The South Korean government has expanded parental leave benefits in recent years to address two key challenges: persistently low fertility rates and large gender gaps in labour supply. This column explores how parental leave policies help tackle both issues. Drawing on economic models of parental leave, the authors highlight its long-term benefits – particularly through the mechanism of job protection – which play a crucial role in addressing Korea’s segmented labour market, boosting fertility and narrowing gender gaps. Moreover, a sustained increase in labour supply suggests these policies could eventually be self-financing.
South Korea faces two key challenges: persistently low fertility rates and large gender gaps in labour supply. As of 2023, the country’s total fertility rate had fallen to 0.72 – the lowest in the world – and it has remained below 1.0 since 2018. At the same time, Korea has the largest gender gap in labour supply among developed countries. These facts give the country a notable position in Figure 1, which plots female employment rates relative to male employment against total fertility rates, both averaged over the past decade.
Recognising the need for family-friendly policies (Petrongolo and Olivetti 2017), the Korean government has expanded policies such as parental leave as a tool to address both issues. Recent reforms have transformed a low, flat-benefit system into a more generous, earnings-based structure with higher benefit caps – a design now closer to European models. But how effective are these policies in boosting fertility and closing gender gaps in labour supply? What mechanisms drive their effects, and why do some policies succeed while others fall short? Though many studies examine parental leave reforms, empirical findings remain mixed (e.g. Dahl et al. 2016, Kleven et al. 2020). As Doepke et al. (2023) point out, our theoretical understanding of parental leave policies remains incomplete.
In our recent work (Kim and Yum 2025), we address this gap by developing structural economic models that explicitly capture both the short and long-term impacts of parental leave. Our analysis first illustrates the effects of parental leave policies using a tractable static model, and then quantifies how recent policy designs influence fertility, labour supply for both women and men, and overall labour market outcomes in a richer quantitative life-cycle model.
Figure 1 Gaps in labour supply and fertility across countries
Notes: The x-axis shows the employment rate gap (%) between working-age women and men within the same subgroup; the y-axis represents total fertility rate. Countries are categorised into two groups based on public expenditure on family benefits (as a percentage of GDP): blue circles denote high expenditure (ranks 1–15), and red triangles indicate low expenditure (ranks 16–31). Data represent country averages over the period 2010–2019. Source: Kim and Yum (2025).
Parental leave in a static model
For decades, a key focus in economic research on fertility and female labour supply has been the trade-offs in women’s time allocation. The idea is that time is limited, and gender norms dictate that childcare responsibilities fall primarily on mothers. If women spend more time working, they have less time to raise children. Several decades ago, this trade-off was consistent with the negative cross-country relationship between fertility and female labour force participation, as highlighted by Tertilt et al. (2022).
We begin our analysis with a simple static model that builds on this conventional trade-off. Within this framework, we incorporate parental leave as a subsidy for non-working time that increases with the number of children. We demonstrate that more generous parental leave benefits cannot simultaneously increase fertility and reduce gender gaps in labour supply due to the fundamental time allocation trade-off. While generous parental leave policies may encourage childbirth, they also widen gender gaps in labour supply by reducing women’s working hours, particularly when strong childcare burdens – reinforced by gender norms – are present.
Figure 2 Permanent job employment rates by gender
Notes: Permanent job employment rates calculated as the ratio of individuals with permanent jobs to total observations, averaged over a two-year period. Cohort 1: 1965–70. Cohort 2: 1970–75. Cohort 3: 1975–80. Source: Kim and Yum (2025).
Parental leave with dynamic effects in segmented labour markets
The simple model discussed above does not fully capture the key dynamic advantages of parental leave, particularly its job protection effects. This is especially relevant in Korea, where segmented labour markets create disparities in wage growth and present entry barriers to career-oriented jobs. As shown in Figure 2, a fundamental gender gap exists in the share of workers in permanent jobs, which offer career advancement but require long working hours. While most young men hold permanent jobs, women struggle to access and retain such jobs over the life cycle.
To quantitatively evaluate the effects of recent parental leave policy reforms, we incorporate job protection features into a dynamic life-cycle framework with endogenous career dynamics. Parental leave provides income while parents are out of work; it also helps them remain in career-oriented jobs. Despite these advantages, parental leave can impose career costs, such as lower promotion probabilities and stigma costs, particularly for men.
Using a life-cycle model calibrated to recent cohorts who did not experience the latest major reforms, we analyse two recent policy expansions: a shift to a more generous earnings-dependent system and an increase in benefit caps. Our findings show that these reforms can persistently narrow gender gaps in labour supply over the life cycle while increasing fertility. In our dynamic framework, parental leave’s job protection role – combined with Korea’s segmented labour market – allows women to balance a career and family, with generous leave provisions encouraging more women to seek permanent jobs.
Heterogeneous policy effects and fiscal implications
We also examine the heterogeneous effects of parental leave policies. We find that the impact on fertility is larger among college-educated women, particularly those married to non-college-educated men. Notably, the positive effects of more generous parental leave benefits on lifetime labour supply are strongest among highly educated couples. These persistent labour supply increases among high-income families suggest that, under moderate expansions with a tight cap, parental leave reforms could be self-financing, eliminating the need for tax increases.
Promoting egalitarian parental leave use
The share of fathers taking parental leave in Korea remains significantly lower than that of mothers, a pattern observed in many other countries (Albrecht et al. 2025). We evaluate the joint-use incentive programme introduced in recent reforms and compare it to a counterfactual policy that mandates joint use. Our findings show that incentivising joint use is more effective at increasing male participation than mandating it, as strict mandates discourage both mothers and fathers from taking leave, thereby reducing overall policy effectiveness.
Figure 3 Female employment rates and fertility without 2022 parental leave policy reform
Concluding remarks
Fertility rates are declining globally. Many governments, including Korea’s, have introduced pro-natal, family-friendly policies to address this trend. Yet, these policies are often dismissed as ineffective. The challenge lies in empirically measuring their impact, as assessing what would have happened in the absence of such reforms is difficult. Moreover, when multiple family policy reforms occur simultaneously, isolating the effects of a single reform becomes even more challenging.
Figure 3 illustrates the persistent decline in fertility alongside rising female employment in recent years. We also plot alternative trends in the absence of these reforms, based on back-of-the-envelope calculations from our 2022 policy reform experiment results. Our estimates suggest that without parental leave reforms, fertility rates could have declined even further, while the increase in female labour supply would have been more gradual.
These findings align with suggestive evidence from Figure 1, which shows that countries with higher family policy expenditures (blue circles) tend to cluster in the top-right corner, reinforcing the link between family-friendly policies and improved labour and fertility outcomes. Family policies could take time to show results, and drawing conclusions based on short-term outcomes may be premature. Further research is needed to assess the long-term effectiveness of various family-friendly policies and to refine strategies that support families while reducing labour market disparities.
Source : VOXeu
