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Female labour supply and parental leave benefits - the causal effect of paying higher transfers for a shorter period of time

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We study the labour supply effects of a major change in child-subsidy policy in Germany in 2007 designed to increase both fertility and shorten birth-related employment interruptions. The reform involved a move from a means-tested maternity leave benefit system that paid a maximum of 300 Euro for up to 2 years to a benefit system that replaced two-thirds of pre-birth earnings for at most 1 year. As the reform took place very recently, we estimate the labour supply effect by using data drawn from the German Socio-Economic Panel (GSOEP) on the intention of women to return to the labour market. Our results show that the reform yields most of the intended effects: the fraction of mothers who plan to return to the labour market within a year after the interview increased by 14 percentage points.
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Deutsches Institut für
Wirtschaftsforschung
www.diw.de
Annette Bergemann Regina T. Riphahn
Female labor supply and parental leave benefits -
The causal effect of paying higher transfers
for a shorter period of time
161
SOEPpapers
on Multidisciplinary Panel Data Research
Berlin, February 2009
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Contact: Uta Rahmann | urahmann@diw.de
Female labor supply and parental leave benefits -
The causal effect of paying higher transfers for a shorter period of time
Annette Bergemanna
VU University Amsterdam
Regina T. Riphahnb
University Erlangen-Nuremberg
January 2009
Words without title page: 1947
We study the labor supply effects of a change in child-subsidy policy designed to both
increase fertility and shorten birth-related employment interruptions. The reform yields most
of the intended effects.
Key Words: female labor supply, fertility, child subsidy, parents money
JEL Code: J13, J21
a VU University Amsterdam, Department of Economics, De Boelelaan 1105, 1081 HV
Amsterdam, The Netherlands, abergemann@feweb.vu.nl
b Corresponding Author: University of Erlangen-Nuremberg, Lange Gasse 20,
D-90403 Nürnberg, Germany, regina.riphahn@wiso.uni-erlangen.de
---------------------------------------
Acknowledgements: We are grateful for helpful comments by Gerard J. van den Berg and
Barbara Hanel.
1
1. Introduction
During the past decades, female labor force participation has increased in most
OECD countries. However, it often still falls substantially short of the labor force participation
of men. Many countries have been considering policy reforms to address this issue. In 2007,
a German policy reform substantially modified family subsidies, with the dual objective to
increase fertility and to enhance incentives for women to return to the labor force after
childbirth.
Since January 1, 2007 parents of newborn children in Germany receive "parents'
money" (Elterngeld). It amounts to two thirds of the pre-birth net income of the parent who
interrupts employment. There is a minimum amount of 300 (also for those not previously in
the labor force) and a maximum of 1800 Euro per month. The benefit is paid at most for 12
months for one of the parents. The other parent can flexibly receive the benefit for two
months of employment interruption. The new transfer is more generous than the previous
means-tested program, which paid a maximum of 300 Euro for up to 24 months. However,
the new program pays for a much shorter period of time. The reform modified the parental
leave benefit and its entitlement period. At the same time the parental leave period, which
involves job protection for three years, remained unchanged.
Classic labor supply models predict that the reform enhances female labor force
participation. First, it abolishes a work disincentive, as the old regime had mandated that
every Euro earned was to be deducted from the transfer amount. Second, transfers can be
much higher now than before. At the end of the transfer period, a sizeable income drop now
gives a stronger incentive to substitute transfers by labor income. Third, the transfer payment
period was reduced by half, which suggests a faster return to the labor force than under the
old regime.
In addition to the overall labor supply effect, particularities of the reform suggest
heterogeneous responses depending on prior labor earnings. Mothers with high prior
earnings are newly eligible to receive transfers. During the period of transfer receipt their
labor supply should now decline, and afterwards it should jump upward to (at most) the pre-
2
reform level. Low income mothers may now receive higher benefits than before, but for a
shorter period of time. When the transfer expires, their labor supply should be larger than
before the reform. Therefore we expect particularly mothers with low earnings to increase
their labor supply and to return to the labor force faster than before the reform.
