Should maternity paid leave be offered? Gabija Ulcinaite, 04/04/2017, ECO-202-005




Maternity leave is a temporary period of absence from employment granted to expectant or new mothers during the months immediately before and after childbirth.

Background information

The U.S. is one of only a handful of countries that does not require some form of paid time off for new mothers.

A Map of Maternity Leave Policies Around the World

Currently only about 12% of American companies offer paid maternity or paternity leave, according to the Society for Human Resource Management. That's down from 17% in 2010.

Without Paid Maternity Leave, U.S. Women’s Workforce Continues to Shrink

In 2004, California became the first state to implement a paid-family-leave policy that enables most working Californians to receive 55% of their usual salary (up to $1,104) for a maximum of six weeks. Since then, only New Jersey and Rhode Island have actualized similar programs.

A study of European leave policies by the University of North Carolina found that paid-leave programs can substantially reduce infant mortality rates and better a child's overall health. And research out of The Institute for the Study of Labor (IZA) in Bonn indicates higher education, IQ, and income levels in adulthood for children of mothers who used maternity leave — the biggest effect comes for children from lower-educated households. The researchers cited this as a significant discussion for policymakers to have, as it could reduce the existing gap in education and income in the US.

Now let's look from the economic point of view to this situation



  • Children get a better care from their mothers, which ends up with a healthier life overall.
  • Mothers workers are more likely to come back to work, and are more confident and ready to work again.
  • Future generation of people taken care in their childhood will create more productivity
  • More educated labor force in the future
  • Job protected leave


  • Smaller labor force at leaving period
  • Other people have to pay higher taxes- possible discrimination
  • Smaller firms can possibly leave the market and larger firms would flourish


After mothers with newborn babies leave the job for maternity paid leave, the firm increases the demand for the labor. Some jobs require specific skills from employees, in such a case, supply of labor would decline. From society's point of view, this policy would likely to increase the labor supply of those groups that are most likely to take such leave. Meanwhile, labor demand might decrease when the policy is costly for the firm. However, in different cases the demand might also increase

Elasticity (in the labor market)

The are four main determinants of elasticity:

  1. Availability of Close Substitutes
  2. Necessities vs. Luxuries
  3. Definition of the Market
  4. Time Horizon

The broader market is more inelastic it stays.

The price elasticity of supply measures how much the quantity supplied responds to changes in the price. This elasticity usually depends on the time horizon and in most markets supply is more elastic in the long run than in the short run.

The elasticity of demand for labor depends on these factors:

  • Labor costs as a % of total costs
  • The ease and cost of factor substitution
  • The price elasticity of demand for the final output produced by a business

Competitive employers face an infinite elasticity of labor supply — if they cut wages they lose their entire workforce, at least in the long run — and consequently are unable to exploit their workers. Monopsonist employers by definition face a finite labor supply elasticity.

Externalities. Monopsony power in the labor market

Monopsony occurs when there is one major employer and many workers seeking to gain employment.

  • In a competitive labour market, the equilibrium will be where D=S at Q1, W1
  • However, a monopsony can pay lower wages and employ fewer workers.

In labor markets, “buyers” are employers, “sellers” are individual workers, the “good” is time and effort, and the “price” is the going wage or salary level.

An employer who enjoys monopsony power holds down the wage by limiting the number of workers it hires.


  • Economics Help. Monopsony. Retrieved April 4, 2017, from
  • Kunze, Astrid. Paternal leave and maternal labor supply. World of Labor. Retrieved from
  • Rilley, Geoff (2015). Labour Market - Elasticity of Labour Demand. Tutor2You, Economics. Retrieved from
  • Council of Economic Advisers (2016). Labor Market Monopsony: Trends, Consequences and Policy Responses. Retrieved from
  • Mankiw, N. Gregory. Principles of Microeconomics. Australia: Cengage Learning, 2016. Print.
  • William M. Boal. Monopsony in American Labor Markets. Retrieved from
Created By
Gabija Ulcinaite


Created with images by HolgersFotografie - "baby sweet happy" • PublicDomainPictures - "baby baby with mom mother kiss"

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