Maternity Leave and Female Labor Force Participation: Evidence from 159 Countries

Abstract

In this paper, we account for the direct and indirect effects of maternity leave entitlements on female labor force participation. We first explore theoretically the impact of maternity leave duration on female labor supply in the presence of fertility decisions. We assume that maternity leave duration affects female labor supply through two main channels: reducing the time cost of female market work, and reducing women's earnings. Our theoretical model allows for non-monotonic effects of leave duration on female labor supply. We test the predictions of our model using an unbalanced panel of 159 countries for the years 1994, 2004, and 2011. We confirm the existence of an inverted U-shaped relationship between maternity leave duration and female participation, and find a maternity leave threshold of around 30 weeks above which female participation falls. Below this threshold, increasing maternity leave increases female labor force participation because the positive effect due to the reduction of work-time cost of employed mothers strongly dominates the negative wage penalty effect. Beyond this threshold, the opposite happens. Our analysis also confirms the relevance of social norms for female labor supply throughout the world