Previous studies generally confirm the responsiveness of female labor supply to
extensions of family leave policies, but none seem to have investigated the causal effect of
cuts in duration. Baker and Milligan (2008) show that an extension of the Canadian maternal
leave period lengthens the time women spent at home. In previous studies for Germany,
Ondrich et al. (1996, 2003) find that mothers' probability to return to the labor force declines
when parental leave periods are extended. Han et al. (2007) detect clear behavior changes
following institutional reforms in the United States. Spiess and Wrohlich (2008) also discuss
the reform under study here and use a micro-simulation model for an ex ante analysis of its
expected labor supply impact. They predict an increase in female participation rates and in
the number of hours worked 12 months after a birth.
2. Data and Method
We use data from the German Socio-Economic Panel, an annual longitudinal
household survey. We consider all women who indicated a new birth in the surveys 2005-
2007, i.e. between January 1, 2005 and the end of 2007.1 We observe 451 births and drop
the first observed birth of 8 women who had two children in the considered period, thus
focusing on a mothers' last observed birth. Overall, we observe 395 births under the old and
48 births under the new regime.
Our dependent variables are indicators of women's intention to return to work and the
planned time until returning to work. Given the small number of observations and the
nonlinear nature of the response categories, we code a likely return to the labor force if a
woman indicates this to be the case (alternative answers: certainly no, rather not, probably
1 The SOEP data has been supplied by the Deutschen Institut für Wirtschaftsforschung (DIW
Berlin). For more information on the data see Wagner, Frick, Schupp (2007).
3
yes, certainly, already employed). In addition, we code a fast return to work, if she answers
that she plans to return within one year or faster (alternative answers: never, not within 5
years, within 2-5 years, immediately or within one year, already working). 88 percent of the
new mothers indicate that it is likely that they return to work and 41 percent indicate that they
will return within one year.
As the introduction of the reform was largely unanticipated, we are able to identify the
causal labor supply effect by comparing the labor force participation intentions for women
under the two different policy regimes. Figure 1 depicts the development of monthly births
between January 2005 and December 2007 and confirms the exogenous nature of the timing
of the reform. In addition to the reform effect, we also control for various sets of covariates,
notably, the age of the child at the time of the interview, whether it is a first child, and whether
the woman lives in East Germany, where child care facilities are substantially better than in
the West.
Table 1 presents descriptive statistics of our variables. The covariates of the two
subsamples of women who gave birth before and after Jan. 1, 2007 differ with respect to the
age of the child, whether or not the birth is a first child and the religious affiliation. The
sampling frame of the data causes the higher average age of children born prior to 2007,
because e.g. births in 2006 can be observed both in the surveys in 2006 and 2007 whereas
births in 2007 can (so far) only be measured if the 2007 interview took place after the birth.
Note that the main part of the interviews take place in February and March. We find a higher
fraction of first births in the 2007 sample than in the years before, as well as a lower share of
mothers with Christian religious affiliation in 2007 than in the years before. Since that the
aggregate figures (see Figure 1) do not suggest a substantial increase in fertility in 2007, we
have no reason to assume a causal connection between these two covariates and the
benefit reform.
4
3. Results
Table 2 presents Probit estimation results of the effect of the benefit reform ("birth in
2007") on the two indicators of female labor supply after child birth, i.e. whether the mother
plans to return to work ("likely return") and the expected time until the return ("fast return"). If
the 2007 reform increased the probability and speed of return we would expect a positive
average marginal effect of the "birth in 2007" variable in all regressions.
The estimations of the likely return yield an insignificant reform effect. Columns 1-3 in
Table 2 depict the average marginal effects for three specifications which are indicative of
specifications with additional control variables. Mothers of only one child and with high levels
of education have a higher expected probability to return to the labor force.
