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Can Financial Incentives Reduce the Baby Gap? Evidence from a Reform in Maternity Leave Benefits

Anna Raute

NBER Working Paper No. 23793
Issued in September 2017
NBER Program(s):Children, Labor Studies, Public Economics

To assess whether earnings-dependent maternity leave positively impacts fertility and narrows the baby gap between high educated (high earning) and low educated (low earning) women, I exploit a major maternity leave benefit reform in Germany that considerably increases the financial incentives for higher educated and higher earning women to have a child. In particular, I use the large differential changes in maternity leave benefits across education and income groups to estimate the effects on fertility up to 5 years post reform. In addition to demonstrating an up to 22% increase in the fertility of tertiary educated versus low educated women, I find a positive, statistically significant effect of increased benefits on fertility, driven mainly by women at the middle and upper end of the education and income distributions. Overall, the results suggest that earnings-dependent maternity leave benefits, which compensate women commensurate with their opportunity cost of childbearing, could successfully reduce the fertility rate disparity related to mothers’ education and earnings.

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Document Object Identifier (DOI): 10.3386/w23793

Published: Anna Raute, 2019. "Can financial incentives reduce the baby gap? Evidence from a reform in maternity leave benefits," Journal of Public Economics, vol 169, pages 203-222.

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