Recent expansions in South Korea’s parental leave benefits aim to address two critical challenges: the country’s persistently low fertility rate and significant gender disparities in labor supply. This article explores how parental leave policies may contribute to mitigating both issues. By incorporating economic models of parental leave, the authors demonstrate the long-term advantages, particularly in terms of job protection, which play an essential role in alleviating the segmentation of Korea’s labor market, promoting higher fertility, and narrowing gender gaps. Furthermore, the study suggests that sustained increases in labor supply could render these policies financially self-sustaining.
South Korea’s Fertility Crisis and Gender Gap
South Korea faces the dual challenges of exceptionally low fertility and pronounced gender gaps in labor force participation. In 2023, the country’s total fertility rate plummeted to 0.72— the lowest globally— and has remained below 1.0 since 2018. At the same time, South Korea experiences the largest gender gap in labor supply among developed nations. These trends place the country in a unique position when plotted on a chart that compares female employment rates relative to male employment and total fertility rates across countries.
Recognizing the urgent need for family-friendly policies, the South Korean government has significantly expanded parental leave benefits as part of its strategy to tackle these issues. Recent reforms have transitioned from a modest, flat-benefit system to a more generous, earnings-based model with higher benefit caps, resembling those of European countries. But how effective are these reforms in addressing fertility and gender disparities in the labor market? And what mechanisms underlie their success or failure? While numerous studies have analyzed parental leave reforms, empirical evidence remains mixed.
Theoretical Approaches to Parental Leave Policies
In their recent work, economists Minchul Yum and Daisoon Kim address these gaps by developing structural economic models to analyze both the short- and long-term impacts of parental leave policies. Their study begins with a static economic model to examine parental leave’s effects on fertility, labor supply, and market outcomes. They then expand this into a more complex life-cycle model, providing a comprehensive understanding of how recent policy changes influence economic behavior over time.
Parental Leave and its Role in Time Allocation
For decades, economic research has emphasized the trade-offs that women face when allocating time between work and childcare. This trade-off is rooted in traditional gender norms that place primary responsibility for childcare on women. The core assumption is that as women increase their working hours, they have less time available to raise children. The negative relationship between fertility and female labor force participation—observed across many countries—reflects this time allocation dilemma.
The researchers’ static model confirms that while more generous parental leave benefits can encourage childbirth, they may also widen gender gaps in labor supply. This occurs because extended leave reduces women’s working hours, especially in contexts where strong childcare burdens and gender norms persist.
Dynamic Effects of Parental Leave in Segmented Labor Markets
However, the static model fails to capture key dynamic effects, particularly the job protection benefits of parental leave, which are crucial in South Korea’s segmented labor market. South Korea’s labor market is characterized by disparities in wage growth and significant barriers to accessing permanent, career-oriented jobs. These jobs, which offer greater career advancement, are typically dominated by men, while women face challenges in both securing and maintaining such positions.
To capture these dynamics, the researchers expand their analysis to a dynamic life-cycle model. In this framework, parental leave not only provides income during time away from work but also protects parents’ positions in career-oriented jobs. Despite the benefits, parental leave policies may still impose career costs, such as slower promotion rates or potential stigma, especially for men.
By simulating the effects of recent policy reforms—including the shift to an earnings-dependent system and higher benefit caps—the researchers find that these changes can significantly reduce gender disparities in labor supply over the life cycle while simultaneously boosting fertility rates. This is particularly evident in the context of South Korea’s labor market, where job protection enables women to balance career and family life more effectively.
Heterogeneous Policy Effects and Fiscal Sustainability
The study also investigates how the effects of parental leave policies vary across different demographic groups. The impact on fertility, for example, is notably higher among college-educated women, particularly those married to non-college-educated men. The researchers also find that the positive effects of more generous leave policies on lifetime labor supply are most pronounced among high-income, highly educated couples. These increases in labor supply suggest that, under moderate policy expansions with well-calibrated caps, parental leave reforms could become self-financing, reducing the need for tax hikes.
Encouraging Egalitarian Use of Parental Leave
One of the persistent issues with parental leave policies in South Korea is the significantly lower rate of fathers taking parental leave compared to mothers. This pattern mirrors trends seen in many other countries. The researchers evaluate the impact of the joint-use incentive program, introduced in recent reforms, and compare it with a policy mandating joint use. Their findings indicate that incentivizing joint use is more effective at increasing male participation in parental leave than imposing strict mandates, which can discourage both parents from taking leave, thereby diminishing the policy’s overall effectiveness.
Conclusion
As fertility rates continue to decline globally, many governments, including South Korea’s, have turned to pro-natal, family-friendly policies to combat this trend. However, the effectiveness of these policies is often questioned, partly due to the difficulty of isolating their impact in the face of multiple simultaneous reforms. The researchers’ estimates suggest that without recent parental leave reforms, fertility rates could have fallen further, while the increase in female labor supply would have been more gradual.
Their findings align with evidence showing that countries with higher family policy expenditures tend to perform better in terms of both labor supply and fertility outcomes. Family-friendly policies may take time to show their full impact, and drawing conclusions from short-term results may be premature. The study emphasizes the need for further research to assess the long-term effects of such policies and to refine strategies that both support families and reduce labor market disparities.
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