JESS Seminar: Paid parental leave and child development: Evidence from the 2007 German parental leave reform and administrative data

This paper examines the effects of a substantial change in government-funded paid parental leave in Germany on child development and the socio-economic development gap at age 6. Before January 1, 2007, parental leave benefits were means-tested and paid for up to two years after childbirth. For children born thereafter, parental leave benefits were earnings-related and only paid for up to one year. The reform had negative redistributional properties by favouring high-income households over low-income households. To estimate causal effects on child development, we use a difference-in-differences design which exploits the assignment rule based on children’s birthdate. We use administrative data from mandatory school entrance examinations for one entire German state. We study the reform effects on children’s language skills, motor skills, socio-emotional stability, and school readiness, and find no impact of the reform on child development and the socio-economic development gap. The effects are precisely estimated and robust to various model specifications and sample definitions. Our results suggest that even substantial changes in parental leave benefits with negative redistributional properties are unlikely to have a substantial impact on children’s development and development gaps.