Parental Leave Policies
1. FAMILY LEAVE POLICIES
• Background of the US Policy
2. EFFECTS OF INCOME TAXES
• Impact of California Paid Family Leave
• Comparing Industrialized Countries
– Evidence of impacts on maternal and child
outcomes
– Generosity and gender equality of policies
• Impact of Paternal Leave
Changes in the Family Over Time
BACKGROUND OF THE US POLICY
• The participation rate of women in the labor force
has risen
• More women with infants currently work in the
labor market than do not
• The rise in labor force participation rates has
been greatest for those women with the youngest
children
14-4
How US women’s LFP has changed, by age of
youngest child and marital status
Family and Medical Leave Act (1993)
• 12 weeks of unpaid job-guaranteed leave:
– for the birth and care of a newborn child
– for placement of an adopted or foster child
– to care for an immediate family member (spouse,
child, or parent) with a serious health condition
– to take medical leave when unable to work because
of a serious health condition
• Qualifications for eligibility:
– Employed for at least one year
– Employed at least 1,250 hours over the past 12
months
– Work at a location where the company employs 50 or
more employees within 75 miles
14-6
% private workers with access to
family leave, 2016
Arguments against FMLA:
– It is costly in terms of training and
temporarily replacing those on leave
• Small firms might not hire women of
childbearing age
• Firms might forgo offering other benefits
– Women might have more children if offered
leave, which could be even more costly for
firms
– There might be a reduction in job creation
14-12
Counterarguments defending FMLA:
• Costs to employers are actually low since leave is
unpaid and administrative compliance costs are
low
• Could reduce turnover costs
• May bolster employee morale, loyalty and
productivity
• It will help women retain costly human capital
investments
• Time off is important for parental/child bonding
Economic Effect of FMLA and Leave
• No effect of FMLA on wages
– Likely due to counterbalance of higher wages due to job
retention and lower wages due to firm costs
– Studies of Europe find women receive lower wages in
exchange for maternity leave, especially when duration is
long
• Longer leave associated with:
– Better maternal health and less depression
– Better child health:
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Decreased infant mortality
More breastfeeding
More well-baby visits
More likely to immunize child
14-13
Impact of Access to Leave in the US
Han, Ruhm, and Waldfogel (2009)
• Consider all new parents in a given year as potentially
eligible for leave if they lived in a state that had leave
(or if they had a baby after FMLA)
– Compare their outcomes to a control group of individuals
from the same state who will be new parents in the following
year
• Conduct the same comparison for those not living in a
state that had leave
– The difference between these two comparisons is the effect
of the policy
• Leave rights have no significant effect on
employment
• Leave rights increase leave-taking but not
employment
– Mothers increase leave-taking by:
• 5.4 pp in the birth month (base rate of 41.5%)
• 8.7 pp in the month after birth
• 5.6 pp in the second month after birth
– Driven by married (not single) mothers
– Fathers increase leave-taking by:
• 3.9 pp in the birth month (base rate of 7.2%)
– Effects are stronger for highly educated workers
(likely due to ability to afford taking unpaid leave)
California’s 2002 Paid Family Leave Program
Appelbaum and Milkman (2011)
• Funded by payroll taxes
• Does not provide job protection
• Eligible employees get six weeks of wage-replacement leave
IMPACT OF CALIFORNIA PAID LEAVE
– to bond with a new biological, adopted, or foster child in first year of
birth or placement with family
– to care for seriously ill family members
• child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or
registered domestic partner
– Receive 55% of usual weekly earnings, up to a maximum benefit
($1,129/week in 2016)
• NJ 2009, RI 2014, NY 2016, CT 2019, DC 2016, WA 2017, ME
2019, MA 2019, OR 2019, CO 2020,
– Study surveys 253 randomly selected private and non-profit employers
and 500 employees who had a baby or ill family member in the last year
Small businesses were not severely
burdened
Fathers have increasingly used PFL for
bonding
“Asked if the introduction of the PFL program had resulted in “any cost increases,” 86.9 percent of
employers responding indicated that it had not. Moreover, some employers (8.8 percent of those
responding to this question) indicated that the PFL program had generated cost savings for their
organizations, by reducing employee turnover and/or by reducing their own benefit costs when
employees used the program instead of (or in combination with) employer-provided paid vacation, sick
leave, or disability benefits.”
