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Provisions for maternity leave are common among industrialized countries, but their institutional design varies distinctly from country to country. In this paper we analyze the costs of maternity leave legislation in the US, Germany, Denmark and the UK by comparing the legal provisions on leave durations and on employer-co-financed maternity pay. We argue that the costs of re-organization in response to maternity leave will not simply increase with its duration, but will instead be hump-shaped displaying a maximum at medium-leave durations. More than its expected duration, however, the predictability of leave duration will influence the costs of re-organization. Employer co-financed maternity pay further adds to these costs. Following our theoretical analysis, we review the existing empirical literature on maternity leave: While existing surveys among employers and working mothers are in line with our theoretical considerations, the mixed evidence presented in the existing econometric studies concerning the effect of leave duration on female wages and labor force participation may result from having excluded the issue of predictability of leave duration as well as the question of co-financed maternity pay. We close with (tentative) conclusions for the design of maternity leave provisions, which are currently being discussed and revised in many countries around the world. Introduction: Maternity Leave Legislation in an International Perspective t present, almost every country has provisions for maternity leave allowing young mothers to leave their workplace for a limited time around childbirth and giving them the right to return to their job afterwards (ILO 1998). These provisions, however, vary distinctly from country to country: Whereas in the US, maternity leave amounts to a maximum of 12 weeks of job-protected leave in a 12 months period, in Denmark a woman may leave her workplace for 18 weeks and then return to her previous job. In the UK, the latest changes in maternity leave regulations have increased the maximum duration of job-protected absence to 40 weeks. The right of re-instatement leaves the employer with the costs of having to temporarily reorganize work during maternity leave. Among others, these costs of re-organization will depend on the duration of leave, and at least partially they will be shifted on to the employees, in particular to young women that ”carry the risk” of taking advantage of maternity leave provisions. As a result, maternity leave provisions intended to improve the labor market position of young women may in fact aggravate their situation. More than that, many countries also provide for maternity leave payments that are sometimes partially borne by the employer. While in the US maternity leave is unpaid, in Germany maternity pay reaches up to a 100% of the wage, the employer bearing approximately 40% of these costs (ALEWELL 2000). The costs of having to co-finance maternity pay add to the costs of reorganization and can be expected to further aggravate the labor market position of young women.  Readers with comment of questions are encouraged to contact the authors via e-mail. Several papers have addressed the issue of maternity leave from an international perspective and have analyzed their effect on the labor market position of young women (see e.g. RUHM/TEAGUE 1997; RUHM 1998). However, these papers typically include a large number of countries and only briefly review the regulations in place. A International Business & Economics Research Journal Volume 1, Number 2 46 They typically concentrate on leave duration as a proxy for the costs of maternity leave imposed on the employer leaving aside other potentially important elements of the regulations such as employer co-financed maternity pay or the predictability of leave duration. In this paper, we will analyze both, the expected effect of leave duration and predictability as well as the effect of burdening the employer with costs of maternity pay on the labor market position of young women. Concerning leave duration, we argue and here again we depart from the existing papers on maternity leave that the costs of re-organization accruing to the employer will not steadily increase with the duration of maternity leave, but that we will instead observe a hump-shaped cost curve, where intermediate leave durations may well be the most costly for employers. Furthermore, we also highlight the importance of predictability concerning leave duration. After that, we present a detailed analysis of maternity leave regulations concerning the expected duration of leave, its predictability and employer co-financed maternity pay for 4 industrialized countries whose regulations may serve as examples for a wider class of stipulations in use: the US, Germany, Denmark and the UK. Next we revise the existing empirical studies on the effects of maternity leave provision in the light of our theoretical considerations. We close with (tentative) conclusions for the design of maternity leave provisions that are currently being discussed and revised in many countries around the world. The Costs of Maternity Leave Imposed on Employers: Theoretical Considerations Existing studies on the effect of maternity leave provisions on women’s labor market position concentrate on the duration of maternity leave as a proxy for the costs accruing to employers the underlying hypothesis being that the longer the leave duration, the more human capital is being lost. In many cases, however, the loss of human capital during a limited absence of several months may not be the main cost factor for employers faced with a mother on leave who wishes to return to her previous job. Moreover, it may well be the re-organization of work during absence and thereafter, that causes a problem to the employer. Consequently, in what follows we will focus on the costs of re-organization in response to maternity leave and how these are influenced by (a) the expected duration of leave and (b) by its predictability. After that we highlight the (much neglected) effect of making employers cofinance maternity pay on women’s labor market position. The fact that a woman may leave work for a longer period of time and that she has the right to return to her job afterwards, may cause severe organizational problems to her employer. Depending on the duration of leave, the employer may choose to employ a substitute or to arrange for work-sharing such that the remaining employees fulfill the tasks of the mother on leave. Some workplaces may also allow for leaving the work left undone until the employee returns, but this would seem to be only feasible when the duration of absence is rather short. Having the work done by co-workers should also be regarded as a solution primarily to short-term leaves. The longer the leave, the more problematic it will generally be to find a satisfying and durable solution for shifting the work formerly done by the worker on leave to her co-workers. Heavier workloads for co-workers may in the long run lead to dissatisfaction and increased fluctuation, more error-prone work and lower productivity. Hence, we would expect the costs of work-sharing solutions borne by the employer to be a function of the duration of leave such that employer costs will generally increase with increasing maternity leave duration. Whether co-workers are qualified to take on some of the tasks of the woman on leave depends on the task distribution in the work groups. If the work formerly done by the woman on leave is of the same or of a similar kind as the work done by most of the co-workers, that is if task structures are more or less homogenous, the cost of arranging work-sharing solutions will be comparatively lower than if the task structures are heterogeneous. Thus, while the slope of the work-sharing cost function centrally depends on the duration of the leave, the absolute level of the cost function will be influenced by the homogeneity or heterogeneity of the task structures within firms and will vary between firms, hierarchical levels and work groups. It can further be conjectured that shifting the work to co-workers will be easier for larger firms were homogenous work-groups are more likely to be found. The costs of employing a substitute, however, will generally decrease with increasing maternity leave duration, especially for skilled jobs: The higher the prerequisites on the skill level of the employee who could serve as a substitute, the more difficult it will be to find an adequate substitute for a short period of time. Recruiting substitutes gives rise to fixed costs, for example through advertising the job, selection processes and contract writing. The longer the duration of the employment of the substitute and thus the duration of maternity leave, the lower the recruiting International Business & Economics Research Journal Volume 1, Number 2 47 cost per unit of employment time. Moreover, the substitute will have to get used to his or her work and full productivity will only be reached after some time. Thus, the slope of the substitution cost function is negative due to the effect of the duration of maternity leave. However, firm-specific human capital will play a major role for the level of substitution costs: If the amount of firm-specific knowledge needed in order to perform a certain job is significant, then a short term leave may not provide enough time for the substitute to acquire the skills needed or it may simply be too costly to train the substitute in the light of its short time horizon. Irrespective of the amount of general human capital needed in a certain job a short period of leave may in fact preclude the employment of a substitute as a result of the specific knowledge involved in performing job-related tasks and the costs of building these skills. We consequently expect the following shape of the re-organization-cost curves (figure 1) where Csharing denotes t

The International Regulation Of Maternity Leave: Leave Duration, Predictability, And Employer-Co-financed Maternity Pay