Family Policies and Child-Related Earnings Gaps in Germany

Recent evidence documents (a) that parenthood lowers women's earnings in the long run and (b) that this substantial loss in income due to children explains a large part of the gender inequality in earnings. Findings as these put family policies at the center stage of the public debate. Combining German administrative data ranging from 1949 to 2015 with quasi-experimental variation, we study the impacts of family policies on women's earnings trajectories. In the first descriptive part of the paper, we confirm the substantial and persistent effects of parenthood on mother's careers: Due to children, mothers earn roughly 55% less compared to fathers or women without children, even ten years after birth. Furthermore, the child-related earnings gap in West Germany is not only much higher than in East Germany but also increased substantially from the 1950s to the early 2000s. In the second part of the paper, we exploit a dynamic regression discontinuity design to demonstrate that a sequence of parental leave reforms can explain a large share of this increase in the earning gaps, both in the short and medium run. This finding suggests that, despite creating job security, parental leave policies can harm women's careers.