A Firm-Side Perspective on Parental Leave

While longer parental leave can help reconcile work and family life for parents, longer worker absences increase the gap in firms' business operations. The paper presented in this ZEW Research Seminar uses the universe of German employer-employee data subject to social security to take a firm-side perspective on parental leave. The authors first document a strong relationship between the length of parental leave taken by mothers and the availability of internal substitutes and external substitutes when limited parental leave benefits are offered. They then show that this link reduces substantially with the introduction of a parental leave reform granting generous wage replacements for up to 14 months after childbirth. The reform caused a strong negative short-run labour supply shock on pre-birth employers as mothers' probability to return to their pre-birth employer within the first year decreased substantially. Affected firms, especially with absences in small workgroups, cannot fully compensate the employment gap in the short-run. The paper finds evidence that affected firms hire fewer women of fertile ages in replacement hiring and subsequent hiring, suggesting that firms internalise the costs  of longer worker absences through their hiring decisions. As other groups are not affected, these results provide support for statistical discrimination in the labour market against women of childbearing age.