Female Labour Supply and Household Employment Shocks : Maternity Leave as an Insurance Mechanism

This paper investigates the role of unpaid maternity leave in providing household insurance against paternal employment shocks. The main outcome is the timing of a mothers’ return to work after having a child. Exploiting the US Family and Medical Leave Act, we find that mothers eligible for maternity leave speed up their return to work in response to a paternal shock, with the conditional probability of being in work 49% higher than in households with no unpaid maternity leave. Further evidence is provided on the insurance role of unpaid maternity leave through i) no significant interaction between paid maternity leave and the paternal shock and ii) smoothing of consumption effects of the shock for households covered by unpaid leave.