Columns 4-7 depict the results with respect to the expected timing of a return to the
labor force with various sets of control variables. Here we find the expected significant effect
of the reform on the timing of the return to the labor force. The marginal effect is substantial
at about 14 percentage points which compares to an average of 40 percent of all new
mothers who plan to return to the labor force fast.
We find a higher propensity to quickly return to the labor force among well educated
women and among those with a strong attachment to the labor force. Not presented are
marginal effects which suggest a substantially higher propensity of East German women, of
women without a religious affiliation, and of those with older children to return to the labor
force quickly. Additional specifications, which we do not present to save space, showed that
own income has a positive effect on a fast return to the labor force and partner income yields
an insignificant negative effect.
To test whether the effect of the reform differs depending on prior earnings we
additionally controlled for interaction effects of prior earnings with the "birth in 2007" indicator
for both dependent variables (not presented to save space). The interaction term generates
insignificantly negative interaction effects, indicating that the overall positive labor supply
5
response of the reform is predominantly driven by mothers with lower pre-birth earnings.2
This matches our expectations and points to the potential distributional impact of the reform.
4. Conclusion
This is the first study to evaluate the causal effect of a reform that increased parental
leave benefits' amounts and shortened their payment period. Based on planned labor force
participation the reform succeeded in speeding up mothers' return to work. This shortened
employment interruption should yield beneficial long term effects with respect to reduced
human capital depreciation and wage penalties suffered by mothers who used to drop out of
the labor force for extended periods after child birth.
2 The marginal effect of the interaction effect was computed using Stata's inteff command
(Norton et al. 2004). It was statistically significant at the 10 percent level in a linear probability
model with robust standard errors.
6
Table 1 Descriptive Statistics
Old regime New regime
(N = 395 births) (N = 48 births)
Mean Std.Dev. Mean Std.Dev.
Dependent Variable:
Likely return (0/1) 0.891 0.016 0.792 0.059
Fast return (0/1) 0.400 0.025 0.458 0.073
Independent Variables:
Age of child at interview in
months 5.668 0.187 ** 1.875 0.194
Birth is first birth (0/1) 0.491 0.025 * 0.646 0.070
Single parent (0/1) 0.081 0.014 0.083 0.040
Maternal age at interview 30.597 0.292 29.646 0.727
Maternal schooling in years 12.634 0.137 13.135 0.405
Maternal experience in years 6.992 0.242 6.738 0.763
East German (0/1) 0.238 0.021 0.229 0.061
Foreign origin (0/1) 0.091 0.014 0.125 0.048
Religion Christian (0/1) 0.681 0.023 * 0.500 0.073
Religion other (0/1) 0.051 0.011 * 0.167 0.054
Religion none (0/1) 0.268 0.022 0.333 0.069
Note: ** and * indicate statistically significant difference of the subgroup means at the 1 and
5 percent levels.
Table 2 Probit Estimates - Dependent Variables: Likely Return and Fast Return
A.M.E. A.M.E. A.M.E. A.M.E. A.M.E. A.M.E. A.M.E.
(Std.Err.) (Std.Err.) (Std.Err.) (Std.Err.) (Std.Err.) (Std.Err.) (Std.Err.)
123 4567
Birth 2007 -0.032 -0.044 -0.054 0.155 * 0.144 o 0.133 o 0.146 o
(0.052) (0.052) (0.053) (0.080) (0.079) (0.076) (0.077)
First birth
B
0.122 ** 0.075 *
B
0.144 ** 0.033 0.016
(0.031) (0.025) (0.050) (0.051) (0.050)
Single parent
B
-0.097 -0.056
B
-0.112 -0.067 -0.07
(0.066) (0.056) (0.079) (0.079) (0.077)
Maternal schooling
BB
0.026 **
BB
0.040 ** 0.038 **
(0.007) (0.010) (0.010)
Maternal experience
BB
0.005
BB
0.036 ** 0.033 **
(0.004) (0.007) (0.008)
Age of child y ** y ** y ** y ** y ** y ** y **
Maternal age
B
yy
B
yy**y**
East German
B
yy
B
y** y** y
Foreign origin
B
y** yo
B
yyy
Religion
BBB BBB
y**
Pseudo R squared 0.055 0.16 0.213 0.010 0.062 0.11 0.136
Likely Return Fast Return
Note: A.M.E. stands for average marginal effect. All models consider an intercept term. **, *
and o indicate statistical significance at the 1, 5, and 10 percent level. All estimations are
based on 443 observations. We control for age of child using a second order polynomial. A
test rejected the addition of a cubic term.
