Parental Leave Reform and Long-Run Earnings of Mothers

47 Pages Posted: 10 Feb 2020

See all articles by Corinna Frodermann

Corinna Frodermann

University Grenoble Alpes - Institute for Advanced Biosciences (IAB)

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research

Aline Zucco

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

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Abstract

Paid parental leave schemes have been shown to increase women's employment rates but decrease their wages in case of extended leave durations. In view of these potential trade-offs, many countries are discussing the optimal design of parental leave policies. We analyze the impact of a major parental leave reform on mothers' long-term earnings. The 2007 German parental leave reform replaced a means-tested benefit with a more generous earnings-related benefit that is granted for a shorter period of time.Additionally, a "daddy quota" of two months was introduced. To identify the causal effect of this policy on long-run earnings of mothers, we use a difference-in-difference approach that compares labor market outcomes of mothers who gave birth just before and right after the reform and nets out seasonal effects by including the year before. Using administrative social security data, we confirm previous findings and show that the average duration of employment interruptions increased for high-income mothers. Nevertheless, we find a positive long-run effect on earnings for mothers in this group.This effect cannot be explained by changes in working hours, observed characteristics, changes in employer stability or fertility patterns. Descriptive evidence suggests that the stronger involvement of fathers, incentivized by the "daddy months", could have facilitated mothers' re-entry into the labor market and thereby increased earnings. For mothers with low prior-to-birth earnings, however, we do not find any beneficial labor market effects of this parental leave reform.

Keywords: parental leave, wages, labor supply

JEL Classification: H31, J13, J22, J24, J31

Suggested Citation

Frodermann, Corinna and Wrohlich, Katharina and Zucco, Aline, Parental Leave Reform and Long-Run Earnings of Mothers. IZA Discussion Paper No. 12935. Available at SSRN: https://ssrn.com/abstract=3534483

Corinna Frodermann (Contact Author)

University Grenoble Alpes - Institute for Advanced Biosciences (IAB) ( email )

La Tronche, 38700
France

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Aline Zucco

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

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