Co-author: Inkyung Yoo.
 
With the gender gap in educational attainment narrowing, “child penalty” – the effect of parenthood on labor market outcomes – is considered the largest remaining obstacle in eliminating the gender pay gap in developed countries. Recent studies show that women’s earnings drop significantly following first childbirth whereas men’s earnings remain largely unaffected. Various policies are being discussed and studied with the goal of reducing the child penalty.

However, from an individual woman's perspective, there is a sure way to avoid the child penalty – to not have any children. Among OECD countries, the fertility rate is indeed lower in places with societal characteristics associated with heavier child penalties, such as less generous family policies, more traditional gender norms, and inflexible labor markets. But cross-country correlations do not provide insight into how the child penalty might evolve as childlessness increases. Would the child penalty also decline in low-fertility regions, leading to convergence across both gender and countries? Or could a large child penalty affect the composition of mothers so as to further increase the child penalty?

We study the relationship between the child penalty and declining fertility by investigating changes in the outcomes and characteristics of mothers in the country with the world's lowest fertility rate, South Korea. Specifically, we focus on the labor market trajectories of cohorts of women born between 1976 and 1985, for whom the cohort fertility rate by age 36 dropped from 1.5 to 1.07 children per woman. We utilize data from the National Health Insurance System (NHIS) pertaining to employment, earnings, healthcare utilization, and household member characteristics for the entire population from 2002 to 2020.

Estimating child penalty

To estimate the impact of childbirth, we adopt a quasi-experimental approach based on event studies around the birth of the first child as in Kleven et al. (2019). We track mothers’ labor market outcomes from three years prior to five years after first childbirth. The comparison group is the husbands. This approach has the advantage exhibiting the gender gap in earnings profiles among parents who are affected by the same event. Our sample consists of women born between 1976 and 1985 who first gave birth between 2005 and 2015 and their husbands.

Figure 1 shows the earnings difference compared to the counterfactual of no childbirth for both women (red) and men (blue). One year prior to first childbirth (-12 months) is the reference period. We find that mothers' earnings drop by more than 41 percent by the fifth year relative to one year before first childbirth, whereas men's earnings profiles are essentially unaffected. The magnitude of the earnings loss for Korean women is much larger than the child penalty found in Norway at 21 percent (Andresen and Nix 2022), Denmark at 24 percent (Kleven et al. 2019a), and Sweden at 35 percent (Kleven et al. 2019b), and is comparable to that of the United Kingdom at 45 percent (Kleven et al. 2019b). Figure 1 also indicates that most of the drop in women's earnings actually occurs months before first childbirth during pregnancy.

When we compare cohorts for women born during 1976-80 and 1981-85 in Figure 2, we find that the child penalty in the short run increased from 40 percent (orange) to 46% (red). After about 18 months the cohort gap gradually narrows, and disappears when the child is around four years old so that both groups experience a similar long-run child penalty. This pattern is in sharp contrast to prior studies which found that child penalties have declined over time, for instance, in Norway and the U.S.

Why did the child penalty increase?

Considering the expansion of family-friendly policies in South Korea, it is quite surprising to find that the long-run child penalty did not decrease at all and that the short-run child penalty even increased. In our ongoing analysis, we are exploring potential mechanisms, including changes in the composition of mothers as well as changes in mothers’ behavioral responses to childbirth.

Despite the increase in childlessness during the study period, the primary explanation for the difference in child penalty between cohorts does not appear to arise from changes in mothers' observable characteristics such as employment status or earnings prior to childbirth. The result from inverse probability weighting, which aligns baseline characteristics across cohorts, produces outcomes similar to the results in Figure 2. Instead, we find suggestive evidence that the higher uptake of parental leave among recent mothers contributes to their larger child penalty. Women in the 1981-85 cohort were twice as likely as women in the 1976-80 cohort to go on leave after childbirth. We also find that mothers in the more recent cohort are slightly more likely to have subsequent children, conditional on having the first child (1.82 vs. 1.78 children by the fifth year).

More broadly, our findings thus far indicate that the child penalty need not decrease over time in all developed countries. Particularly in societies with rising childlessness, the combination of expanding family-friendly policies and selection into motherhood can create a more complex outlook.

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Co-author Inkyung Yoo is a Postdoctoral Fellow in the Institute of Economic Research at Seoul National University.