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HR Policies and Maternal Labor Supply

The Example of Employer-Supported Childcare


Susanne Schneider

The author asks how far the extension of employer-supported childcare serves as a driver for higher maternal labor supply. She addresses this question by categorizing employer-supported childcare as an efficiency wage introduced by the employer to increase the working volume of mothers. Applying various impact evaluation techniques in an econometric analysis, the author concludes that the availability of employer-supported childcare has a positive impact on the length and working volume of mothers who return back to work after giving birth. Furthermore, the usage of employer-supported childcare by mothers with pre-school age children influences the amount of agreed and actual working hours positively.


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1. Introduction

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1.  Introduction

1.1  Background

The female and especially the maternal labor supply is substantially lower than the male one. This is an observation independent from the kind of measurement, which could be exemplarily the labor force participation (LFP) rates, the working volume, or the participation rate over the life cycle (BMFSFJ, 2014). The different results between the two sexes stem from work interruptions and reductions due to child rearing. Twice as many mothers of pre-school aged children would however prefer to increase their paid working volume instead of decreasing it (Lauber, Storck, Spieß, & Fuchs, 2014). The divergence between the actual and preferred employment rates and the often marginal employment modes of mothers have important implications for various actors.

Concerning the mother, postponing a return to employment after childbirth, or working in marginal employment, impedes future career advancements substantially. This employment mode is often marked by limited sovereignty, as demand oriented contracts or unexpected working times dictate the working rhythm. In addition, reduced income does not only restrict current expenditures, but also results in lower levels of pension entitlements (Huesmann & Gärtner, 2015). The national government introduced even a special pension policy considering child raising years in pension calculations of mothers to prevent old-age poverty (Haan & Thiemann, 2015). Next to the monetary dimension, mothers develop a lower level of life satisfaction, if they are forced to work less than their preferred time (Berger, 2013).

The employer should also prefer an appropriate reintegration of mothers into the internal labor market. The depreciation of (company-specific) human capital due to long periods of non-participation or only limited participation with minimal working time is wasteful. This is especially true for high-qualified mothers working in sectors with a skilled labor shortage (Becker, 2009).

The state can profit from an earlier return to work and moderate working volume also in three interconnected ways: Firstly, a greater working volume results in additional tax income. Secondly, increased payments are made for social security insurances. Thirdly, the state thus can relieve the expenditures on parental leave benefits (Then, Münscher, & Stahlschmidt, 2014).

There are monetary and psychological benefits to an increase in maternal labor supply for the mothers. Yet external circumstances hamper the realization. The maternal labor supply depends on a wide range of reasons, for example personal preferences, the personal (financial) situation, distinct welfare state policies, one’s marital status, the ages of all the children in the household, and so on. One factor stands out: eighty-two percent of mothers of two-to-three-year-old children and 77 percent of mothers of four-to-six-year-old children state that they would like to increase their work involvement, but cannot do this due to issues with childcare ← 15 | 16 → provisions (Lauber et al., 2014). In 2012, 28 percent of children aged zero to two and 94 percent of children 3 to 5 attended public childcare facilities. This number increased to 33 percent and 95 percent respectively by 2015 (Statistisches Bundesamt, 2016a). However, 200,000 and 560,000 spots are missing for children below three years of age (Gamperl, 2013). Quality, in terms of staffing or opening hours and access, places restrictions on mothers to rely on public childcare facilities, usually provided by the municipalities, churches, or other non-profit organizations. Looking ahead, the current structure of financing public childcare in combination with lacking incentives of the labor market for qualified staff hampers the qualitative and quantitative expansion (Egbert & Hildenbrand, 2014). The reliance on commercial childcare (e.g. child-minder or private organizations) as an alternative is problematic because of, for example, that sector’s often high tuition.

Generally, the state takes on the burden to enforce social policies like childcare. However, due to its cross-sectional character, and due to self-interests of other actors, more stakeholders get involved in social policies (Gerlach & Schneider, 2012). Particularly, the involvement of businesses is increasing. Over 40 percent of companies regard the reconciliation of family and work as an important topic to address (BMFSFJ, 2013b). Employer-supported childcare (ESCC) is one way for companies to be involved in the implementation of social policies. Accompanying an increased interest in this, the amount of on-site childcare facilities run by employers has increased consistently from 307 in 2006 to 726 facilities in 2015 (Grieß, 2016). The involvement of the company is welcomed by the state. The German government introduced a law providing Euro 400 in subsidies for every space made available in a corporate childcare facility (BMFSFJ, 2006, 2013a).

ESCC belongs to human resource management (HRM), which concerns the process of hiring and developing employees to become more valuable for the organization. According to the neoclassical standard model, arguing that human beings react to external incentives, one may assume that the provision of ESCC automatically leads to higher employment rates of mothers (Kirchgässner, 2008). Considering social preferences implies that the intrinsic work motivation might be enforced due to external incentives (Frey & Jegen, 2001). More specifically, crowding in can be explained by the gift-exchange theory stating that employees are likely to increase their working effort if the employer pays an above-average salary (Akerlof, 1982, 1984). The full expansion of the work effort might however be dependent on the external work environment and private circumstances (Herzberg, Mausner, & Snyderman, 1959). Based on this theoretical framework, the following research question emerges:

In how far does the extension of ESCC serve as a driver for higher maternal labor supply?

