22 Mar 2018

Women in Italy who opted for shorter maternity leave in return for state-subsidised childcare ended up considerably less likely to leave the labour market. But the earnings benefits from the incentive to return to work earlier only lasted for a short period.

These are among the findings of research by Enrica Maria Martino, to be presented at the Royal Economic Society''s annual conference at the University of Sussex in Brighton in March 2018. Her study explores the effect of childbirth on maternal earnings and the impact of encouraging shorter career breaks on several maternal labour market outcomes. She analyses the impact of the introduction of a childcare subsidy – the Bonus Infanzia – which is conditional on giving up paid parental leave.

Despite increased participation of women in the labour market, the gender earnings gap remains significant in most developed economies. Recent research suggests that the asymmetric impact of parenthood on men and women in terms of care responsibilities and career prospects may be one of the main drivers of persistent inequalities in the labour market. Italy has one the highest earnings gaps in Europe and the lowest employment rate of women with children (before Greece).

Using administrative data covering the universe of Italian workers in the private sector, this research finds that after the birth of a child, maternal earnings drop by more than 35% below their potential level, and this loss is persistent over time. There is no impact on paternal earnings, so that parenthood widens within-couple inequality by roughly 30%, and the gap does not fade away over time.

Despite very different institutional settings, results are remarkably similar to those found in Swedish data, Danish data and German data. Most of the loss is driven by women leaving the labour market (around 20%), and some reduction in labour supply at the intensive margin among those who stay in employment – for example, switching from full-time to part-time contracts, and having a higher probability of taking days of leave.

One of the potential drivers of the cost of motherhood in terms of future labour market outcomes identified by economic theory is the length of the career break right after childbirth. Long periods away from work to take care of the children may result in significant depreciation of human capital, making it difficult to return to work later. Thus, temporary choices may permanently affect the potential labour market potential of new mothers.

The research uses the introduction of a childcare subsidy (Bonus Infanzia) conditional on giving up some paid parental leave to study the impact of encouraging shorter career breaks and early return to work on labour supply and labour market outcomes in the short and medium run. The unexpected introduction of the policy and the variation in childcare supply at the municipal level provide a quasi-experimental setting that allows causal interpretation of the results.

Preliminary results show that the shorter leave induced by the introduction of the Bonus Infanzia (women who used it take on average two months less of optional parental leave in the first year after childbirth) significantly increases maternal earnings only in the very short run, but the effect tends to zero after one year.

Conditional on going back to work, labour supply at the intensive margin (days worked in a month) is only affected in the short run too, and the difference between women who used the Bonus Infanzia and women who did not disappears after one year.

Finally, the Bonus Infanzia seems to have a positive effect in reducing the probability of leaving the labour market by around 10%: 12 months after the end of the mandatory maternity leave, 22% of women who did not use the subsidy left their job, against the 7% of those who did.

As the inequalities stemming from parenthood are huge and persistent in most countries and policies aimed at increasing female labour supply are only partially successful in reducing them, an alternative strategy may be encouraging a higher involvement of fathers and more flexible work arrangements for both parents, in order to provide incentives for a more equal division of care responsibilities and a better reconciliation of work and family time.

The Labour Cost of Motherhood: Is a Shorter Leave Helpful?- Enrica Maria Martino

Enrica Maria Martino

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