Finnish child home care allowance has negative impacts on mothers’ careers and child outcomes

A study by Research Professor Tuomas Kosonen (VATT Institute for Economic Research), Kristiina Huttunen (Aalto University, VATT), and Professor Jonathan Gruber (MIT) investigates the effects of Finnish Home Care Allowance (HCA) on mothers and children. HCA is a relatively high subsidy for which a parent is eligible for when taking care of child at home, when a child is under 3 years of age and not in municipal or private day care. The study examines how child home care allowance affects the parents’ employment, children’s early childhood cognitive test results, their enrolment to secondary education, and the impact on youth crime.

Previous literature

Earlier research on child-care subsidising policies has reported mixed effects on child outcomes. Still, as majority of the previous literature has focused on the effects of parental leave, or formal child-care arrangements for older children, relatively little is known about effects of programs that subsidise mothers to stay home, beyond paid leave programs generally covering only the first year after birth.

This study contributes to the existing literature by studying maternal and child-related outcomes on both short- and long-run. Following mothers’ careers several years after childbirth, the study is able to estimate long-term consequences on the women’s careers. Similarly, following children from birth to early adulthood enables researchers to investigate the effect of the policy on both early and late outcomes of children, and due to the exceptionally extensive child-outcome measures, the study can build more elaborate picture of the effects of child home care subsidies than the previous studies. Finally, the study places the impacts of the home care allowance policy in context by examining a parallel policy of day care fee reform that provided the opposite incentives by reducing the fees of formal child-care. Aligning with the opposite incentives, also the effects of the reform were opposite from HCA on mothers and children.

Impact on maternal outcomes

The findings indicate that monetarily larger HCA reduces, on average, maternal employment and earnings up to ten years after the birth of the child. One way of examining the effect of the birth of a child on mother’s income is so-called “child penalty” which measures how much the mother’s earnings decrease relative to the father’s earnings after the birth of the first child.

The study finds that in Finland, the child penalty after the birth of the first child is initially over 70 percent, and only slowly diminishes towards 20 percent during the following 8-10 years after the birth of the child. The results of the study suggest that removing HCA completely could decrease child penalty from the initial level of 70 percent to as low as 20-30 percent. Thus, based on the present study, HCA has a significant negative effect on the gender equality between parents.

Impact on child outcomes

On average, the children, whose mother received increased child home care allowance when the child was one year old, were more likely to fail the developmental tests administered during extensive health checks at maternity and child health clinics. In addition, the results indicate that these children are less likely to select academic secondary school paths and, correspondingly, more likely to select vocational secondary school path or choose not to acquire any secondary education. The study also observed that the crimes committed before the child turns 18 increased around half a percentage points, which represented five percent increase from the initial low level of four percent.

None of the studied outcomes imply that the effects of child home care allowance on children would be positive on average. Some of the measures studied did not show statistically significant results when examining the effects on children, while others showed a negative impact on children.

The full text of FIT Working Paper 4 Paying Moms to Stay Home: Short and Long Run Effects on Parents and Children can be accessed via Publications.

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