Costs of Employment and Flexible Labor Demand: Evidence from Maternity and Parental Leave Reforms
Costs of Employment and Flexible Labor Demand: Evidence from Maternity and Parental Leave Reforms
Authors: Yukiko Asai
Abstract: This study examines the effects on workers from the labor-demand response to the costs of mandated maternity and parental leave programs. Japan introduced generous parental leave policies in the 1990s, but for many years, firms still had to pay for the worker's social insurance payments during leave, amounting to 13 percent of earnings. A series of reforms occurring in 2000, 2001 and 2014 gradually reduced these costs to zero. This paper uses this quasi-experimental variation in the cost of female employment to measure the labor demand response. I focus on two key outcomes: starting wages of women of child-bearing age and the probability they are hired on permanent contracts. I find that a 100 thousand yen (approximately $1,000 USD) decrease in costs of employment during leave increase the probability of starting on a permanent contract by 1.6 percentage points, and increase starting pay by 3.3 percentage points. In contrast with previous studies, the unique setting I study allows me to separate the effects of changes in costs from endogenous responses by workers and firms to the menu of benefits. These findings have important implications for other countries mandating similar benefit schemes.
Seminar Notes
Venue
ASSA 2022
Objective
To understand the effects of employer costs of maternity leave on the employment and earnings of women of childbearing age
Importance
Mandated parental leave imposes costs on employers. Employers may try to reduce these costs by offering lower starting wages and less employment of women
Background
In Japan there are two types of leave, maternity leave that starts one month before childbirth and lasts 2 months after childbirth, and parental leave, which lasts for 9 additional months (after maternity leave ends for mother, men rarely take).
Income replacement via social security, but firms still responsible for medical and pension contributions before reform. Reforms in 2000, 2001, and 2014 reduced costs to zero (complete coverage by government).
Cost of these payments pre-2000 were 13% of employee's wage. Short term/temporary workers pay for own social insurance
Data & Key Variables
Basic Survey on Wage Structure (BSWS) - random sample of establishments, payroll records from June of each year
Economic Census - conducted every 2-3 years. Sample frame for BSWS
Workers age 18-60 with tenure<2 years, firms with >10 employees
Methodology
Use variation from policy reforms that reduced the cost of social insurance during parental leave to employer, but did not change length of leave
Compare women of childbearing age to older women and men of same age
Results
Reducing costs of parental leave for employers increased likelihood of women being hired as permanent workers and increased starting wages.
A 100,000 yen increase in cost of leave decreases starting wage for female employees by 3.3% and decreases the probably of starting on a permanent contract by 2.2%
The effects are larger at large firms vs small firms
Key Table/Figure
