What do companies do when workers go on extended parental leave?


A lot of research investigates how parental leave affects parents' careers, women's and children's health, and how it is divided between the parents. However, less is known about how parental leave programs affect companies, which is an important question since increased parental leave can make it more expensive to hire women and affect companies' profits and competitiveness negatively. In a new study, researchers Arizo Karimi, Rita Ginja, and Pengpeng Xiao investigate how companies reacted after two Swedish parental leave reforms that extended the duration of paid leave.

  • Companies respond to higher uptake of parental leave by hiring new staff and increasing the working hours for current employees. 
  • For every woman who extended her parental leave following the 1989 reform, the labor costs for companies increased by ten full-time months.
  • When men took more parental leave following the 2002 "daddy month"-reform, the costs did not rise to the same extent. However, the wage rates of male co-workers rose.

The researchers have studied two extensions of the parental leave program in Sweden and how these affected companies' costs and hiring strategies. The extensions of the parental leave program took effect through two different reforms, one in 1989 and one in 2002. The first reform increased the program from 12 to 15 months, and parents could freely divide the time. After the 2002 reform, the parental leave program increased by 30 days, and 30 days were reserved for each parent. Since women take the majority of the leave, this, in practice, entailed introducing one month of parental leave that only fathers could use. The reform has become known as the "daddy month." 

The study shows that after the 1989 reform, women extended their parental leave by 2,6 months on average, while men increased their uptake by one week on average. The reform led to women staying home longer, and the likelihood of women changing jobs rose. Companies responded to the parental leave and subsequent notices by hiring temporary staff and extending the working hours of co-workers. As a result, the company's labor costs increased by ten full-time months for each additional woman on extended leave.

The researchers also studied how the "daddy month" from the 2002 reform affected companies. In many regards, companies reacted the same when men utilized more of their parental leave as they did after the 1989 reform. The companies hired temporary staff and extended the working hours of existing staff, but the costs did not rise to the same extent as they did after the previous reform. However, the wage rates of the remaining male workers increased.

About the paper

Title: "Employer Responses to Family Leave Programs"
Authors: Rita Ginja, Arizo Karimi, and Pengpeng Xiao
Published in American Economic Journal: Applied Economics


If you want to know more about the study, contact the researcher Arizo Karimi.

Do you want to recieve the brief in your inbox?

Sign up for our email list to recieve our research briefs directly to you email inbox.

Last modified: 2021-09-20