Parental Allowance Increase and Labor Supply: Evidence from a Czech Reform

We study the effect of a CZK 80,000 (36%) increase in parental allowance, a universal basic income-type benefit, on the labor supply of parents in the Czech Republic. Drawing a parental allowance does not preclude labor market activity, which allows us to study the income effect. After the reform, mothers substantially prolonged the average period they drew an allowance. The labor market participation of mothers of young children decreased by 6 percentage points (15%). The estimated effect corresponds to a non-labor income labor supply elasticity at the extensive margin of about -0.5. The effect is particularly strong among mothers with their first child (10 p.p. or 28%) and among university-educated mothers (16 p.p. or 36%). We observe a virtually identical reduction in hours worked. We found no effect on the labor supply of fathers.