Labor supply of mothers with young children: Validating a structural model using a natural experiment
In this paper we estimate an intertemporal structural model of labor supply for mothers with young children. In order to validate the structural model, we make use of a recently introduced parental leave reform in Germany. We compare the behavioral predictions of the structural model under the reform (out-of-sample fit) to results based on an evaluation of the parental leave reform as a natural experiment. We show that the structural model predicts actual behavior reasonably well. Based on both methods we find that due to the new parental leave scheme, that pays higher benefits for a shorter period of time, labor supply of mothers in the first year after giving birth declines, however increases in the second year. The results differ by socio-economic characteristics. We find the strongest effects for low-income mothers, who have a significantly higher probability to return to work two years after giving birth than under the old parental leave scheme.