7
Figure 1 Monthly Live Births (2005-2007)
0
10000
20000
30000
40000
50000
60000
70000
123456789101112
Calendar Month
Number of Live Birth
s
2005 2006 2007
Source: German Federal Statistical Office
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Ondrich, Jan, C. Katharina Spiess, and Qing Yang, 1996, Barefoot and in a German kitchen:
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Germany: Costs and Labour Market Outcomes of Moving towards the Nordic Model,
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... Kluve and Tamm (2013) found evidence of a significant decline in mothers' employment probability during the first year of motherhood and an increase of that in the second year, once the benefit expires. 5 Bergemann and Riphahn (2011) showed the positive effect of the German parental leave reform on mothers' intentions to return to work. They found a positive response in maternal labor force participation once the benefit is expired, using semi-parametric Cox 4 Refer [18] for a detailed review. ...
... Without controlling for childcare decision, the findings suggested the positive impact of the reform on the employment after childbirth. These results are in line with the previous findings of Kluve and Tamm (2013), Riphahn (2011), andGeyer et al. (2015). Once the estimations are corrected to the childcare factor, the policy effects turn insignificant. ...
... Second, the probability to work jumps significantly during the second year of motherhood, once the benefits terminate. These findings are in line with previous research by Kluve and Tamm (2013), Riphahn (2011), andGeyer et al. (2015). ...
Article
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Parental leave and child care are important instruments of family policies to improve work–family balance. This paper studies the impact of the substantial change in Germany’s parental leave system on maternal employment. The aim of the reform was to decrease birth-related maternal employment breaks by providing more generous parental benefits for a shorter period of time. Using the German Socio-Economic Panel data for 2002–2015, I exploited quasi-experimental variation in the benefits to estimate the impact of the reform. I incorporated the mother’s decision to substitute her care time with the public child care. To control for the availability of child care, I used spatial and temporal variation in the availability of childcare slots. Overall, I did not find significant changes in maternal employment during the first three years of motherhood after the reform implementation. Only for high-income mothers, the reform produced a significant decrease in the employment participation during the first year of leave and an increase in employment probability after the benefits expired. The empirical findings suggest that the restriction in the childcare availability became an important constraint for the employment effect of the reform.
... Schönberg and Ludsteck (2014) examine the effects of expansions in maternity leave coverage since 1979 and show that every expansion led to mothers delaying their return to work. Bergemann and Riphahn (2010) and Spieß and Wrohlich (2008) show that the modification of family support in 2007 (introduction of the 'Elterngeld' (parental allowance)) increased the working hours of mothers in the second year of a child's life. Stahl and Schober (2018) find that education is relevant to work-care arrangements and that employment and child care use increased more among SN Soc Sci (2022) families with moderately and highly educated mothers than among families with less educated mothers. ...
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... For those who had more than one child in this period, I consider the lastborn child. This follows previous research(Bergemann & Riphahn 2011). Parents who had a child prior to 2007 and the next child post 2008 are not considered. ...
