The Effects of Large Universal Child Benefits on Female Labour Supply

Abstract

In 2016 the Polish government introduced a large new child benefit, called Family 500+, with the aim to increase fertility from a low level and reduce child poverty. The benefit is universal for the second and every further child and means-tested for the first child. Increasing out-of-work income significantly, the transfer can reduce incentives to participate in the labour market. We study the impact of the new benefit on female labour supply, using Polish Labour Force Survey data. Based on a difference-in-differences methodology we find that the labour market participation rates of women with children decreased after the introduction of the benefit compared to childless women. The estimates suggest that by mid-2017 the labour force participation rate of mothers dropped by 2-3 percentage points, depending on the estimation specification, as a result of the Family 500+ benefit. The effect was higher among women with lower levels of education and living in small towns.