Working with Children? The Probability of Mothers Exiting the Workforce at Time of Birth

Abstract

Working Paper 2008-8 February 2008 Abstract: Recent trends in the labor force participation of women have brought much public attention to the issue of women out. This paper explores the decision of working women to exit the labor market at a time of major transition--the birth of a child--utilizing linked vital statistics, administrative employer, and state welfare records. The results indicate that, consistent with utility maximization theory, women are not just but rather are accurately assessing the potential opportunity and direct labor market costs of their exit decisions and are making workforce exit decisions based on measurable costs and benefits. JEL classification: J22, J21, C24 Key words: female labor force participation, children, firm and industry dynamics I. Introduction Recent declines in the labor force participation of married women have brought the issue of women opting out of the labor force to the forefront of both the lay press and academic literature (Golden 2006, Hotchkiss 2006, Reimers and Stone 2007). The term opting out suggests that women give up their careers to care for their family, with little regard for either current career status or future career prospects. Although the bulk of empirical work suggests that declines in labor force participation rates of women are not solely attributable to changing priorities for home and career (for example, see Boushey 2005), the literature has not come to a consensus on the evidence of opting out behavior. Most of the evidence relies on cross-sectional data to draw conclusions about the marginal decisions of women. However, it is difficult to use stock measures of labor force status, marital status, education and number of children to identify the dynamic nature of workforce decisions. The focus of this analysis is on workforce decisions made at a time of major transition for working women: the birth of a child. This is done with a unique data set that combines vital statistics birth information with employment data, which allows for the modeling of the specific decision to exit the workforce rather than the decision to participate in the labor force. These data also allow us to capture more information on the immediate factors that affect the decisions to exit the workforce, including information on the mother and child's health, the characteristics of the mother's industry and firm, and the mother's employment history. Evidence is provided that women's decisions to exit the workforce upon the birth of a child are based on an evaluation of the costs and benefits of the decisions that is consistent with utility maximizing behavior. II. 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). …