Essays on Family Policies and the Child Penalty

Abstract

The first and third essays analyse the introductions and gradual extensions of maternity and parental leave in Finland between the 1960s and the early 1980s. I estimate causal effects of these policy changes on the labour market outcomes of eligible parents in the medium-to-long run (essay I) and on children's education and employment, as well as cognitive and non-cognitive skills of male army recruits (essay III). As the child's date of birth determined parents' eligibility to longer leave, I employ a regression discontinuity design comparing the outcomes of children (or their parents) born before and after the reforms' cut-off dates. In both studies, I find imprecisely estimated null effects, indicating that the reforms did not clearly improve nor worsen parents' and children's outcomes. Effects within the range of -10% and +10% of the mean cannot be excluded. Only for the first reform introducing maternity benefits in 1964, the zero effects are precisely estimated.

The second essay presents evidence on the evolution of the child penalty in Finland over the last 50 years. During this time, several family policy reforms radically improved the conditions of new parents. Now, Finland has one of the most generous and longest parental leaves in the world. Parents are also older and more educated than in the 1970s. Exploiting population-wide administrative records from 1970 until today, we find that the child penalty in has decreased by almost 60%, from around 60% to 25%. However, most of the decline happened in the first ten years, during which both the availability of formal subsidized day care and the length of paid parental leave expanded significantly. We find that the expansion of maternity and parental leaves had a larger role, compared to changes in parental characteristics, in determining improvements in the child penalty, especially in the first decades. On the other hand, the child homecare leave is associated with a worsening of the child penalty from 1985.

In the fourth essay, I replicate the paper by Danzer and Lavy (2018). They study how the duration of paid parental leave affects children's educational performance using data from PISA. An extension of the maximum duration from 12 to 24 months in Austria had no statistically significant effect on average, but the authors highlight the existence of large and statistically significant heterogenous effects that vary in sign depending on the education of mothers and children's gender. I replicate their study following the recommended estimation procedure taking into account both the survey's stratified two-stage sample design and the fact that PISA relies on imputation to derive student scores. I show that the estimates of the effects of the parental leave extension become substantially smaller in absolute magnitude and non-significant.