Description: Department Seminar: Mary Ann Bronson (Georgetown)

Location: 368A Heady Hall

Contact Person: Juan Carlos Cordoba

Title: Optimal Parental Leave Policy Design: A Dynamic Analysis

Abstract: Parental leave (PL) policies across countries vary in duration, job protection, eligibility rules,  generosity,  payment scheme, and other dimensions, generating substantial differences in the incentives to work and have children. However, existing studies of PL reforms generally find negligible or no effects on women's completed fertility or labor supply five or ten years after first birth. In this paper, we try to understand why and make three main contributions to help quantify the effects of PL policy on women's decisions. First, we show that existing empirical work, which primarily studies regression discontinuities around PL reforms, generally does not estimate policy-relevant treatment effects.  Second, using evidence from the UK, Sweden, Germany, and Austria, we show that women's different dynamic decisions in those countries are consistent with the different incentives embedded in the respective PL systems, and we estimate a dynamic structural model that can capture in detail the different policy environments in these countries. We quantify the policy-relevant effects of different PL parameters on labor supply and fertility decisions, and validate the model with quasi-experimental estimates from the  literature.  The model simulates well women's labor supply and fertility decisions across countries, and allows us to reconcile our results, which indicate sizable responses to policy changes, with the negligible effects estimated in existing studies. Lastly,  we derive the set of PL parameters that characterize the welfare-maximizing policy, and compare them to the parameters that maximize, respectively, women's labor supply and women's fertility.