The change in Norway's Cash-for-Care program and its effect on maternal labor supply

Abstract

This paper investigates how a withdrawal of the Cash-for-Care program in Norway affected the mothers’ employment decision. In 2012, the Norwegian government removed 2-year-old children’s eligibility for the Cash-for-Care benefit. This reform was expected to incentivize the mothers of 2-year-olds to enter the labor market or encourage them to work more. I employ a difference-in-differences method, which exploits the variation in mothers’ exposure to the reform. This is to see how the reform affected the mothers of 2-year-olds compared to mothers of older children, who were not affected by the reform at all. The main results show a positive effect in the short run, when the children are 1- or 2-year-olds, but this is not statistically significant. On the other hand, my findings suggest a stronger effect in the longer run. I found a significant increase in the probability of being a full-time worker for mothers of children aged 3 years old at the end of the year. However, the results from the placebo analyses are statistically significant, which threatens the identifying assumption. This indicates that the full-time employment trends between mothers of 2-year-olds and mothers of older children are not parallel in the pre-reform era. Therefore, the results from this analysis might not be valid and it makes them difficult to interpret.