A theory of optimal paid parental leave policies

Miyazaki, Koichi (2021): A theory of optimal paid parental leave policies.

Abstract

This study examines paid parental leave policies in which a pregnant worker can choose not to take a temporary leave and a worker on leave can choose not to return to work after the leave period ends. An optimal paid parental policy is defined as a policy that maximizes social welfare. In the optimal paid parental leave policy, where a pregnant worker voluntarily chooses to take a leave and a worker on leave voluntarily chooses to return to work after the leave period ends, the income risk caused by the leave is not necessarily perfectly shared among workers and workers on leave. In addition, by lengthening the leave period, another feasible parental leave policy that does not satisfy the incentive constraint improves social welfare, implying that the length of the leave under the optimal paid parental leave policy is ``short." A numerical example of the model justifies that both a short-leave-with-generous-leave-benefits policy and the long-leave-with-less-generous-leave-benefits policy observed across most OECD countries can be optimal.

• Item Type: MPRA Paper
• Language: English
• Keywords: Paid parental leave policy; lack of commitment; incentive constraint; optimal policy
• Subjects: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy

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