The Intended and Unintended Consequences of Parental Leave Policies

The goal of parental leave policies is to reconcile family and working life, and to improve the welfare of children. In most OECD countries these policies have been expanded during the last two decades. Austria is among those countries offering a very generous system today (which combines paid parental leave with job protection) with take-up rates close to unity. We evaluate a major reform from the year $1990$, when paid parental leave duration has been expanded from one to two years. Empirical identification of treatment effects is based on a sharp birthday cutoff-based discontinuity in the eligibility. We show that this reform affected families far beyond the intended effects along the dimensions of maternal employment, fertility, and family stability. The effects differ sharply between communities with and without formal child-care for children in the relevant age and to a smaller degree across families' socioeconomic background. This suggests that the counterfactual mode of care is the main driver of treatment effect heterogeneity. If formal child-care is the counterfactual mode, an expansion in parental leave enforces traditional gender roles, increases family size, and has weakly negative effects on children's long term human capital outcomes. Whereas if informal child-care is the counterfactual mode, an equivalent expansion increases labor market attachment of women and has a positive effect on children. In either case it increases family stability.