Anti-discrimination Legislation and the Efficiency-Enhancing Role of Mandatory Parental Leave

Number: 88
Year: 2016
Author(s): Spencer Bastani, Tomer Blumkin, Luca Micheletto
We study a setting where anti-discrimination legislation gives rise to adverse selection in the labor market. Firms rely on nonlinear compensation contracts to screen workers who differ in their family/career orientation. This results in a la- bor market equilibrium where career-oriented workers are offered an inefficiently low duration of parental leave. In addition, family-oriented workers are offered lower wages as compared to their equally skilled career-oriented counterparts. We demonstrate the usefulness of mandatory parental leave rules in mitigating the distortion in the labor market and derive conditions under which a Pareto im- provement is possible. We also characterize the optimal parental leave policy and highlight the possibility for parental leave legislation to eliminate the wage penalty of family-oriented workers by supporting pooling employment contracts.

Spencer Bastani
Department of Economics and Statistics, Linnaeus University; Linnaeus University Centre for La- bor Market and Discrimination Studies; Uppsala Center for Fiscal Studies; Uppsala Center for Labor Studies, Sweden; CESifo, Germany.

Tomer Blumkin
Department of Economics, Ben Gurion University, Israel; CESifo, Germany; IZA.

Luca Micheletto
Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University, Italy; Uppsala Center for Fiscal Studies, Sweden; CESifo, Germany.


Language: English


The paper may be downloaded here.


Keywords: anti-discrimination,adverse selection,parental leave,efficiency