Back to work or stay at home? Family policies and maternal employment in Finland

Abstract

The employment effects of family policies depend on the mother’s labor market attachment and on the age of the child. We study the effects of child home care (cash-for-care) and private day care allowances on mothers’ return to employment after childbirth. Our identification strategy exploits changes in municipal-level subsidies. We find that higher private day care allowances have no effect while higher home care allowances increase the length of home care. A 100-euro higher level of home care allowance prolongs home care by 2–3 months, on average. The home care allowance combined with low labor market attachment and low earnings potential pre-birth delay the return to employment. However, the effect of the allowance diminishes over time. Higher subsidies have no impact by the time a child turns two. Reductions in subsidies stimulate a faster return to employment.