Firm Adjustments to Worker Absence

How do firms adjust when mothers take parental leave in a highly gender segregated labor market? How does it depend on the leave duration? How does it affect within firm gender inequality? To answer these questions, the authors of the paper presented in this Mannheim Applied Seminar study the effects of having a female employee being absent due to parental leave following her first childbirth using a dynamic difference-in-differences design. Using three decades of matched employer-employee administrative data from Austria, they compare the effects across four different policy regimes spanning from 1 to 2.5 years of parental leave. The authors find that firms almost fully substitute the worker on leave through (female) new hires. They can rule out even small effects on the probability of firm closure in the long run. However, they do find a long-term increase in the number of employees at the firm and the firm’s total wage bill. The increase in the wage bill is mainly driven by wages paid to men, thereby increasing gender inequality within the firm. The results are surprisingly similar across policy regimes.