duration of paid leave from 12 to 15 months. The researchers find that the reform induces mothers to take an additional 2.5 months of leave, but it also raises their likelihood of switching to another firm.…”

The Labor Market Impacts of America's First Paid Maternity Leave

“…For example, the availability of leave may affect the labor-force participation decisions and occupational choices of future parents or even non-parents. On the firm side, leave policies may have implications for hiring and other personnel decisions (Brenøe et al, 2018;Gallen, 2019;Ginja, Karimi and Xiao, 2020). Because mothers are more likely to make use of parental leave, these policies may also reinforce traditional social norms or create "glass ceiling" effects that reduce gender equality (Angelov, Johansson and Lindahl, 2016;Thomas, 2018;Xiao, 2021).…”

“…Parental leave and other family policies have been billed as tools to even the playing field by promoting flexibility in the workplace and labor-force attachment for mothers. The bulk of the empirical evidence on these policies comes from European settings, where allotments of leave, child care, and other amenities are relatively generous, and in this context expansions of family benefits often have small or even negative impacts on women's labor-market outcomes (Havnes and Mogstad, 2011;Ginja, Karimi and Xiao, 2020;Fernández-Kranz and Rodríguez-Planas, 2021;Kleven et al, 2021). This paper contributes to this literature by studying a modest expansion of paid leave in a setting with very few policies designed to support working parents.…”