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Parenthood and labour market outcomes

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Author: 
Sin, I., Dasgupta, K.,& Pacheco, G.
Publication Date: 
1 May 2018
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This study combines administrative monthly earnings data, birth records, and survey data on hours worked and earnings to describe the labour market outcomes of men and women as they have children, and how parenthood contributes to the gender pay gap in New Zealand. Women on average experience a 4.4% decrease in hourly wages upon becoming mother while men experience no significant decrease. Parenthood thus increases the gender gap in hourly wages. 

Introduction

This paper is an initial exploration of what we can learn regarding the drivers of the gender pay gap in New Zealand (NZ) from combining administrative wage data, birth records, and survey data on hours worked and earnings. Our particular focus is the role of parenthood penalties in this pay gap.

The gender pay gap in NZ has generally been decreasing since 1998 (Ministry for Women, 2017), and in the 2017 June quarter fell to 9.7%, its lowest since 2012 (Statistics NZ, 2017b). However, the gap is still a long way from zero, and a high proportion of it cannot be explained by differences in observable characteristics (Pacheco, Li, and Cochrane, 2017). Furthermore, recent research by Sin, Stillman, and Fabling (2017) suggests the gap cannot be explained by differences in productivity between males and females.

In NZ, as internationally, the gender pay gap is larger among parents than non-parents, though the mechanisms driving this relationship are not entirely clear.2 In NZ, Dixon (2000) finds a 7% hourly wage penalty of having one child, which rises to 10% for two or more children. As Wilner (2016) discusses, four main hypotheses have been proposed for the “motherhood penalty”: human capital depreciation while mothers are on parental leave; unobservable differences between parents and non-parents; mothers choosing to work in lower-paying, familyfriendly
firms; and discrimination.

In relation to the first hypothesis, the length of time a mother takes out of employment is affected by a range of factors including the opportunity cost of time out of work that she faces, her access to and cost of childcare, her parental leave entitlements, and her willingness to return to the workforce. These factors will be influenced by legislation; we now provide context on the relevant institutional settings in NZ.

In 2002, government funded paid parental leave was introduced, which allowed mothers who met certain employment requirements to take up to twelve weeks of paid parental leave. For the duration of leave, mothers would receive government transfers equal to their prior weekly wage, up to a maximum amount, which was pegged at the NZ average wage (NZ Parliament, 2002). Since then, the duration of paid leave has increased incrementally and now stands at 18 weeks. There are also forthcoming changes in this space as the new government has recently announcement plans to increase this to 22 weeks by July 2018 and 26 weeks by July 2020
(NZ Herald, 2017).

The other relevant area of legislation is provision of early childcare education (ECE). In July 2007, the government introduced 20 hours per week of free ECE for all three and four year olds in communitybased and teacher-led services. 

With these NZ context specific settings in mind, we begin our analysis with a population-level view.
We use administrative wage data to describe the distribution of how long women are out of paid employment after having their first child and how this differs with pre-parenthood income. We then look at employment rates and wage earnings among employed women each month in the five years before and ten years after birth of their first child.

We also compare women who spend different lengths of time out of employment both overall and within each pre-parenthood earnings quartile. Although this does not strictly isolate the causal effect of length of time out of employment on subsequent monthly earnings, it does show how, within earnings quartiles, women who return quickly to work increase their earnings lead over those who return more slowly.

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Entered Date: 
13 Jun 2018
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