How do companies react when employees take more parental leave?

There is a large body of research examining the impact of parental leave on parents' careers, women's and children's health, and the distribution of leave between parents. However, less is known about the impact of parental insurance schemes on firms, which is an important issue because extended parental insurance can make it more expensive to hire women and negatively affect firms' profitability and competitiveness. In a new study, researchers Arizo Karimi, Rita Ginja and Pengpeng Xiao examine how two parental insurance reforms that extended parental leave affected firms' hiring decisions and costs.

Companies react to increased take-up of parental insurance by hiring temporary workers and increasing the working hours of current employees.
For every woman who increased her take-up of parental leave after the 1989 reform, the company's costs increased by the equivalent of 10 months' salary.
When men took longer parental leave after the 2002 parental insurance reform, which earmarked one month for fathers, costs did not increase to the same extent. However, wages went up for the male colleagues who remained in the workplace.

The researchers examined how two reforms of parental insurance, one in 1989 and one in 2002, affected firms' costs and hiring decisions. The first reform increased parental insurance from 12 to 15 months, which parents were free to share between them. The 2002 reform increased parental leave by a further 30 days and reserved 30 days for each parent. As women usually take the majority of parental leave, this effectively introduced a month that could only be used by the father, which has become known as the 'daddy month'.

The study shows that after the 1989 reform, women increased their parental insurance coverage by 2.6 months on average, while men increased their coverage by one week on average. In addition to staying at home longer, women were also more likely to change jobs. To cover temporary absences and redundancies, companies hired temporary workers and increased the number of hours worked by existing staff. For each woman who increased her take-up of parental insurance, the company's costs rose by the equivalent of 10 months' salary.

The researchers also examined the impact of the 2002 reform's 'father month' on firms. To a large extent, companies reacted to men's increased use of parental insurance in the same way as in the 1989 reform. They hired temporary workers and increased the working hours of existing staff. However, unlike the 1989 reform, the costs for companies did not increase as much. Instead, the researchers found that the wages of the other male employees increased.