“Elterngeld” (literally: parents’ money) is among the most generous benefit payments in Germany. If a parent decides to stay at home with a newborn child, the government pays two-thirds of his or her recent monthly net income (up to a maximum of 1,800 euros) for one year. If both parents take a baby break for at least two months each, the benefit period is extended to a total of 14 months.
In a new IZA Discussion Paper, Jochen Kluve and Sebastian Schmitz analyze the labor market effects of this parental benefit, which was introduced in 2007. The authors show that 3-5 years after giving birth, 1.8 percent more mothers were back at work, compared to a control group of women who gave birth just before the eligibility period started. The effect is especially strong for highly educated and first-time mothers. Kluve and Schmitz also report that most of the women re-enter the labor market in part-time jobs. For full-time working mothers, Elterngeld increased the probability of returning to the old job at the same company by 12 percent.
The researchers conclude that the introduction of the parental benefit defined a new social norm: While there was previously no particular point at which mothers typically returned to work, Elterngeld now implicitly suggests returning to work after the end of the benefit period. Apparently this new „norm“ also suits employers, who are more likely to keep the old job open, and seem to offer more attractive contracts than before the Elterngeld was introduced.