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

Abstract

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.

Acknowledgements

We are grateful for helpful comments by Gerard J. van den Berg, Peter Fredriksson, Barbara Hanel and Kevin Lang. This project was carried out while Annette Bergemann worked at VU University Amsterdam.

Notes

¹The SOEP data have been supplied by the Deutschen Institut für Wirtschaftsforschung (DIW Berlin). For more information on the data see Wagner et al. (2007).

²The marginal effect of the interaction effect was computed using Stata's inteff command (Norton et al., 2004). It was statistically significant at the 10% level in a linear probability model with robust SEs.