Can paid maternity leave mean more entrepreneurship?

In the recent Kauffman research paper Labor After Labor, one of the baseline changes recommended to ensure that mother entrepreneurs can balance work and family life is an extension of parental leave. While there are plenty of reasons why longer parental leave is good for parents and children, can it also be good for creating entrepreneurs?

A policy brief from the Stanford Institute for Economic Policy Research by Joshua Gottlieb highlights his research that shows how maternity leave reform in Canada has increased the number of mother entrepreneurs.

Canadian parental leave

In 2000, Canada extended parental leave from seven months to an entire year. During this leave, employment insurance pays 55 percent of the parent’s income prior to their leave. In addition, parents are assured job security that they can return to their previous job when their parental leave ends.

The researchers compared the entrepreneurship rates of mothers who were subject to the new reform with mothers who had their children before 2000.

“This comparison reveals a statistically significant and economically large increase in entrepreneurship among mothers who benefited from the full-year leave opportunity. Using data from the Canadian census, which are linked to tax returns, [they] find that 5 percent of mothers are self-employed five years after the child’s birth. This number increases by 1.8 percentage points for those whose kids arrived just after the reform [emphasis mine].”

Understanding why

The research suggests the extension of benefits gives mothers the opportunity to consider entrepreneurship. In addition, the research shows that these mother-run businesses are not failing, but instead are likely to hire employees. However, the article stresses it is not the financial resources provided by the benefits that determines whether mothers are entering entrepreneurship. Instead, it is the job protection provided by the parental leave, the ability to return to one’s previous job, which assists new mothers to consider their entrepreneurial potential.