Reducing the child penalty by incentivizing maternal part-time work?

Abstract

Governments worldwide are discussing ways to increase maternal labor market participation and to reduce the child penalty. This study analyzes the long run effects of a paid parental leave reform in Germany, a country characterized by high rates of maternal part-time employment after childbirth. The reform introduced additional financial incentives for mothers to engage in part-time work during the first two years following childbirth. Using German social security records, we exploit the fact that only mothers whose child is born in or after July 2015 are eligible for the new part-time parental leave option in a Difference-in-Differences strategy. We find that the policy increased the probability that high-income mothers return to work during the first year after child birth by 2.1–2.8 percentage points ($\approx$ 15%–20%). However, the policy does not affect maternal employment along the extensive or intensive margin (part-time or full-time work) in the long run (i.e. up to 4.5 years after child). This indicates that while the reform successfully encourages early part-time return to work among high-income mothers, it does not significantly reduce the child penalty. However, it does also not trap mothers in part-time employment.