Thesis
Despite substantial progress, gender gaps in labour market outcomes persist. Several key factors help explain remaining gaps. First, men and women continue to work in different jobs. Second, parenthood appears to be a crucial point in the life course at which gender gaps widen. Third, traditional beliefs and norms about the appropriate roles of men and women, particularly in the context of parenthood, are obstacles to closing remaining gender gaps. At the same time, advancements in automation technologies are transforming the world of work and may have genderspecific impacts. Motivated by these observations, this thesis advances understanding of several factors related to gender inequality in the labour market. These factors are gendered university major choices, attitudes towards gender roles in the context of parenthood, and effects of recent transformations in labour markets on the gender gap in pay. The thesis consists of four empirical papers. The first paper studies the role of intergenerational transmission for gendered university major choices of young adults. Using regression analysis and exploiting survey data from a recent cohort of university students in Germany, the paper investigates to what extent and why gender-typicality of mother's and father's occupation affect the gender-typicality of their child's university major. Results show signifficant intergenerational associations and indicate that parental resources and a transmission of gender roles are both relevant transmission channels, particularly for sons' major choices. The second and third paper examine how gender role attitudes are shaped in the context of parenthood. The second paper analyses effects of the 2007 paid parental leave reform (Elterngeld) in Germany on parents' gender role attitudes; specifically, attitudes towards the gender division of work, towards the roles of fathers, and towards the labour force participation of mothers. Exploiting the reform as a natural experiment, results indicate that men affected by the reform hold more traditional attitudes towards the role of fathers, whereas there is no effect on the other two iv outcomes. Focusing on the UK, the third paper explores whether parenting daughters affects attitudes towards a traditional male breadwinner model in which it is the husband's role to work and the wife's to stay at home. Using panel data and individual fixed effects models, the results indicate that fathers are less likely to hold traditional views on the gender division of work if they raise a girl. No robust effects on mothers' attitudes are found. Results from the second and third paper inform the broader literature on attitudinal change, suggesting that gender role attitudes are not stable throughout the life course and can be significantly shaped by adulthood experiences. The final paper studies whether technological change increases gender inequality. Using individual-level data from around 28 million individuals in 20 European countries and an instrumental variable strategy, the study provides the first large-scale evidence concerning the impact of industrial robots on the gender gap in earnings. Findings indicate that robot adoption increases both male and female earnings but also increases the gender pay gap. These results are driven by countries with high initial levels of gender inequality and can be explained by the fact that men in medium- and high-skilled occupations disproportionately benefit from robotization, through a productivity effect.
... The quasi-experimental literature on paid parental leave in Germany focuses largely on policy effects on maternal employment (see particularly Bergemann and Riphahn (2011);Greyer et al. (2015); Kluve and Tamm (2013); Kluve and Schmitz (2018); Schönberg and Ludsteck (2014)). All papers adopt a sharp RD design or a differences-in-differences design by exploiting a natural experiment to compare mothers who gave birth to children shortly before the parental leave reform (control group) with mothers who gave birth to children shortly after the reform (treatment group). ...
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... Thus, it is related the division of housework and varies in length, coverage of wages, and restrictions on who (men and/ or women) is eligible to take the leave (Fuwa and Cohen 2007). The length of parental leave is considered to be positively related to the female labor force participation (e.g., Bergemann and Riphahn 2010) and reduces the gender earning disparity (Mandel and Semyonov 2005). Nevertheless, studies on the relationship between the length of parental leave and women's entrepreneurship have shown mixed results. ...
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... 62 These findings are substantiated by a study examining the impact of replacing a means-tested child-rearing benefit program with a universal parental leave benefit in Germany that increased payment amounts and decreased the pay period; the 2007 reform increased household income among those with an infant and expedited women's return to work, particularly among mothers with lower prebirth incomes. 57,[63][64][65] Several studies examined the impact of extending paid leave on women's labor force participation and employment-related outcomes in the medium to long term. Cross-national analyses showed that increasing the duration and benefit level provided by paid leave policies increased rates of women's labor force participation, [66][67][68] although it is unclear whether this resulted from the reforms prompting labor force entry or, conversely, inhibiting labor force exit. ...
