Subsidies for parental leave and formal childcare: be careful what you wish for

I exploit the introduction of a policy package in France aimed at helping parents with the care of young children. The reform affected all households with pre-school age children and had two dimensions: a short stay-home subsidy for first-time mothers wishing to take-up parental leave and an increase in childcare subsidies for parents using childminders—the main formal care option in France. Importantly, policymakers did not explicitly intervene in the childcare infrastructures. I rely on a diff-in-diff empirical strategy to evaluate the labour market outcomes of mothers with pre-school age children in the short-run and the long-run. The reform had negligible effects in the short-run. In the long-run though, first-time mothers—and particularly the lower-educated group—took advantage of the parental leave subsidies to reduce their employment rate. This freed up formal childcare places and allowed middle-class educated mothers of two children to use the more generous childcare subsidies and therefore work more. The fact that the effects take time to materialise and do not appear at the aggregate level for the targeted population suggests that the policy did not induce any net increase in the supply of care places and simply led to a re-allocation of care modes among mothers of pre-school age children.