The heterogeneous impact of parental leave take up on the wage distribution: Evidence from Luxembourg

We analyze the causal effects of taking parental leave on the post-birth hourly wage distribution of parental-leave-eligible mothers in Luxembourg. To deal with selection into parental leave, we match participants with non participants’ rich pre-intervention characteristics obtained from Social Security records for 2005–2010. In addition, we deal with selection into employment by using principal stratification and non parametric bounds. While the key identifying assumptions employed are not refutable (e.g., unconfoundedness and monotonicity), we present suggestive evidence about their plausibility in our context. Inference is for a subpopulation of parental-leave-eligible mothers who are always employed regardless of parental leave participation—about 80% of all eligible mothers. Our estimated bounds on quantile treatment effects of parental leave suggest substantial negative and significant impacts in most quantiles above the median of the wage distribution. These wage penalties, which are bounded between 10 and 26%, appeared present for high-earner mothers 2–5 years after parental leave.