South Korea: Paid Childcare Leave, Birth Rates, & Labor Supply
South Korea: Paid Childcare Leave, Birth Rates, & Labor Supply
A 2022 study (Paid Childcare Leave, Fertility, and Female Labor Supply in South Korea by Kyeongkuk Kim, Sang-Hyop Lee, and Timothy J. Halliday) investigates the effects of a pro-natal paid childcare leave policy on fertility, contraception, and labor supply outcomes in South Korea. Using a difference-in-difference design and multiple waves of a fertility survey, the authors provide novel evidence on how subsidizing childcare for working mothers impacts key demographic and economic behaviors in a country with ultra-low fertility.
Background and Policy Details
Like many developed countries, South Korea has experienced a dramatic decline in fertility rates, which fell below 1.0 births per woman in 2018 - the lowest in the world. To address this, the government implemented an aggressive pro-natal program in 2011 providing paid childcare leave subsidies to working mothers for up to one year.
The subsidies followed a kinked schedule based on the mother's income in the prior year:
Mothers earning less than 1250 USD per month received a flat 500 USD per month.
Mothers earning between 1250 and 2500 USD received an additional 0.40 USD for each dollar of monthly earnings above 1250 USD.
Mothers earning above 2500 USD received a flat 1000 USD per month.
Notably, the reform increased subsidies for higher-earning women while keeping them constant for lower earners. It also did not affect the duration of subsidized leave.
Data and Methods
The authors employ the National Fertility and Family Health Survey from 2006, 2009, 2012, and 2015. The survey covers married women aged 19-49 and contains information on pregnancies, births, contraception use, employment, and other household attributes.
The research design exploits the discontinuous change in childcare subsidies at the 1250 USD earnings threshold before and after the 2011 reform. Women are classified into a treatment group with predicted monthly earnings above 1250 USD and a comparison group below this threshold. Importantly, predicted earnings are used to mitigate manipulation concerns.
The core estimates come from a difference-in-difference specification comparing outcomes for the two groups in the pre-reform (2006 and 2009) and post-reform (2012 and 2015) periods. The analysis also employs a regression kink design to estimate marginal responses to benefit generosity around the 1250 USD threshold.
Key Findings
The pro-natal policy substantially increased fertility. The likelihood of conception rose by 2.3 to 2.5 percentage points, implying an arc elasticity of 0.65 with respect to an additional dollar of monthly subsidy. Effects were larger at the extensive margin but also present for higher-order births, suggesting impacts on completed fertility.
Consistent with the fertility response, the subsidies reduced contraceptive use by 3.4 to 3.6 percentage points. The implied arc elasticity of contraception is -0.10 with respect to the childcare subsidy.
The authors do not find consistent evidence that the reform affected regular employment, suggesting that the subsidies did not induce major changes in labor supply.
Regression kink estimates indicate that a marginal dollar of subsidy increased conception by 0.065 to 0.083 percentage points at the 1250 USD threshold. At the 2500 USD threshold where subsidies are reduced, an additional dollar of earnings (i.e., less subsidy) raised contraception by around 0.1 percentage points.
Contributions and Implications
This study makes several contributions to the literature on pro-natal policies and fertility:
It provides rare quasi-experimental evidence from East Asia, a region with ultra-low fertility, whereas prior work has focused mainly on Western countries.
Combining difference-in-difference and regression kink designs enables estimating average and marginal responses to childcare subsidies.
Beyond fertility, the analysis demonstrates that childcare subsidies can influence contraceptive use without major impacts on labor supply.
The findings suggest that childcare leave subsidies for working women can be an effective tool to raise fertility even in a challenging demographic context like South Korea. By enabling more women to balance work and family, the policy appears to have encouraged childbearing as intended.
However, the lack of impacts on regular employment arrangements points to limitations. Childcare subsidies alone may not induce major shifts towards career-oriented jobs in a labor market with significant gender disparities.
Overall, this paper underscores the potential of subsidized childcare to counter fertility decline and highlights the value of survey data to provide a more complete picture of policy impacts. Further work could examine the reform's effects on child health, household expenditures, and longer-term family outcomes. As societies across Asia and elsewhere grapple with ultra-low fertility, the Korean experience offers valuable policy lessons.