Leave-Taking’s Prevailing Effect on Real Wage Growth: Paid vs. Unpaid Maternity Leave

Paid maternity leave’s effect on women’s real wage growth is indeterminate in theory. Paid maternity leave could help a woman return to the same job postpartum, reducing the unemployment in between jobs (which we see as external leaves). Simultaneously, paid maternity leave could incentivize women to take more leave within a job (which we see as internal leaves). According to the human capital theory, if more women increase leave-taking due to the subsidy on leave and the cheaper opportunity cost of pregnancy, women’s overall productivity will decline and their wage growth will slow down. This analysis uses the National Longitudinal Survey of Youth 1979 (NLSY-79) to investigate which one of the two opposing effects of paid maternity leave prevails. Our empirical findings suggest that holding all else equal, an increase in leave-taking led to a bigger decrease in the real wage growth for women who did not receive paid maternity leave compared to women who did receive paid maternity leave