Collaborative Research: Optimal Parental Leave Policies in the Presence of Statistical Discrimination and Child Development

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This research project will use large data sets and modern economic theory and measurement methods to investigate the best parental leave policies for the US. It develops and tests a sophisticated theory of parental leave policy that accounts for how households and businesses make decisions about labor supply and demand as well as whether and how many children to have, taking into consideration government parental leave policies. This model provides a formal economic framework for analyzing arguments on several sides of the debate. Rising female workforce participation and reduction in gender gaps in schooling and earnings are some of the most important changes in labor markets over the past few decades in high income countries. While several competing parental leave policies have been proposed for the United States, there is not much research to guide which of the competing proposals will be best for the United States. In addition to studying the best parental policy for the US, the project will also train graduate and undergraduate students in cutting-edge economic research. The results of this research project will provide guidance on how best to establish efficient parental leave policies for the US, thus improving the operations of the labor market. It will also help to establish the US as a global leader in parental leave policies.There is a large empirical literature on parental leave policies; however the evidence does not provide a unique verdict on the efficacy of these policies. On the one hand, these policies may foster gender equity and child development by enabling working mothers to combine careers and motherhood. On the other hand, these policies may have long-term negative consequences for women as they may inhibit women from building up their careers due to losses in work experience. This project addresses the optimal design of parental leave policies and various ways of funding them by presenting a theory of how households make decisions regarding fertility, labor participation and the allocation of resources, how leave policies affect these decisions, and how profit-maximizing firms respond to these policies. The project provides a framework for the assessment of the optimality of paid family leave policies combining quasi-experimental policy variation with an explicit, structural modeling of the mechanisms through which female employees and their employers may respond to these interventions. Unlike earlier research, this research considers statistical discrimination, household bargaining, and child development together in a general equilibrium model of the labor market. The semi-parametric, structural difference-in-difference approach of the project facilitates rigorous testing of the various mechanisms through which both sides of the market respond. The results of this research project will provide guidance on how best to establish parental leave policies, thus improving the operations of the labor market. It will also help to establish the US as a global leader in parental leave policies.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.