Part‐time subsidies and maternal reemployment: Evidence from a difference‐in‐differences analysis

Employment interruptions of mothers are still one of the main causes for different labour market outcomes between women and men. Employment subsidies can incentivise mothers to shorten employment interruptions after childbirth. We examine a German parental leave reform incentivising an early return to part‐time work. Exploiting the exogenous variation defined by the child's birthday, we apply unconditional difference‐in‐differences (DiD) estimation using administrative data. Machine learning augmented DiD estimation shows that our findings are robust to the inclusion of a large dictionary of potential covariates. Additionally, we estimate conditional effects in the DiD setting. Our results show that being eligible to the new regime yields positive average employment effects that are mainly driven by part‐time employment. In particular, the increased attractiveness of part‐time work does not cannibalise full‐time employment. The policy creates heterogeneous incentives depending on the opportunity costs of working part time: especially mothers with middle income and prior part‐time workers respond to the reform. Besides, diverging results for East and West Germany hint at the potential of a change in social norms.