Abstract
The authors estimate policy impacts of a generous parental benefit in Germany by using a natural experiment and German census data. They estimate policy effects for the short run (first two years after childbirth) as well as for the medium run (that is, three to five years after childbirth). Although the results confirm the evidence from previous studies for the short run, pronounced patterns emerge for the medium run. First, effects on mothers’ employment probability are positive, significant, and large, ranging up to 10%. These gains are driven primarily by increases in part-time employment and working hours but also by full-time employment for high-income mothers. Moreover, mothers return to their previous employers at significantly higher rates, and employers reward this by raising job quality. The overall positive and sizeable impacts of the reform are centered on mothers from the medium and high terciles of the income distribution; low-income mothers do not benefit.
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