Pension Caregiver Credits and the Gender Gap in Old-Age Income
Publication Date
4-4-2024
Grant Type
Early Career Research Award
Description
To understand how caregiver credits can affect the gender gap in pension income, we exploit a 2001 pension insurance reform in Germany that introduced additional caregiver credits for mothers with young children. If the mother is working while the child is between the ages of 3 and 10, the mother’s pension entitlement for this period is increased by 50 percent. This is a sizable increase in pension value; mothers can receive up to a 12% increase, equivalent to a maximum of e 928, in their annual pension benefits.
Using administrative social security data from Germany, we estimate the causal effect of the policy on pre-retirement labor supply and pension contributions of eligible women in a difference in-differences design. Specifically, we compare the outcomes of eligible mothers with children aged 3 to 10 to ineligble mothers with children aged 15 to 25, before and after the introduction of the reform.
Due to the relative recency of the reform, we cannot directly observe the impact on retirement income. To make progress on this question, we build a dynamic lifecycle model to predict future pension benefits of treated mothers and investigate the welfare implications of this reform and its impact on the gender gap in old age income. Importantly, the model enables us to estimate key labor supply elasticities of mothers. This will allow us to compare the welfare implications of caregiver credits to alternative policies, such as tax subsidies for caregivers.