Maternity Leave Improves Female Entrepreneurial Outcomes

Recent paper provides evidence

A recent paper by Sébastien Fontenay, published in the Journal of Human Resources, finds that maternity leave can lead to an increase in female entrepreneurship. According to the author’s findings, a 900 euro increase in maternity leave allowance increases the probability of self employment by 6 percentage points!

Why are these findings important?

1. Maternity leave (ML) allowance helps financially constrained mothers start their own businesses, especially in areas with poor access to banks. This finding is important for those of us working on research in financial access and inclusion. Entrepreneurship requires capital accumulation, liquidity, and security. ML allowance serves as a financial security and provides women with capital, filling the gap left by banks.

2. The business created are profitable and sustainable. Sébastien finds that women-run business outperform men-run business in terms of income generated. Women-run business also survive longer than men-run businesses. Women-run business are relatively more successful in both measures.

3. The women that select into entrepreneurship are more likely to have worked in jobs with atypical work schedules. Entrepreneurship allows them to shift away from non-traditional work schedules. Assuming that atypical work schedules are less preferred, entrepreneurship allows women to improve their quality of life.

Research idea

In an effort to demystify the research process, we are focusing on learning about and sharing with you how people come up with their research ideas. Sébastien was willing to share that story. Here is an excerpt of our discussion.

I do remember how I came up with the idea. For another article , I was estimating the child penalty in Belgium (i.e., the reduction in women’s earnings relative to men due to having become parents), and I found out that women were losing money right from the moment they were giving birth since the maternity leave allowance was incomplete. Talking with young mothers around me, they explained that they also discovered it by surprise when they received their first check from social security the month after giving birth. My estimation strategy comes from there: incomplete replacement that comes as a surprise. As for the idea to look into entrepreneurship, it comes from the paper of Gottlieb et al., who explain that the job protection offered by maternity leave can motivate mothers to start their own business. Therefore, I thought that job protection and a generous allowance might be an even greater incentive.

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Abstract

This paper reveals that providing mothers with a higher maternity leave allowance raises their probability of becoming self-employed after childbirth. Using administrative data from Belgium between 2002-2015 and a Regression Kink Design, I estimate that a 900-euro increase in allowance raises the probability of becoming self-employed by six percentage points. Regarding self-employed mothers’ incentives, I find evidence that the allowance might lift financial constraints for those residing in provinces with poor access to banks. I also reveal a positive effect on higher-order births and argue that self-employed mothers might seek flexible work arrangements when they worked in less family-friendly sectors.