Long-Run Effects of Wage Subsidies on Maternal Labor Market Outcomes

We use rich and precise administrative data to study the causal effect of subsidized employment on first time mothers' labor market outcomes up to 8 years after the birth. We apply propensity score matching combined with an event study design to determine the causal effects of taking up a subsidized Minijob after a first birth. We compare this employment choice to similar but unsubsidized, i.e., regular employment. Our results indicate that mothers who take up Minijob employment after a first birth are significantly less likely to be regularly employed and earn significantly lower wages even 8 years after the birth. The high rate of Minijob employment among first time mothers after the birth drives a substantial share of the child penalty of German mothers.