We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket” to compare the MECR of an income- contingent childcare subsidy program and of the income-contingent tax and transfer schedule. We set up a dynamic structural model of heterogeneous households choosing their childcare demand and maternal labor supply. Allowing for the availability of informal childcare and for consumption of leisure, we estimate this model within the German context. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the tax and transfer system. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. We show that, under most plausible assumptions on the long-term returns to childcare attendance for children growing up in households of different incomes, progressive childcare subsidies are the more efficient redistribution tool.

Linking data from the National Longitudinal Survey of Youth 1979 (NLSY79) and the NLSY79 Children and Young Adults, we document a substantial positive correlation of employment status between mothers and their offspring in the United States. After controlling for ability, education, fertility and wealth, offspring of permanently employed mothers have an 11 percentage-point higher probability to be employed in each given year than those of never employed mothers. The intergenerational transmission of maternal employment is stronger to daughters but significant also to sons. Investigating potential mechanisms, we provide suggestive evidence for a role model channel, through which labor force participation may be transmitted. Offspring seem to emulate the example of their mother when they observe her working. By contrast, we are able to rule out alternative candidate explanations such as network effects, occupation-specific human capital and local conditions of the labor market.

This paper provides causal evidence on the impact of subsidy re-allocation between high-technology sectors and low-skill sectors on local labor markets. We exploit a policy targeting under-performing employment areas, France’s Aides à Finalité Régionale, which relaxes rules governing the allocation of firm subsidies while keeping their level constant. In response, policy makers re-allocate subsidies away from research and development to mainly low-skilled manufacturing and service sectors. It triggers a persistent improvement of employment, mainly through increased low-skilled manufacturing employment and at the expense of R&D related occupations. In the long term, though, labor income and productivity decrease. Finally, at the individual level, workers employed in manufacturing at the time of the treatment benefit on average of 2% higher hourly wage even 10 years after the policy was lifted.

In the United States, about 35 – 40% of all marriages end with a divorce. Yet, average probabilistic expectations of divorce are considerably lower, which is consistent with evidence regarding overoptimism in the psychology literature. In this paper, we incorporate overoptimistic expectations about divorce into a household life-cycle model with an endogenous accumulation of human capital and assets. We account for ex-ante heterogeneity in both spouses’ wages. Couples jointly choose their market hours, home production hours, and joint savings. We quantify the model using data from the US and show that overoptimism about marital stability leads to (1) higher within-couple specialization and (2) lower savings because overoptimistic couples do not anticipate the insurance value of human capital and assets in case of divorce. The higher specialization of overoptimistic couples is driven by reduced market hours of the lower-wage spouse, which contributes to lower human capital accumulation, thereby exacerbating within-couple wage inequality. Overoptimism during marriage propagates beyond divorce through assets and human capital, which is particularly harmful to the less-insured, lower-wage spouse. The initially higher-wage spouse potentially benefits from over-optimism. In contrast, the lower-wage spouse loses outweighing the partner’s gains. If all couples acted under rational expectations, the aggregate levels of hours worked, human capital, and assets in the economy would increase substantially. Finally, a divorce fund that reallocates resources from married couples to divorcees leads to ex-ante welfare increases except for rational men.

Childcare policies improve the compatibility of family and career and therefore increase maternal life-cycle earnings and tax payments. How much should childcare be subsidized due to this dynamic fiscal externality? To provide quantitative answers, we estimate a dynamic discrete choice model of female labour supply and childcare decision on German panel data. We account for a large amount of heterogeneity: beyond heterogeneous preferences, education levels, wages, and availability of informal child care, we also account for heterogeneity in fertility such as timing of birth(s) and number of children. In addition, we incorporate regional differences in public childcare availability and subsidies. We then evaluate the universal childcare program in Germany through the lens of this model. We find that a recent major expansion of publicly provided childcare supply (almost) fully paid for itself through the dynamic effects on maternal tax payments. Increasing subsidies further from the current generous levels (approx. 80%), however, would only recover 6% of its costs because it would primarily benefit households that are infra-marginal in their childcare and labour supply decision. We further explore the fiscal resturns of increasing the number of daycare centers to reduce commuting distances for parents.

We examine the impact of the global recession triggered by the Covid-19 pandemic on women’s versus men’s employment. Whereas recent recessions in advanced economies had a disproportionate impact on men’s employment, giving rise to the moniker “mancessions,” we show that the pandemic recession of 2020 was a “shecession” with larger employment declines among women in most countries. We examine the causes behind this pattern using micro data from several national labor force surveys, and show that both the composition of women’s employment across industries and occupations as well as increased childcare needs during closures of schools and daycare centers made important contributions. Gender gaps in the employment impact of the pandemic arise almost entirely among workers who are unable to work from home. Among telecommuters a different kind of gender gap arises: women working from home during the pandemic spent more work time also doing childcare and experienced greater productivity reductions than men. We identify two key challenges for future research. First, why is the pandemic gender gap pervasive, i.e., why did women experience larger employment reductions than men even after accounting for industry/occupation and childcare effects? Second, how will the pandemic shape gender equality in a post-pandemic labor market that will likely continue to be characterized by pervasive telecommuting?