This paper seeks to determine the causes of the well-documented wage penalty experienced by mothers compared to women without children. Using data from Waves 1-11 of the British Household Panel Survey I show that such a penalty exists in the UK while analysing the role played by unobserved heterogeneity, human capital, compensating differentials, work effort, employer discrimination and work flexibility in explaining this ‘family gap’ in pay. Importantly, I discover that OLS estimations understate the negative returns to motherhood.
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For the average woman in our sample, controlling for differences in human capital, job characteristics and household responsibilities can explain the entire observed wage gap. My contribution to the literature is to evaluate the validity of the work-flexibility hypothesis and to explore whether the child penalty differs by marital status. Unlike the majority of previous studies, I check and confirm that my results are robust to sample selectivity bias.
Over the last century, a dramatic increase in gender equality has led to a closing of the ‘gender gap’ between the wages of men and women in the developed world. However, in its place has developed a substantial ‘family gap’: a differential between mothers and non-mothers’ wages. This pushes us to ask: does having children have a direct negative effect on women’s wages? The overwhelming answer from previous empirical research has been that it does (Waldfogel 1995; Buding & England 2001; Molina and Montuenga 2009). This paper provides evidence to show that such a ‘child penalty’ exists for a cohort of British women and discusses some competing and complementary explanations.
Thus far, there have been six hypotheses put forward to explain this phenomenon (Budig & England 2001; Anderson, Binder and Krause 2003). First, some of the unobserved person-specific characteristics which are responsible for reduced earnings may also encourage child-bearing. Second, having children may induce women to interrupt their career with deleterious effects on their human capital stock. Third, mothers may choose to trade off lower wages for certain job characteristics which make it easier to balance their work and family needs. Fourth, children may be responsible for mothers being less productive at their jobs because they are exhausted or distracted. Fifth, employers may discriminate against mothers while making hiring and promotion decisions. Finally, the penalty may be a result of the work-schedule conflicts created when children demand their mother’s time.
A number of recent articles have explored these hypotheses for data from developed countries: Korenman and Neumark (1992), Waldfogel (1995; 1997a; 1997b; 1998a;1998b), Lundberg and Rose (2000), Budig and England (2001), and Anderson, Binder and Kraus (2003), Molina and Montuenga (2009). I build upon all of these studies by empirically exploring all six hypotheses. Firstly, I will investigate whether the OLS estimates used in previous cross-sectional research may underestimate the negative returns to motherhood,
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