Working Paper: CEPR ID: DP18095
Authors: Francesca Barigozzi; Helmuth Cremer; Emmanuel Thibault
Abstract: We present a simple dynamic model based on on-the-job human capital accumulation affecting the dynamic of wage rates and labor earnings. We show how these dynamics are determined by the interplay between the supply and demand sides of the labor market. The model can generate and explain the different dynamics of women's earnings after childbirth documented in the empirical literature on child penalties. We show that the temporary negative shock in labor supply due to childbearing may create a wage trap and a permanent divergence of labor earnings between genders. Even when the wage trap is avoided, and working mothers are on a path toward a high-wage equilibrium, slow convergence can permanently lose earnings. We use this model to study the impact of different policies on the gender wage gap and child penalties. We show that mandatory maternal leave exacerbates the shock which pleads against long leaves. Similarly, cash transfers to mothers via the income effect on labor supply aggravate gender wage differences. By contrast, temporary subsidies to mothers' wages (possibly in the form of Income Tax Credits) are not only useful to exit the wage trap, but also to speed up recovery and reduce the child penalty when the shock in labor supply is small enough to avoid the wage trap. Other family policies, like formal childcare subsidies and in-kind provision of formal childcare, are potentially useful because they reduce the mothers' cost of labor supply, but they affect mothers' choices only indirectly.
Keywords: Child penalty; Mothers earnings dynamics; Multiple equilibria; Wage and income traps
JEL Codes: J31; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary negative shock in labor supply due to childbearing (J49) | wage trap (J31) |
| wage trap (J31) | permanent divergence of labor earnings between genders (J79) |
| mandatory maternal leave (J22) | exacerbation of labor supply shock (J89) |
| exacerbation of labor supply shock (J49) | increase in gender wage gap (J79) |
| cash transfers to mothers (J13) | aggravation of gender wage differences (J79) |
| cash transfers to mothers (J13) | reduction of incentive for labor supply effort (H31) |
| temporary subsidies to mothers' wages (J38) | mitigation of wage trap (J38) |
| mitigation of wage trap (J38) | reduction of child penalties (J13) |