Pension Wealth and Maternal Employment: Evidence from a Reform of the German Child Care Pension Benefit

Abstract

This paper uses administrative data to investigate how a change in pension wealth affects a mother’s employment decision after child birth. I exploit the extension of the child care pension benefit in 1992 as a natural experiment in a regression discontinuity design to estimate short- and medium-run employment effects. In comparison to most family benefits, the child care pension benefit is accumulated upon child birth but only becomes effective on the verge of retirement. Hence, the employment response depends on how a mother discounts future pension benefits. The results suggest that the change in pension wealth does not affect maternal employment, which is not in line with a forward looking rational behavior. Therefore, the child care pension benefit increases maternal old-age income without causing negative employment reactions.