Academic journal article Federal Reserve Bank of Atlanta, Working Paper Series

To Work or Not to Work: The Economics of a Mother's Dilemma

Academic journal article Federal Reserve Bank of Atlanta, Working Paper Series

To Work or Not to Work: The Economics of a Mother's Dilemma

Article excerpt

Working Paper 2011-2 March 2011

Abstract: Utilizing linked vital statistics, administrative employer, and state welfare records, the analysis in this paper investigates the determinants of a woman's intermittent labor force decision at the time of a major life event: the birth of a child. The results indicate that both direct and opportunity labor market costs of exiting the workforce figure significantly into that decision. Further, the analysis reveals the importance of including information about the mother's prebirth job when making inferences about the role various demographics play in the intermittent labor force decision.

JEL classification: J22, J13, J17, D01, D91

Key words: labor supply behavior, intermittent, labor market exit, labor leisure choice model

I. Introduction and Background

A vast literature quantifies the labor market penalty associated with a worker exhibiting intermittent labor force attachment. The penalty is typically measured in terms of lower wages accruing to workers who move frequently in and out, or who spend extended amounts of time out, of the labor market (Hotchkiss and Pitts 2005). A number of different hypotheses have been suggested to explain the intermittent wage penalty. It is typically assumed to be market-based and result from both employer and employee preferences and barriers to reentry into the market. While the presence of the penalty is fairly widely accepted, the source of the penalty has not been definitively identified, nor is it clear whether workers consider the penalty as a potential cost upon reentry in making the decision to exit.

The presence of this labor market penalty for intermittent behavior is particularly germane to the labor market experience of women, as they are much more likely than men to exhibit intermittent labor market behavior. Indeed, not only has intermittent labor market attachment been shown to lead to lower future wages, but it has also been shown to contribute significantly to observed wage differentials between men and women (Hotchkiss and Pitts 2007). One of the common events in a woman's life that is most likely to lead to an out-of-labor force spell is the birth of a child. Even more vast than the intermittent wage penalty literature is the literature documenting the important role that children play in the labor supply decisions of women (for example, see Blau and Kahn 2007 and Cohany and Sok 2007). Young children, in particular, are theorized to significantly increase the reservation wage of women, making mothers more likely to exit the labor force.

This paper links these two bodies of research by exploring whether a woman considers the potential costs of exiting the workforce when deciding whether to stop working after the birth of a child. The costs are measured in terms of both opportunity costs and the future direct costs associated with a spell of labor market intermittency. The analysis makes use of a unique combination of administrative data to explore more dimensions of the labor force participation decision than has previously been possible. Birth records from vital statistics are combined with matched employer-employee administrative data over the period 1994-2002. These data provide a census of working mothers in the state of Georgia in this time period and contain detailed information on individual human capital, health, and labor market characteristics. The goal is to measure the extent to which the marginal costs and marginal benefits, and particularly, the potential labor market costs, guide the decision to exit upon the birth of a child.

The bulk of the literature on the question of women returning to work after having a child is focused on the specific policy impact of the availability of paid maternal or paternal leave (for example, see Burgess et al. 2008; Mogstand and Pronzalo 2007; Ondrich, et al. 1996; Pronzanto 2007; Ronsen and Sundstrom 2002; Joesch 1997; Waldfogel, et al. …

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