Identifying Latent Structures in Maternal Employment: Evidence on the German Parental Benefit Reform

Abstract: This paper identifies latent group structures in the effect of motherhood on employment by employing the C-Lasso, a recently developed, purely data-driven classification method. Moreover, I assess how the introduction of the generous German parental benefit reform in 2007 affects the different cluster groups by taking advantage of an identification strategy that combines the sharp regression discontinuity design and hypothesis testing of predicted employment probabilities. The C-Lasso approach enables heterogeneous employment effects across mothers, which are classified into an a priori unknown number of cluster groups, each with its own group-specific effect. Using novel German administrative data, the C-Lasso identifies three different cluster groups pre- and post-reform. My findings reveal marked unobserved heterogeneity in maternal employment and that the reform affects the identified cluster groups' employment patterns differently.