Use of PFL increases wage replacement,
especially for workers in low-quality jobs
Those who used PFL took longer leaves
Use of PFL boosts satisfaction with length of leave
and probability of returning to former employer for
low-quality workers
PFL increased quality of caregiving for
those in low-quality jobs and weeks of
breastfeeding for all women
Reasons for low take-up rate (~25%)
COMPARING INDUSTRIALIZED
COUNTRIES
Generosity and Gender Equality of Leave
Ray, Gornick, and Schmitt (2010)
• Generosity
– Weeks of total leave (paid + unpaid)
– Full-time equivalent (FTE) paid leave
•Switzerland offers 14 weeks of maternal
leave, replacing 80% of earnings 🡪
(0.8)(14) = 11.2 FTE weeks
Weeks of Leave Available to
Couples, by Country
Weeks of Leave Available to
Mothers in Couples, by Country
14-29
Assumes women take all transferable leave
14-30
Weeks of Leave Available to
Fathers in Couples, by Country
Gender Equality
• Gender Equality Index (15 points)
– Father’s portion of leave (9 points)
• Extra points for non-transferable paternal leave
– Father’s wage replacement (5 points)
– Incentives/disincentives for paternal leave (1
point)
• Extra leave if leave is shared (Aus, Fin, Ger, Por,
Swe)
• Only one parent can get leave (Japan)
Assumes men transfer all transferable leave to women
14-31
Combining Paid-Leave Generosity and
Gender Equality Index
Gender Equality Index, by Country
• Top 5 Paid-Leave Generosity:
– Germany, Norway, Sweden, Greece, Finland
• Top 5 Gender Equality:
– Sweden, Finland, Greece, Norway, Belgium
• 4 in common:
– Sweden, Norway, Finland, Greece
Effects of Non-Transferable Paternal
Leave, Spain
(Farré Olalla & Gonzáz, 2019)
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IMPACT OF PATERNAL LEAVE
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In 2007, Spain introduced two weeks of paid paternity leave
Researchers found that fathers with children born after the cutoff
were more likely to take leave than those who did not receive the
paid leave
Families where the father was eligible for the leave were less likely
to have an additional child within the following six years
Possibly because a father’s increasing involvement in childcare led
to higher labor force attachment among mothers and Spanish men
reported lower desired fertility, possibly due to their increased
awareness of the cost/difficulties involved in child rearing
Effects of Non-Transferable Paternal
Leave, Quebec
(Patnaik, 2016)
• Depending on work history, new mothers in Canada can
take 17-52 weeks of unpaid leave from jobs
• Paid maternity leave:
– Expecting mother can take up to 15 weeks
– Either the mother or father can take 35 weeks of parental leave
after the baby is born or adopted
• Parents can share the leave however they choose.
• Benefits equal 55 per cent of the parent’s average weekly insurable wage,
up to a maximum of $485 per week.
Long-run effects identified with
time-use diary data from 1-3 years later
• Mothers:
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spent more time in paid work
spent more time physically at the workplace
were more likely to be full-time employed
decreased their housework
spent more time in childcare
spent less time physically in the home
• Fathers:
In 2006, Quebec instituted 5 weeks of paternal
leave that could not be transferred to
mothers.
• Majority of families did not exhaust leave before
reform, so reserved leave did not alter a binding
constraint.
• Difference-in-difference approach:
– Compare change in take-up for fathers in Quebec (before to
after reform) to change in take-up for fathers in the rest of
Canada in the same time period
• Fathers increased take-up of leave by 53% and duration of leave by 3
weeks
• No change for mothers
Mechanisms by which policy might impact
sex-specialization in long run
• Reduces comparative advantage in traditional
gender roles
• Habit-formation
• Sets norms that are costly to later deviate from
• Reduces scope for strategic shirking
• Identity formation
– spent more time in housework per day
– spent more time physically in the home
Nationalizing Leave Solves Adverse
Selection
• Adverse selection if leave is employer’s choice
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Individuals with a high probability of using family leave will try to
obtain jobs at firms that provide leave
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The firms offering leave will find themselves attracting workers
with a higher probability of using leave, and they may find it too
costly to offer family leave and cease to offer it
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Adverse selection occurs only if some of the firms but not all offer
family leave
Would exacerbate gender inequality
A positive externality of mandated family leave is it
may lead to a child receiving better healthcare
IMPACT OF PROGRESSIVE
TAXES ON SECONDARY
EARNERS’ LFP
An Overview of the U.S. Income Tax System
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As of 2020, the U.S. federal income tax system has seven tax brackets with
marginal tax rates that range from 10 to 37 percent
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These tax rates are applied to taxable income, which is a family’s income after subtracting
either the standard deduction or itemized deductions
Taxes and Women’s Work Decisions
Suppose a woman who is not currently working is considering whether to
accept a $60,000 job offer and her spouse currently earns $75,000.
If she doesn’t work:
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Family would owe no taxes on the first $24,800 of its earnings (standard deduction)
Family’s taxable income, based solely on her spouse’s earnings, is:
$75,000−$24,800 = $50,200
First $19,750 of this taxable income would be taxed at 10%
Remaining $30,450 ( = 50,400 – 19,750) taxed at 12%
Total taxes = (0.10 x $19,750) + (0.12 x $30,450) = $5,629
Disposable income = $69,371
Marginal tax rate = tax rate on last dollar earned = 12%
Average tax rate = (total taxes)/(total income) = $5,629/$75,000 = 7.5%
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Taxes and Women’s Work Decisions
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Suppose a woman who is not currently working is considering whether to
accept a $60,000 job offer and her spouse currently earns $75,000.
If she doesn’t work:
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Taxes and Women’s Work Decisions
Suppose a woman who is not currently working is considering whether to
accept a $60,000 job offer and her spouse currently earns $75,000.