Despite the growing importance, the effects of family-friendly HRM like ESCC on maternal employment in Germany remain scarcely studied. There are several studies (for instance Feierabend & Staffelbach, 2015; Morrissey & Warner, 2011) ← 16 | 17 → investigating a causal relationship between the two variables in the international context, yet a consistent picture cannot be identified. Due to the scarcity of available research, the literature review contains several studies from other countries and often presents data beyond that of just maternal employment (for instance all employees). While childcare preferences are often analyzed under redistributive points of view, like disposable income (Borck & Wrohlich, 2011; Stadler, 2014), the analysis at hand focuses especially on the individual preferences and working environment in regards to the working attitude. Individual preferences refer to the personal attitude towards work and benefits introduced by the employer, which influence the effect of workplace policies. The employer is substantially able to shape the working environment of the employees. Preliminarily, the employer decides about the working time and location including the degree of autonomy to this exerted by the employee. Moreover, the employer determines the workplace design, supporting technical devices as well as additional benefits leading to greater degree of comfortability for the employee. The shaped working environment influences the work conditions, which in turn might affect the productivity and motivation of employees. Hence, the employer is mostly interested in introducing policies which have potentially the greatest positive effect. Employee benefits and other kinds of compensation which go beyond the legally stated salary are known as efficiency wages. The following analysis investigates the potential effects of efficiency wages on maternal labor supply, hence not maternal labor supply per se. Thereby, several hypotheses about the reactions of mothers to ESCC and its dependence on the working environment and individual preferences are included. Individual control variables are included as well.

According to the gift-exchange theory, the efficiency wage is able to influence the working effort or productivity, which is often hard to measure in the reality of working life. Maternal labor supply is often characterized by its deviation from the standard employment relationship due to expected work interruptions when women give birth and tend to children. These interruptions, their duration and to which extends she re-enters the workforce are left to the mother. Until now, there is no knowledge whether efficiency wages offered by the employer do provide incentives for mothers to increase their maternal labor supply.

Work interruption due to giving birth and working volume of mothers with young children are interconnected, since a long work interruption leads generally to a decreased working time afterwards. In the context of this study, both dimensions are treated separately to assess whether ESCC as an efficiency wage has the same or a different effect on the two dimensions.

The research strategy applies econometric analysis to trace a causal relationship between ESCC and maternal labor supply. The decision when a woman returns to her workplace after having a child is measured with an event history analysis model (EHA), comparing mothers employed in a company with ESCC and without ESCC. This allows conclusions about whether the provision of ESCC has a positive impact on the re-entry into employment. The same approach is taken for the question on the extent of the working volume when returning back to work. Here, a competing ← 17 | 18 → risk model (CRM) evaluates the return-to-work differentiated with respect to marginal, part-time, and full-time employment.

Concerning the working volume, both mothers of newborn children and those with pre-school kids are studied. Propensity score matching (PSM) allows the exploration of observable characteristics in the comparison between mothers working in companies with ESCC and mothers working in companies without ESCC. Thereby, it will be differentiated between the mere availability of ESCC and the usage of ESCC. It can furthermore be differentiated between the usage of ESCC by the mother herself and the usage of ESCC by the father. Next to the consideration of observable differences between mothers, unobservable differences play a substantial role. Therefore, a difference-in-difference (DiD) estimator is included to be able to control unobservable differences between mothers like cultural attitudes. This estimator differentiates between a pre- and post-treatment area, meaning that the differences in employment rates before and after the introduction of ESCC are compared to the pre- and post-treatment employment rates of mothers without ESCC. Thereby, different specifications are used for the purpose of robustness checks. The working volume will be analyzed both as actual and agreed-upon working time.

The analysis is based on the Familien-in-Deutschland (Fid) dataset, covering the years 2009 to 2012. It has already been mentioned that certain mothers would like to increase their working volume and that external circumstances may not allow it. Therefore, a distinct part of the analysis includes a meta-analysis on further effects of ESCC next to the explicit measurement of the working volume, like the working attitude.

1.2  Structure

The thesis develops its argument throughout the course of several chapters. The following chapter provides an overview of maternal labor supply and addresses the importance of childcare. It presents descriptive statistics comparing male, female, and maternal employment as well as reviewing obstacles mothers experience when deciding to work. The provision of non-parental childcare and its variations are laid out. ESCC, an alternative to public childcare, its historical development, spread, and variations are traced in detail as it is an essential focus of this work.

Having established the underlying societal system and childcare provision, chapter three shows the determinants of maternal labor supply with distinct sections on individual and household determinants, employment modes, employer-related factors, the welfare state, personal attitudes, and individual perceptions, amongst others. The chapter provides an overview of these factors’ interdependencies and context. Moreover, it includes additional ancillary effects of ESCC on the working attitude of employees. The fourth chapter operationalizes ESCC as a theoretical construct, in a neoclassical and gift-exchange theory relationship, which introduced sociological aspects to an otherwise predominantly economic model. This allows the derivation and testing of several hypotheses. Methodologies and theoretical details utilized in the approach of this thesis are central to chapter five. This section clarifies ← 18 | 19 → the framework for the research objectives and questions, research strategy, datasets used, and employed impact evaluation techniques. The chapter closes with the operationalization. The sixth chapter contains the results. Thereby, distinct sections present the effects on the return-to-job after childbirth and the working volume.

The seventh chapter contextualizes the results, discussing the effects on the re-entry into employment and working volume distinctly. Afterwards, both kinds of results are interpreted in a combined way to assess whether ESCC can be interpreted as an efficiency wage and whether the potential efficiency wage is a suitable instrument to encourage maternal labor supply.

The eighth chapter summarizes the findings and includes the limitations. ← 19 | 20 →