Motherhood and parental leave are frequent causes of worker absences and employment interruptions. Paid parental leave is a key family policy helping parents to reconcile work and family life, but it presents logistical challenges to firms in managing these employment gaps. The potential costs are frequently raised as arguments against more generous parental leave policies.
In a new IZA discussion paper, Mathias Huebener, Jonas Jessen, Daniel Kuehnle and Michael Oberfichtner study how small- and medium-sized firms are affected by parental leave absences using linked employer-employee data from Germany.
Increased pre-leave hiring, incomplete replacement
Analyzing high-frequency data, the study shows a rise in firm hiring around six months before childbirth. However, this increase suggests replacement for only one-third of mothers. Notably, replacement hiring is significantly higher for mothers with fewer colleagues performing similar tasks, which implies they cannot easily be replaced internally.
Most pre-leave hires have similar demographic characteristics as mothers (young women). Interestingly, there is no evidence that they are more likely to exit the firms again upon the mothers’ return, suggesting that joining a firm as a parental leave replacement can be an important stepping stone into permanent employment.
No long-term impact of extended leave
The study further examines the effects of a 2007 leave extension for higher-earning mothers. While the reform delayed mothers’ return to their pre-birth firms in the first year, it had no lasting impact on their long-run employment outcomes. The delay was more significant for mothers with fewer co-workers, who previously took shorter leave.
During the extended parental leave period, firms showed a reduction in employment levels, suggesting that replacement hiring did not fully cover the absences. However, there were no effects on firms’ employment or wage bill in the long run. Firm closures rates were also unaffected by longer parental leave absences.
No reduced hiring of young women
Finally, the study investigates whether firms adjust hiring practices based on anticipated longer leave absences. Since replacements are costly, firms might avoid hiring young women who are statistically more likely to take extended leave after the reform. The well-intended policy could then backfire at the expense of young women, harming their labor market prospects.
However, comparing long-term hiring decisions in firms experiencing post-reform leave absences to those with pre-reform absences, the study finds no evidence of a negative impact on the hiring probability of young women. This holds true across various estimation methods and even for smaller workgroups where internal adjustments might be more challenging.
One explanation could be the prevalence of part-time work among mothers returning from leave in Germany. The overall impact of a longer part-time absence might be much less significant for firms than the birth-related absence itself. Additionally, because parental leave absences are known several months in advance, firms can proactively adjust processes to minimize disruption.