Moving to an Earnings-Related Parental Leave System – Do Heterogeneous Effects on Parents Make Some Children Worse Off?

Can moving to an earnings-related parental leave system influence children's well-being and are heterogeneous effects on parents carried over to the entire family, making special groups of children worse off than others? To answer this question, this study exploits a large and unanticipated parental leave reform in Germany as a natural experiment. By replacing a means-tested by an earnings-related system the reform affected different groups of families to a variable extent. I detect significant negative effects on the personality of newborns whose families are subject to a non-positive change in the overall benefit amount compared to the pre-reform situation. 2-3-year-old children belonging to the reform's winners, however, improve their basic life skills and language skills