Paid parental leave and maternal reemployment: Do part-time subsidies help or harm?

Employment subsidies can incentivize mothers to shorten employment interruptions after childbirth. We examine a German parental leave reform promoting an early return to work in part-time. Exploiting the exogenous variation in the benefit entitlement length defined by the child’s birthday, we apply machine-learning augmented semi-parametric difference-indifference estimation using administrative data. The reform yields positive average employment effects mainly driven by part-time employment as our dynamic optimization model for mothers on parental leave suggests. Conditional effects show that the policy creates heterogenous incentives depending on the opportunity costs of working part-time.