The Signaling Role of Parental Leave
Author: Linh T Tô
Abstract: I examine the signaling role of workers’ parental leave choices theoretically and empirically. Motivated by the correlation between longer parental leave duration and a higher labor market penalty associated with the event of childbirth, the model posits that firms infer private information about future labor market choices or productivity of mothers through their choice of forgoing paid leave to return to work early. In equilibrium, mothers take into account firms’ beliefs in deciding their leave choices, with direct consequences on their wages. The model delivers distinct predictions of the signaling channel of parental leave when there is an exogenous change in the maximum allowed paid leave duration. The empirical tests leverage unanticipated parental leave extensions in Denmark and administrative longitudinal data consisting of labor market information and precise leave duration. Consistent with the model’s predictions, the leave extension (1) shifts up the leave distribution of mothers for whom the previously lower maximum duration would not have been binding, (2) has a positive wage impact on mothers who would have pooled at the maximum allowed leave before the extension but not after the extension, and (3) has a negative wage impact on mothers who would have pooled at the maximum allowed leave both before and after the leave extension. The results emphasize that relative rather than absolute leave duration can have direct long-term labor market consequences.
Date: 05/2021
Pages: 87
Date Added: 11/2/2021, 10:32:39 AM
Reading Notes:
Objective: To estimate the role taking parental leave has in signaling productivity to the employer
Importance: Parental leave taking may serve as a signal of worker productivity to the employer. Denmark has a long history of parental leave, with several changes in duration, and also public provision of high-quality childcare
Background: 1984 reform increased parental leave from 14 weeks to 24 weeks. In 1994 an additional 52 weeks of child care leave was added, which could be taken until child is 9. In 2002 child care leave was discontinued and 32 weeks of sharable parental leave was added
Data & Key Variables: Danish Social Statistics Register (SHSS) - days taken for parental leave between 1984-2007
DREAM database provides weekly parental and childcare leave 1992-2012.
IDA provides information about employment in November of each year 1980-2012 Hours worked data available back to 1964
Methodology: Use parental leave reforms in 1984 and 2002 to test implications of signaling model by comparing women who pool at the maximum leave duration before and after reform.
Match mothers across treatments by pre-birth characteristics to estimate counterfactual leave taking
Results: Women who take longer leaves experience greater reductions in labor supply and hourly wages conditional on working.
Even women for whom the parental leave duration was not expected to be a binding constraint take more leave after reform.
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