Parental benefit and birth rate: Analysis of the Estonian parental benefit reform of 2004
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Professor of Demography and Leading Researcher at Estonian Centre for Population Studies, Tallinn University
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Junior Research Fellow, Estonian Institute for Population Studies, School of Governance, Law and Society, Tallinn University
In 2004, Estonia carried out a thorough reform of the parental benefit system, as a result of which a uniform and small childcare allowance was replaced by a parental benefit depending on the parents’ previous salary.
The amount of the parental benefit started to depended on the average salary of the parent in the calendar year preceding the birth of the child, and it was calculated on the basis of the parent’s social insurance contribution. The reform gave parents the opportunity to decide which of them would receive parental benefit.
The context of the reform was a dramatic decline of the birth rate. During the years of the Singing Revolution, the number of births temporarily rose to 24-25 thousand, but from the mid-1990s, the number of the new births was 12-13 thousand per year.
The protection of successive births, or the speed premium (the possibility of retaining the amount of benefit earned before the birth of the previous child if the interval between births does not exceed 30 months), which is a part of the Estonian parental benefit system, helped to shorten the intervals between the birth of the first and the second as well as the second and the third child.
It has sometimes been suggested that the reform of parental benefit played a significant role in raising the age of becoming a parent for the first time by providing an incentive to delay having a first child until reaching a position in working life that ensures a decent parental benefit. Data on the rate of increase in the age of having the first child do not support this hypothesis.
The most important result of the parental benefit reform in terms of restoring of population concerns the increase in the probability of having a second and a third child – by 5.5 and 3.7 percentage points respectively. It can be concluded with strong certainty that the increase in the likelihood of having a second and a third child is due to the causal effect of the parental benefit reform.
In the spirit of microeconomic birth rate theory, women with higher level of education were the most responsive to the parental benefit reform. Among them, the intervals between births became shorter and the probability of having a second and third child increased.