Relaxation of fertility policy and firm’s short-term hiring of female employees: Evidence from China

Most existing studies have focused on the impacts of childbearing decisions and policies on female labor market outcomes, overlooking their effects on firms’ hiring. Over the past decade, China has gradually relaxed its fertility policies. This paper examines the effects of fertility policy relaxation (FPR) on hiring decisions in Chinese firms. We develop a theoretical model integrating fertility intentions and firms’ employment forms. Subsequently, we investigate the impact of the FPR on the employment term structure of firms using a Difference-in-Differences method. We find that the FPR results in a short-term employment trend for female employees eligible for a second child. This effect is particularly pronounced among low-skilled women, those without sons, and those employed in large, labor-intensive firms. In terms of the potential mechanisms, the FPR increases both the quasi-fixed cost and total cost associated with hiring these employees, reduces their labor productivity, and makes firms less inclined to offer fixed wages. Our study highlights a policy conflict between encouraging fertility and improving women’s employment stability. Giving the declining labor force trends, it is crucial to incentivize firms to rehire and retrain women who have taken time off for childbirth, which requires further policy design.