Academic journal article Economic Inquiry

An Analysis of Women's Return-to-Work Decisions Following First Birth

Academic journal article Economic Inquiry

An Analysis of Women's Return-to-Work Decisions Following First Birth

Article excerpt

I. INTRODUCTION

Women's labor force participation rate has increased sharply over the last two decades, particularly for married women with young children. From 1970 to 1996, the fraction of women in the labor market rose from 43.3% to 59.3%.(1) Over this same period, the participation rate of married women with preschool-aged children more than doubled, from 30.3% to 62.7%.(2) The rapid increase in participation of women with young children suggests that women are spending less time out of the labor force for child bearing and rearing. Indeed, looking at new mothers in the National Longitudinal Survey of Youth (NLSY), of those with a spouse or partner who were working prior to their first birth, three quarters were back at work within a year of the birth.(3)

An important consequence of the trend toward a more rapid reemployment of new mothers is that recent cohorts of women will have more actual labor market experience (at each age) than earlier cohorts.(4) This increase in actual work experience should be reflected in a narrowing of the gender earnings gap, and in fact, despite the growing wage inequality of the 1980s, the male-female earnings gap has been closing steadily since the late 1970s. From 1978 to 1990 the ratio of female to male earnings rose from about 0.73 to 0.85 for whites and from 0.60 to 0.70 for African-Americans.(5) According to O'Neill and Polachek [1993], about one-quarter of the closing of the male-female wage gap over the 1976-87 period can be attributed to changes in the actual labor force experience of women, and an additional 50% can be accounted for by changes in returns to experience for women relative to men. Realistically, working women who choose to have children will have to take some time off of work either by taking family, sick, or vacation leave or by exiting the labor market entirely. Given the importance of experience in determining wages, however, the faster women return to work following child birth, the closer their actual experience will be to their potential experience and the smaller the average earnings penalty for women who have children.

The goal of this paper is to examine the economic determinants of a woman's decision to return to work quickly following child birth. I consider three key factors in this decision: the opportunity cost of taking time out of the labor force (i.e., the potential wage rate available to a woman), the wealth effect of other family income, and, most particularly, the opportunity cost of working outside the home in terms of child care cost.

I first present a simple theoretical model of a new mother's return-to-work decision. The model predicts that the decision to return to work will depend on a woman's wage net of hourly child care costs and other family income (including spouse or partner income). I then test the theoretical model as closely as possible. In order to get a measure of child care costs faced by women as they decide whether to return to work, I construct two indices that proxy for variation in cost across states and over time. In the models estimated, I find that women with higher wages are significantly more likely to return to work and that women facing higher child care costs or having greater other family income are significantly less likely to return to work after first birth. I also find that older women, women with more education, and women whose adult female role model was working when they were teenagers are more likely to return to work.

The remainder of the paper proceeds as follows: section II considers some of the previous empirical work on child care costs and female labor force participation, section III develops a simple theoretical model of a woman's employment decision as a utility maximization problem, section IV discusses data and estimation, and section V concludes.

II. PREVIOUS RESEARCH

Much of the previous literature on the labor supply behavior of women with young children has focused on the effect of child care costs. …

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