Labor Market Effects of Reducing the Gender Gap in Parental Leave Entitlements

We explore the effect of parental leave entitlements for mothers and fathers on wages and unemployment rates. To do so we extend the labour search and matching model in Del Rey, Racionero and Silva (2017) to include two types of workers, males and females, who compete for the same jobs. We show that an increase in leave duration has an ambiguous effect both on job creation and wages. We identify the mechanisms underlying this ambiguity. Given the variety of possible final effects we calibrate the model for several countries (Denmark, France, Italy and Portugal) and simulate policy changes. In all countries considered an increase in the duration of either leave negatively affects job creation and the wage of the directly affected worker. As a result, both wages fall while unemployment rates increase in equilibrium. Finally, we explore the effect of closing the gender gap in leave duration and show that, since fathers tend to take the leave less often, increasing the duration of the male-specifc leave is less effective in closing the wage and unemployment gaps than decreasing the female-specific one.