IMPACT of the Introduction of Parental Leave Policy on Labour Market Attachment of Mothers in Luxembourg - Causal Effect Evaluation

The main aim of the paper is to examinean impact of the introduction of parental leave policy on the labor market engagement of mothers of a single child in Luxembourg. The impact of the policy is analyzed in the course of first three years following childbirth. The labour market engagement is measured by two outcome variables: being active or inactive in the labour market and the number of hours worked per month.The analysis are conducted on the social security longitudinal individual records (the IGSS data) from 1996-2007.  A difference-in-differences (DID) method is applied to evaluate the causal effect of the introduction of the policy in 1999 on the outcomes by accounting for impact of other possible intervening factors such as the changing economic context etc. The results of analysis reveal that, among mothers who were employed full-time at childbirth, the introduction of the parental leave policy had a strong and positive effect in terms of working hours per month. After the introduction of the policy mothers worked more hours per month compared to the situation before the introduction of the policy. This effect of the introduction of the policy was observed only thefirst two years after the childbirth. With respect to labour market activity, a notable effect of the introduction of the parental leave policy was observed only one year after childbirth.  Among mothers who worked part-time at childbirth, the impact of the parental leave policy both in terms of hours worked per month as well as labour market activity was negligible.  The paper contributes to the existing literature in several ways. Firstly, it analyzes a unique data set, which covers the whole population of women in the countrybefore, during and after the introduction of the policy and which includes enough of variables to constructmeaningful treated and control groups and to run the DID analysis. Secondly, it is the first causal effect evaluation study focusing on the parental leave policy in Luxembourg. Thirdly, on the contrary to the most existing studies conducted in other countries, this paper provides information about two most frequently used outcome variables regarding female labour market engagement (labour market activity and  the number of working hours) at the same time.