Spain combines very low fertility with a highly regulated and segmented labour market, where temporary contracts are widespread, and promotions to permanent positions are costly for firms. These features make Spain an ideal setting to study how family-friendly policies interact with firms’ behaviour. When policies increase the cost or risk of employing mothers, firms may respond by adjusting hiring, promotion, and job design decisions, thereby shaping both women’s careers and their fertility choices.

Existing research has extensively studied how these policies affect women’s labour supply and fertility choices (see Doepke et al., 2023 and Albanesi et al., 2023 for overviews). By contrast, far less is understood about how firms adjust their hiring, promotion, and job design decisions in response to such policies, and how these adjustments ultimately influence women’s employment trajectories and fertility outcomes. Firms’ reactions may be decisive for policy effectiveness. Family-friendly measures can alter the costs and risks that firms associate with employing mothers, potentially dampening labour demand (Olivetti and Petrongolo, 2017). At the same time, occupational and job sorting has become an increasingly important source of gender inequality as men’s and women’s human capital profiles converge (Goldin, 2014).
 

Using rich administrative data from Spanish Social Security records, the study documents three key patterns. 

First, women are much less likely to work in sectors with long working hours, highlighting the importance of job flexibility. Figure 1 shows that women are systematically underrepresented in sectors where long working hours are the norm, underscoring the importance of job flexibility in Spain’s labour market. 

Second, as shown in figure 2, women in less flexible jobs -defined as sectors with above-median shares of men working over 50 hours per week- experience slower wage growth, particularly if they have children. 

Third, a major family-friendly reform introduced in 1999 -the right to reduce working hours with job protection- led to a sharp increase in take-up among mothers with permanent contracts, particularly in inflexible jobs. As shown in figure 3, take-up of reduced working hours, which is referred to here as a workweek reduction, rose sharply after the reform, but almost exclusively among women with permanent contracts in inflexible jobs. At the same time, firms reacted to this reform by reducing promotions of women from temporary to permanent contracts (an effect previously documented by Fernández-Kranz and Rodríguez-Planas, 2021). This response reflects firms’ concerns about higher future costs when promoting women who may later reduce hours or temporarily exit the labour force.


 

To interpret these patterns, the authors of this article develop and estimate a quantitative model of fertility decisions that explicitly incorporates firms’ hiring, firing, and promotion decisions. The model shows a clear trade-off: policies that increase job security for mothers tend to raise fertility but reduce women’s employment and lifetime earnings. Fertility rises partly because some women with weaker labour market prospects leave employment and choose to have more children, while firms concentrate stable jobs on a smaller group of highly productive women.

Not all family-friendly policies generate the same trade-offs. The analysis highlights promotion subsidies, which provide financial incentives for firms to promote women from temporary to permanent jobs, as a particularly effective instrument. By offsetting firms’ concerns about the costs associated with motherhood, these subsidies encourage firms to promote women into stable jobs. As a result, both fertility and women’s lifetime earnings increase.

In contrast, policies that focus solely on job protection or reduced working hours  without addressing firms’ incentives  are more likely to increase fertility at the expense of women’s careers. Figure 4 compares the long-run effects of different family policies, highlighting the trade-off between fertility and women’s lifetime earnings. Table 1 provides details on policies that are studied and evaluated in figure 4. 

 

These findings suggest that addressing Spain’s low fertility requires more than expanding family benefits for workers. In a labour market characterized by duality and rigidities, family policy and labour market policy cannot be designed in isolation. Policies that ignore firms’ responses risk reinforcing existing gender gaps in employment and earnings.

A more effective strategy is to complement family-friendly measures with policies that directly shape firms’ incentives, especially those related to hiring and promotion. Doing so can help reconcile higher fertility with stronger labour market attachment, making demographic and economic objectives mutually reinforcing rather than competing.

ALBANESI, S.; C. OLIVETTI; B. PETRONGOLO (2023): «Families, labor markets, and policy», en S. Lundberg y A. Voena (eds.), Handbook of the Economics of the Family, North Holland. 

BOVER, O.; N. GUNER; Y. KULIKOVA; A. RUGGIERI; C. SANZ (2025): «Family-Friendly Policies and Fertility: What Firms Have to Do with It?», CEPR Discussion Paper 20411. 

DOEPKE, M.; A. HANNUSCH; F. KINDERMANN; M. TERTILT (2023): «The economics of fertility: a new era», en S. Lundberg and A. Voena (eds.), Handbook of the Economics of the Family, 151-254. North-Holland. 

FERNÁNDEZ-KRANZ, D.; N. RODRÍGUEZ-PLANAS (2021): «Too Family Friendly? The Consequences of Parent Part-Time Working Rights», Journal of Public Economics, 197:104407. 

GOLDIN, C. (2014): «A Grand Gender Convergence: Its Last Chapter», American Economic Review 104(4): 1091-1119.
 
OLIVETTI, C.; B. PETRONGOLO (2017): «The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High-income Countries», Journal of Economic Perspectives 31(1):205-230.