Varying responses to the introduction of earnings-related benefits: a study of 2004 parental leave reform in Estonia

Paid parental leave has become a part of family policies in an increasing number of Western societies. Parental leave benefits may create varying incentives which can lead to heterogeneous fertility responses. The aim of this study is to examine whether and how the changes in second- and third-order fertility associated with the 2004 parental leave reform in Estonia vary depending on mothers’ education and ethnic background. The study draws on data from Estonian administrative registers on women born between 1960 and 1999, who had their first or second child between 1993 and 2014. Mixture cure models are estimated for the transitions to second and third births. We find that women with high educational attainment exhibit a stronger response, both in terms of accelerating the tempo and increasing the quantum of fertility, to the introduction of earnings-related parental leave benefits, than their counterparts with less schooling. In terms of fertility quantum, Estonian women show a stronger response than women from other ethnic groups. Regarding the tempo of childbearing, the results pertaining to ethnic differences are mixed. The study suggests that changes in fertility behavior associated with the introduction of earnings-related parental leave benefits are more pronounced among women with higher opportunity costs.