Time versus Money: How Maternity Leave Shapes Fertility Decisions and Child Development in China

Abstract This study develops an overlapping generations (OLG) model with endogenous fertility and paid maternity leave, and provides empirical evidence on how maternity leave affects fertility and children’s human capital. The results reveal an inverted U-shaped relationship between maternity leave duration and fertility, with a turning point of 24.54 weeks. Fertility responses are stronger among women in central and western regions, those employed in the private sector, and women with weaker intrinsic fertility preferences. Mechanism analysis shows that moderate extension of leave promote fertility by increasing childcare time, whereas the negative income effect becomes dominant as longer leave. Moreover, maternity leave also improves children’s human capital by strengthening parent-child interactions, although the reduction in household income during the leave period may constrain household investment in children’s education. Overall, these findings highlight the importance of balancing childcare time support and income protection in the design of maternity leave policies.