Mind the Employment Gap: An Impact Evaluation of the Czech "Multi-Speed" Parental Benefit Reform

Parental leave is the key policy tool for addressing work-life reconciliation issues related to parenthood, among which maternal employment and its continuity. Over the last decades, female labour supply has explicitly entered the European Union political agenda, and the 2004 Czech accession to the EU shed light on the scope of the employment gap between women with and without preschool children, highest among all the OECD countries (40%).  This is due to very long universal paid parental leave: four years per child. In order to reduce this gap and to conform to the EU recommendations, a major reform was designed in 2008, and this paper investigates its effects on maternal employment.

Surprisingly, there is very little knowledge in economic literature about family policies in Central and Eastern Europe, despite the fact that these were typically very comprehensive and large in scale, as a legacy of interventionist social and family policy schemes under the state socialist regime. Therefore, as we illustrate in this paper, recent legislative changes have large scopes and potentially large effects, which is particularly relevant for extending our understanding of the incentives provided by both benefit transfers and job protection.

We use the Labour Force Survey to assess the effect of this reform on maternal employment and activity rates, thanks to a difference-in-differences identification strategy. Two approaches are combined: a cohort effect analysis over both the period of interest and a control period, and a standard difference-in-differences setting with the counterfactual group composed of mothers with older children. The reform provides an extensive change in financial incentives in favour of shorter leaves, and we show that effects on return-to-work timing are large and significant. If a four-year withdrawal from the labour market was largely the norm before 2008, the reform induced an advancement in return-to-work timing by one year, as likelihood of being employed three years after giving birth increased by 20 pp.

However, if mothers did respond to the incentive by advancing the timing of the return to work by one year, the scope of the effect merely compensated for the massive opposite trend induced by the 1990s reforms, and confirmed the heterogeneity of parental leave choices along different educational levels.