The role of parental leave policies in mitigating child penalties: insights from Italy

• Childbirth affects mothers' earnings negatively, while fathers' earnings remain largely unaffected • Women experience an increased probability to exit the workforce after becoming parents. • Social security transfers mitigate the penalty on earnings. This study examines child penalties for mothers and fathers in Italy by using novel administrative data. Relying on an event study approach, we find that childbirth affects mothers' earnings negatively, while fathers' earnings remain largely unaffected. However, when leave allowances are included in earnings, the child penalty for women nearly disappears in the year of childbirth and drops by more than half in the following year. Subsequently mothers’ earnings quickly return to pre-birth levels, but never catch up to fathers' earnings, which follow an upward trajectory, increasing by approximately 46% seven years after childbirth.