Parental Leave Policies, Fertility, and Labor Supply

Abstract:

South Korea faces persistently low fertility rates and large gender gaps in labor supply. Under traditional women's roles, more generous parental leave makes it difficult to narrow gender gaps while increasing fertility. To examine how recent reforms operate beyond these static channels, we develop a dynamic, heterogeneous-household life-cycle model in which couples jointly choose careers, labor supply, savings, childcare, and fertility. The model is calibrated to recent Korean cohorts and incorporates Korea’s segmented labor markets, where career-oriented jobs are inflexible and involve high entry costs. Our quantitative results show that generous parental leave benefits can raise fertility and reduce gender gaps in labor supply and wages over the life cycle. These dynamic effects arise because parental leave job protection allows more women to remain in career-oriented jobs during childrearing years, enabling long-term career progression. Without job protection or segmented markets, this career-retention channel weakens and policy effects diminish or reverse.

Minchul Yum, Virginia Commonwealth University