Is Parental Leave Costly for Firms and Coworkers?

Most existing evidence on the effectiveness of family leave policies comes from studies focusing on their impacts on affected families - mothers, fathers, and their children - without a clear understanding of the costs and effects on firms and coworkers. We estimate the effect of a female employee giving birth and taking parental leave on small firms and coworkers in Denmark. Using a dynamic difference-in-differences design, we compare small firms in which a female employee is about to give birth to an observationally equivalent sample of small firms with female employees who are not close to giving birth. Identification rests on a parallel trends assumption, which we substantiate through a set of natural validity checks. We find little evidence that parental leave take-up has negative effects on firms and coworkers overall. Specifically, after accounting for wage reimbursements received by firms offering paid leave, there are no measurable effects on firm output, labor costs, profitability or survival. Coworkers of the woman going on leave see temporary increases in their hours, earnings, and likelihood of being employed but experience no significant changes in well-being at work as proxied by sick days. These limited effects of parental leave reflect that most firms are very effective in compensating for the worker on leave by hiring temporary workers and by increasing other employees' hours. In contrast, we do find evidence that parental leave has negative effects on a small subsample of firms that are less able to use their existing employees to compensate for an absent worker.