Do Parental Leaves Make the Motherhood Wage Penalty Worse?

Abstract

We assess if and how motherhood wage penalties change in response to the design of parental leave regulations. Focusing on Germany, we compare sweeps of reforms inspired by opposite principles. One allowed for longer periods out of paid work in the 1990s, the other prompted quicker re-entry in the labour market in the late 2000s. These reforms may have first exacerbated and later mitigated wage losses for new mothers, albeit each component of leave schemes may trigger separate, and at times zero-sum, mechanisms. We rely on Socio-Economic Panel (SOEP) data and a difference-in-differences design. Focusing on first-time mothers, we find that motherhood wage penalties were substantial (around 20-30 per cent of pre-birth wages) and also changed little during the 1990s. As parental leave reform triggered longer time spent on leave coupled with better tenure accumulation, wage losses for mothers remained stable in this first period. Following parental leave reform in the late 2000s, instead, the wage prospects of first-time mothers improved, thanks in part to shorter work interruptions and increased work hours. We suggest that the nuts and bolts of leave schemes can be fine-tuned to reduce child penalties and, thus, gender wage disparities.