No. 19




The Impact of the Parental Benefit on the Labour Market and Family Planning

18 June 2009


RiTo No. 19, 2009

The article analyzes parental benefits, which were established in Estonia in 2004, and their possible effect on family planning decisions and employment of women.

The article is based on a research project financed by Ministry of Social Affairs and uses micro-level data from several Estonian registries. The parental benefit compensates one of the parents 100 % of their previous wage up to 18 months after childbirth. The article shows that high-earning women, who gained most from the introduction of the benefit, have increased their family planning. The share of women giving birth to the second or third child increased among the top two wage quintiles considerably faster since 2004 compared to low wage earners. The parental benefit scheme has also raised the labour force participation of low wage earners before childbirth. On the other hand, it has reduced the speed at which they return to the labour market after childbirth, especially among the top quintile of wage earners. The latter may be due to the partial restriction on receiving parental benefits and high wages simultaneously. The article concludes that introduction of the parental benefit has created several positive effects, but it is very expensive and minor parametric improvements could be made.

Full article in Estonian