Parental leave take up and return to work of mothers in Luxembourg: An application of the model of nested dichotomies

This paper analyses the use of parental leave after birth of a child for working mothers. Even though employment rates of women in industrialized countries are rising, women continue to assume the primary responsibility for caring for young children after they are born. Therefore it is interesting and important to understand what factors account for womens decision to use or not use parental leave. The behaviour of mothers is conceptualized as a series of three decisions taking place after the compulsory period of maternity leave. The first decision is to retain a relationship with the pre-birth employment or to leave the labour force. Women who do not quit their employment, make a second choice to return to work immediately or to take parental leave for a fixed period of time, which guarantees them the right to return to work. Finally at the end of parental leave, women decide whether to return to work or to quit their job. The empirical analysis is performed on administrative data provided by the Grand Duchy of Luxembourg. In order to account for the sequential nature of the decisions, the model for nested dichotomies Fox, 1997 has been used. The result lend partial evidence to economic reasoning about womens decision making. Salary-related opportunity cost seems to be particularly important in the first and third decision, but not in the second. There are also interesting differences based on the nationality of the women.