Abstract
Abstract This paper shows how family policies aimed at reconciling the pressures of family and work generate substantial variation in labour market outcomes across developed countries. We use a life-cycle model of female labour supply and savings behaviour, calibrated to the US economy, to assess the effect of introducing to the US a maternity leave policy similar to Scandinavian-type policies. We focus on the impact on gender differences in participation and in wages. We distinguish between the effect of the job protection offered by maternity leave and the effect of income replacement. Job protection leads to substantial increases in participation of mothers with children under 6, but with little long term effects. The effects on wages are minimal, with negative selection effects offsetting the reduced human capital depreciation. Income replacement has a limited impact on participation or wages. JEL codes: J13; J18; J22
Highlights
Across the OECD, there remain substantial gender wage gaps as well as substantial gaps in employment rates between men and women
Policies typically have two key components: first, providing job protection through the option to return to the same job after a period of leave, and second, providing income replacement during the period of leave for those who return to work
4.1 Model We present our life-cycle model to include the possibility of maternity leave that provides job protection rights and income replacement
Summary
Across the OECD, there remain substantial gender wage gaps (averaging 15.8% in 2009) as well as substantial gaps in employment rates between men and women (averaging 20.6% in 2009). In a structural model of job search in Austria, Lalive et al (2014) and Lalive and Zweimüller (2009) focus on behaviour after childbirth and find an important interaction between the two aspects of the policy: longer cash benefits lead to a significant delay in return-to-work in the period that is job-protected They find prolonged maternity leave absences do not hurt mothers’ labour market outcomes in the medium run. This is reinforced by the joint modelling of male and female earnings: male earnings provide income to maintain consumption during periods out of the labour force to look after children, and this reduces the need for income replacement through maternity leave policies This modelling of households as being risk-averse but able to borrow and save against periods of anticipated and unanticipated low income is the key difference in our framework, compared to Erosa et al (2010) and Lalive et al (2014). The benefit systems differ across the countries: in the US, the maximum family benefits for each child aged 3 to 12 are about 50% of those in the Scandinavian countries.
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