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.
Forschungsbereich:Arbeitsmarktökonomie, Einkommen und soziale Sicherheit