The Stork Brings Women a Reduced Paycheck

Women are often paid less than men, are underrepresented in leading positions, and their careers develop at a slower pace than those of men. Without children, women's earnings over the life-cycle would increase by 35 percent (in discounted present value terms at age 15), a recently published paper concludes. About three quarters of this career cost of having children stems from lost earnings during interruptions from work and increased part-time work engagements after child birth, while the remainder is due to wage responses, as a result of lost investments in skills, skill depreciation and the choice of occupation conditioned on fertility expectations. Fertility explains about one third of the gender wage-gap, especially for women in their mid-thirties. Furthermore, some costs of fertility are incurred well before children are born, as a high desired fertility seems to imply self-selection into routine occupations (as opposed to intellectual or abstract occupations), that promise to be less affected by childbearing, but are worse paid and offer less career chances in the first place.

There are at least three elements that determine the career costs of children. First, children may require periods during which women cannot work, implying lost earnings opportunities. Second, during these interruptions from work, there will be no skill accumulation, and existing skills may even depreciate. Therefore, the accumulation and depreciation of skills may play an important role in determining career costs. Third, intended fertility may affect the type of career a woman chooses even before children are born. Depending on ability and expected fertility, women may therefore sort into occupations that imply different career costs of children. All this suggests that one needs to consider the career as a whole to determine the costs related to having children.

With Christian Dustmann and Katrien Stevens, we consider these issues in the context of a life-cycle framework so that decisions at one point in time have implications for the rest of the individual's life. In our model women make decisions about labor supply, occupation, whether to have children and how much to save at each point in the lifecycle, so as to choose the path of these variables that maximizes their well-being over the lifecycle. The model also captures marriage and divorce as probabilistic events depending on a woman's characteristics. The framework we develop describes therefore not only fertility and labor market behavior, but it also captures asset accumulation and marital status over the lifecycle.

The results confirm that different occupational choices lead to different costs of raising children. Wage profiles are steeper, but skill atrophy rates are higher in abstract occupations, compared to routine or manual occupations. Importantly, our results also show that atrophy rates vary over the career cycle, especially in abstract but also in manual occupations, with the highest atrophy rates around the time when women find it desirable to have children (in their mid to late 20s). This illustrates a clear tradeoff between fertility decisions and career choices. In addition, when considering the ease of combining work and childrearing, intellectual jobs are the least desirable. For these reasons, fertility decisions are likely to be affected far more by career concerns in abstract jobs than in routine occupations. This might induce women with a higher desired fertility to choose more often careers in routine occupations and to have children earlier. The results highlight that the selection into different careers is indeed based not only on earnings potential, but also on desired fertility, with women with a strong fertility desire overrepresented in routine occupations.