Reducing the Child Penalty by Incentivizing Maternal Part-Time Work?

Worldwide governments discuss how to increase maternal labor market participation and to reduce the child penalty, i.e. labor market earnings losses after child birth. This study analyses the long run effects of a German paid parental leave reform, which aims to increase maternal labour market participation and to reduce the child penalty by financially incentivizing maternal part-time work during the two years following child birth. Using German social security records, we exploit the fact that only mothers whose child is born in or after July 2015 are eligible for the new part-time PL option in a Difference-in-Differences strategy. We find that the policy increased the probability that high income mothers return to work during the first year after child birth by 2.1 - 2.8pp (≈ 15 - 20%). However, the policy does not impact maternal employment along the intensive margin (part-time or full-time work) in the long run, leaving maternal labor market participation and the child penalty unaffected.