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Policy Points • Historically, reforms that have increased the duration of job‐protected paid parental leave have improved women's economic outcomes. • By targeting the period around childbirth, access to paid parental leave also appears to reduce rates of infant mortality, with breastfeeding representing one potential mechanism. • The provision of more generous paid leave entitlements in countries that offer unpaid or short durations of paid leave could help families strike a balance between the competing demands of earning income and attending to personal and family well‐being. Context Policies legislating paid leave from work for new parents, and to attend to individual and family illness, are common across Organisation for Economic Co‐operation and Development (OECD) countries. However, there exists no comprehensive review of their potential impacts on economic, social, and health outcomes. Methods We conducted a systematic review of the peer‐reviewed literature on paid leave and socioeconomic and health outcomes. We reviewed 5,538 abstracts and selected 85 published papers on the impact of parental leave policies, 22 papers on the impact of medical leave policies, and 2 papers that evaluated both types of policies. We synthesized the main findings through a narrative description; a meta‐analysis was precluded by heterogeneity in policy attributes, policy changes, outcomes, and study designs. Findings We were able to draw several conclusions about the impact of parental leave policies. First, extensions in the duration of paid parental leave to between 6 and 12 months were accompanied by attendant increases in leave‐taking and longer durations of leave. Second, there was little evidence that extending the duration of paid leave had negative employment or economic consequences. Third, unpaid leave does not appear to confer the same benefits as paid leave. Fourth, from a population health perspective, increases in paid parental leave were consistently associated with better infant and child health, particularly in terms of lower mortality rates. Fifth, paid paternal leave policies of adequate length and generosity have induced fathers to take additional time off from work following the birth of a child. How medical leave policies for personal or family illness influence health has not been widely studied. Conclusions There is substantial quasi‐experimental evidence to support expansions in the duration of job‐protected paid parental leave as an instrument for supporting women's labor force participation, safeguarding women's incomes and earnings, and improving child survival. This has implications, in particular, for countries that offer shorter durations of job‐protected paid leave or lack a national paid leave entitlement altogether.
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Germany is known to have one of the lowest fertility rates among Western European countries and also relatively low employment rates of mothers with young children. Although these trends have been observed during the last decades, the German public has only recently begun discussing these issues. In order to reverse these trends, the German government recently passed a reform of the parental leave benefit system in line with the model practiced in Nordic countries. The core piece of the reform is the replacement of the existing means-tested parental leave benefit by a wage-dependent benefit for the period of one year. In this paper we simulate fiscal costs and expected labour market outcomes of this reform. Based on a micro-simulation model for Germany we calculate first-round effects, which assume no behavioural changes and second-round effects, where we take labour supply changes into account. Our results show that on average all income groups, couples and single households, benefit from the reform. The calculation of overall costs of the reform shows that the additional costs are moderate. As far as the labour market behaviour of parents is concerned, we find no significant changes of labour market outcomes in the first year after birth. However, in the second year, mothers increase their working hours and labour market participation significantly. Our results suggest that the reform will achieve one of its aims, namely the increase in the labour market participation of mothers with young children.
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"Since 1979 German federal maternity leave and benefit policy has given women incentives to stay at home and take care of their newborn and youngest children. In 1986 this leave and benefit policy was changed in several ways, turning it into a powerful instrument for delaying mothers' return to work after childbirth.... We estimate post childbirth return to work hazards for women during the federally protected leave protection period and immediately upon completion of this leave period. During the leave mothers are less likely to return to work the longer is the time left in the leave protection period; however, this result cannot be attributed generally to high levels of maternity benefits. When the leave protection period ends, mothers with strong labor force attachment who are still on leave return to their jobs."
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German federal law has increased the potential duration of maternity leave five times since 1985. A theoretical model demonstrates that the cumulative return probability at potential duration cannot decline unless the mother's employment conditions or career expectations change. We estimate return to work hazards from the German Socio-Economic Panel for women bearing children in the period 1984–1991 and predict cumulative return probabilities for first-time mothers and mothers with a previous birth. The pattern of cumulative return probabilities as potential duration increases is consistent with the hypothesis that employment conditions or career expectations frequently change for mothers taking longer leaves. Copyright Kluwer Academic Publishers 2003
  • Han W. -J