Taking a page from Germany’s paid family leave program
Last month’s congressional hearing on “Economic Security for Working Women” before the Senate Committee on Health, Education, Labor, and Pensions sparked Ellen Bravo, executive director of Family Values at Work to lament the glacial pace of family friendly workplace reforms in the United States. “It should be not just discouraging but infuriating that it’s stalled,” Bravo told KJ Dell’Antonia of The New York Times, referring to legislation to enact paid leave in our country. “Polls show overwhelmingly broad bipartisan support for policies that support families.”
Perhaps a telling international example of how paid family leave helps one of the world’s most competitive countries, Germany, might help persuade the U.S. Congress of the merits of this key work/life reform. A new study by economist Jochen Kluve of Humboldt-Universitat zu Berlin and researcher Sebastian Schmitz examined the policy effects of a new parental leave benefit program in Germany on mothers’ employment up to five years after childbirth. They find that that the program significantly increased the likelihood that mothers would return to work and would return to their pre-childbirth employers. Kluve and Schmitz also find that employers reward mothers’ return to their pre-childbirth jobs by significantly and substantially raising job quality.
This research underscores the importance of Germany’s parental benefit reform of 2007, known as Elterngeld—which literally translates to “parents’ money”—in helping to grow the female employment rate and increase fertility rates. The reform is intended to smooth consumption for working families and generate incentives for working women to have children, taking into account the opportunity costs of child bearing versus continuing to work. The new program provides more generous benefits, replacing 67 percent of pre-childbirth earnings for up to 14 months. Benefits are capped at 1,800 euros per month, or about $2,450 per month. Parents with no pre-childbirth earnings are eligible to receive 300 euros per month. The program is available to all German families.
Economists on both sides of the Atlantic know how critical family and medical leave insurance is for growing the labor force and the economy. Leave programs—which provide short-term paid leave to recover from a serious illness, to care for a newborn or family member—allow workers to remain employed and better financially provide for their families. Research by economist Christopher J. Ruhm at the University of Virginia and researcher Jackqueline L. Teague find that paid parental leave policies are associated with higher employment-to-population ratios and decreased unemployment for all workers, especially for working women.
This new study by Kluve and Schmitz finds that leave programs with relatively short but generous benefits can increase mothers’ employment by about 3 percent over three to five years after childbirth. Certain subgroups such as first-time mothers, highly-educated mothers, and higher-income mothers experienced even greater increases in employment, around 10 percent. The new program was effective in incentivizing mothers to take on work: the increase in employment was primarily driven by mothers with loose labor market attachment taking on part time employment, working 23 to 32 hours per week.
Leave programs also can reduce employee turnover and limit employment disruptions for workers. The researchers find that under Germany’s new leave program, full-time employed mothers were more likely to return to their pre-childbirth employers. Furthermore, the researchers find an increase in job quality among both part-time and full-time employed mothers.
Encouraging both trends could not be more important for economic growth and stability in the United States. With most family income coming from labor earnings, mothers maintaining labor force attachment is important for families’ financial security and their own retirement savings. Leave programs can increase mothers’ lifetime savings, thereby reducing the risk of old-age poverty which is higher for woman than men. Furthermore, mothers’ employment is also important for maintaining the functionality of Social Security and pension systems. More mothers working can generate additional revenue for the U.S. Social Security program and improve the fiscal solvency of the program’s trust fund.
Mothers’ work is critical for our economy: women’s employment patterns over the past three decades have increased U.S. gross domestic product by 11 percent. Findings from Kluve and Schmitz indicate that working women in our country need policies like the Family and Medical Insurance Leave Act, sponsored by Rep. Rosa DeLauro (D;CT) and Sen. Kirsten Gillibrand (D-NY), which would establish a national paid leave program that expand workforce opportunities. When we boost women’s economic progress, we boost the strength of our economy.