If she does work:
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Family would owe no taxes on the first $24,800 of its earnings (standard deduction)
Family’s taxable income, based solely on her spouse’s earnings, is:
$75,000−$24,800 = $50,200
First $19,750 of this taxable income would be taxed at 10%
Remaining $30,450 ( = 50,400 – 19,750) taxed at 12%
Total taxes = (0.10 x $19,750) + (0.12 x $30,450) = $5,629
Disposable income = $69,371
Marginal tax rate = tax rate on last dollar earned = 12%
Average tax rate = (total taxes)/(total income) = $5,629/$75,000 = 7.5%
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Family would owe no taxes on the first $24,800 of its earnings (standard deduction)
Family’s taxable income, based solely on her spouse’s earnings, is:
$135,000−$24,800 = $110,200
First $19,750 of this taxable income would be taxed at 10%
Next $60,500 ( = 80,250 – 19,750) taxed at 12%
Next $29,950 ( = 110,200 – 80,250) taxed at 22%
Total taxes = (0.10 x $19,750) + (0.12 x $60,500) + (0.22 x $29,950) = $15,824
Disposable Income = $119,176 (an increase of $49,805 compared to if she doesn’t work)
Marginal tax rate = tax on last dollar earned = 22%
Average tax rate = (total taxes)/(total income) = $15,824/$135,000 = 11.7%
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Transfer Programs in the U.S.
Taxes and Women’s Work Decisions
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Suppose a woman who is not currently working is considering whether to
accept a $60,000 job offer and her spouse currently earns $75,000.
If she does work:
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Family would owe no taxes on the first $24,800 of its earnings (standard deduction)
Family’s taxable income, based solely on her spouse’s earnings, is:
$135,000−$24,800 = $110,200
First $19,750 of this taxable income would be taxed at a 10%
Next $60,500 ( = 80,250 – 19,750) taxed at a 12%
Next $29,950 ( = 110,200 – 80,250) taxed at a 22%
Total taxes = (0.10 x $19,750) + (0.12 x $60,500) + (0.22 x $29,950) = $15,824
Disposable Income = $119,176 (an increase of $49,805 compared to if she doesn’t work)
Marginal tax rate = tax on last dollar earned = 22%
Average tax rate = (total taxes)/(total income) = $15,824/$135,000 = 11.7%
Overview
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Means-tested transfer
Transfers tend to have a greater impact on women because some
transfer programs provide benefits primarily to single parents with
children, who are more likely to be women
TANF (Temporary Assistance to Needy Families) is the primary cash
assistance transfer program for low-income able-bodied adults,
and is intended primarily for single-parent families
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Transfers are payments from the government to an individual or family,
and transfers usually decline as earnings increase
TANF replaced AFDC (Aid to Families with Dependent Children) in 1996
SNAP (Subsidized Nutritional Assistance Program) provides food
assistance to low and moderate-income families, ‘food stamps’
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WIC (Women, Infants, and Children) provides supplemental food
assistance for low-income women who are pregnant, breastfeeding, or
have recently given birth
Transfer Programs in the U.S.
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EITC (Earned Income Tax Credit) is the largest cash assistance
program in the U.S. for low and moderate-income families with
earnings
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It is not a welfare program but rather a refundable tax credit administered
through the IRS
Medicaid is a government-run healthcare system for the poor
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The Affordable Care Act provided financial incentives for states to expand
their Medicaid coverage
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The Affordable Care Act provides financial assistance to help moderate-income
families purchase health insurance
Other safety net programs: Housing Assistance, Nutritional Assistance
Programs, and Housing Energy Programs
SSI (Supplemental Security Income) is an assistance program for
disabled adults and children with low and moderate incomes
Work-disincentives of means-tested transfers
• Suppose the government guarantees an annual benefit of $6,000 to families
with no income
• Benefits are reduced by $0.67 for each additional $1 earned by the family
• What is the total income (including benefits) for a family that earns $3,000 of
income from labor?
• What is the total income (including benefits) for a family that earns $5,000 of
income from labor?
• How much does total income (including benefits) increase when a family
goes from earning $3,000 to $5,000 from labor?
• At what level of labor-income do benefits equal zero?
• What is the substitution effect of the means-tested program on labor
supply?
• What is the income effect of the means-tested program on labor supply?
Work-disincentives of means-tested transfers
Work-disincentives of means-tested transfers
• Suppose the government guarantees an annual benefit of $6,000 to families
with no income
• Benefits are reduced by $0.67 for each additional $1 earned by the family
• What is the total income (including benefits) for a family that earns $3,000 of
income from labor? 6000 – 0.67*3000 + 3000 = $7,000
• What is the total income (including benefits) for a family that earns $5,000 of
income from labor? 6000 – 0.67*5000 + 5000 = $7,667
• How much does total income (including benefits) increase when a family
goes from earning $3,000 to $5,000 from labor? $667
• At what level of labor-income do benefits equal zero? 6000 – 0.67Y = 0 🡪
Y = $9,000
• What is the substitution effect of the means-tested program on labor
supply? Time that would generate $1 additional earnings only generates
$0.33 additional earnings 🡪 leisure time is less costly 🡪 work less
• What is the income effect of the means-tested program on labor supply?
Greater income 🡪 work less
EITC Structure