The Baby Year Parental Leave Reform in the GDR and its Impact on Children's Long-Term Life Satisfaction

Abstract

This article investigates the effects of an increase in paid parental leave -- twelve months instead of six months -- on children's long-term life satisfaction. The historical setting under study, namely the former German Democratic Republic (GDR), allows us to circumvent problems of selection of women into the labor market and an insufficient or heterogeneous non-parental child care supply, which are issues many other studies on parental leave reforms face. Using data from the German Socio-Economic Panel (SOEP) we analyze the birth cohorts from 1980 to 1989 at adult age, and apply a difference-in-difference design making use of the very specific timing of the GDR's parental leave reforms in 1976 and 1986. We find significant and robust positive parental leave effects on life satisfaction. We also analyze whether the increase in life satisfaction is driven by a positive development of personality, health factors, schooling or labor market outcomes. Our results suggest that the increase in life satisfaction might be partially explained by personality development for individuals from low socioeconomic backgrounds and boys. For individuals from high socioeconomic backgrounds, it might be driven by a better health.