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Mandated family leaves: Firms' hiring practices, productivity, and the gender wage gap

Most developed countries have made substantial efforts to increase gender equality in the labour market, e.g., by introducing policies such as job-protected family leave and benefits. On the one hand, these policies encourage women’s labour force participation after childbirth. On the other hand, generous leave allowances may have unintended consequences when we consider equilibrium responses of firms in the presence of frictions in the labour market. Since it is costly for employers to find and hire workers in a frictional environment, they may discount the wages of the group with higher turnover rates.

In this paper, we attempt to quantify the costs of labour market frictions faced by firms hiring workers with varying durations of family-related absence and turnover. Then, we examine to what extent employers pass these costs onto male and female workers’ wages, promotions, and employment probabilities. For this purpose, we exploit exogenous variation in parental leave duration induced by a reform in the Swedish parental leave system, combined with matched employer-employee panel data.

Published by:

Anahid Zakinian