Maternal Employment Consequences of Family Policy: Evidence from New Zealand on Paid Parental Leave and Universal Child Benefits
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From 1 July 2018, the New Zealand government implemented the Families Package: a bundle of policies including two specifically aimed at new mothers: (1) an extension in paid parental leave from 18 to 22 weeks; and (2) the introduction of a universal ‘Best Start’ child benefit. The paid parental leave extension was designed to encourage mothers to increase the length of time they spend at home with the child in the first six months following birth. At the end of the paid parental leave period, mothers receive the Best Start child benefit comprising $60 weekly payments which expire when the child turns one. The purpose of the Best Start payments was to supplement childcare costs and ease mothers’ transition back into the labour market, strengthening their labour force attachment. I evaluate the effects of both the paid parental leave extension and Best Start payments on maternal labour force attachment up to 18 months postbirth. Eligibility for the two policies was restricted to women who gave birth after 1 July 2018, meaning that women who gave birth prior to this date were entitled to only 18 weeks of paid parental leave and did not receive a universal child benefit. Using population-wide administrative data, I select a sample of mothers who gave birth six months before 1 July 2018 (comparison) and six months after (treatment). Difference-in-differences analysis shows an increase in the average paid parental leave of about three weeks - from 11 to nearly 14 weeks. This behavioural response shows up between 18 and 22 weeks following birth as a 3.6 percentage point decrease (about 18% compared to the counterfactual scenario) in the maternal employment rate. Such a significant increase in the proportion of mothers outside the labour market between 18 and 22 weeks suggests that the paid parental leave extension does incentivise mothers to stay at home with the child for longer and does not simply crowd out unpaid leave. However, I find no evidence of either Best Start or the paid parental leave extension impacting maternal employment from six months postbirth. These results are robust to a series of specifications including variation in the sampling window around the 1 July 2018 and instrumental variable analyses. Given that household division or labour choices are made at the family level, I extend the analysis to fathers and maternal grandmothers but identify no change in postbirth employment as a result of the paid parental leaveextension or Best Start payments for either group.