A tale of two family-friendly policies
Two family-friendly policies were recently implemented in Germany to help families better balance work and caregiving. Yet their effects on Germany‘s labor market are quite different.
The first policy, Elterngeld—which translates to “parents’ money”—reformed Germany’s paid parental leave program in 2007. The program provides families with a newborn child with 67 percent of their pre-childbirth earnings for up to 14 months. Benefits are capped at 1,800 euros per month, or about $2,450 per month. Parents that were not working prior to the birth of the child are eligible to receive 300 euros per month. The program is available to all German families.
A study by Jochen Kluve of Humboldt-Universitat zu Berlin and researcher Sebastian Schmitz found that the new program significantly increased the likelihood that mothers would return to work, and that they would return to their pre-childbirth employers. Furthermore, mothers with “loose labor market attachment” (those who would have not been working under the old paid leave program) were the most likely to enter the labor market after having a child, taking a part-time job of 23 to 32 hours per week.
Germany’s second policy, the Betreuungsgeld benefit—which translates to “money with which to look after someone”—has been available since 2013 to families who care for their young children at home rather than sending them to public childcare. Last month the benefit payment was raised to 150 euros, or about $200, per family per month.
As any economist will tell you, incentives influence behavior. In this case, the home care benefit changes the prices of other childcare options. Economist and director of the Institute for the Study of Labor Klaus F. Zimmermann cautions that the new increase in Germany’s home care benefit makes public childcare a less attractive option for families and could result in parents dropping out of the labor force to care for children.
The home care benefit raises the reservation wage—the lowest wage someone would be willing to work a job—which in turn means that more parents will choose to not work in order to provide care. A 2012 study of Germany’s home care benefit pilot program resulted in decrease use of public childcare and declines in female labor force participation. Further, that drop was strongest in single parent and low-income households.
These findings are important when considering what types of family-friendly policies to implement in the United States. Most parents today lack access to benefits that help balance work and caring for the youngest generations. Only 12 percent of private-sector workers, for example, had access to employer-provided paid leave in 2013. Lack of access makes it difficult for caregivers to remain in the labor force. In fact, a recent study by Cornell University economists Francine D. Blau and Lawrence M. Kahn finds one reason the female labor force participation rate in the United States fell from the 6th highest in 1990 to the 17th highest in 2010 among 22 Organisation for Economic Co-operation and Development countries was due to the lack of family-friendly policies.
Germany’s experience implementing two different caregiving policies enables U.S. policymakers to consider which policies will be good for families and the economy. Policies such as paid leave, paid sick days, and workplace flexibility help workers care for their families as well as remain in the labor force, boost worker productivity, and improve businesses’ bottom line. They are a win-win. But government programs that might alter work incentives must be carefully calibrated to ensure they help workers and boost economic growth in the long-run.