International differences in the family gap in pay: the role of labour market institutions

Abstract

Using the microdata for 35 countries over the period 1985 to 1994 and 1994 to 2002 we find that labour market institutions are traditionally associated with more compressed wage structures and a higher family gap. Our results indicate that these policies reduce the price effect of having children but aggravate the human capital loss due to motherhood. We also find evidence that policies that help women to continue in the same job after childbirth decrease the family gap. Of all the countries we study, mothers in Southern Europe suffer the biggest family gap and our analysis indicates that this is due to the bad combination of labour market policies in these countries. Our results are robust to specification changes and indicate that the main reason for mothers to lag behind other women in terms of earnings is the loss of accumulated job market experience caused by career breaks around childbirth.

Acknowledgements

We are grateful to Jane Waldfogel and participants at the ROA Labour Economics Seminar, Maastricht University for valuable suggestions and advice. We are indebted to the Zentralarchiv für Empirische Sozialforschung at the University of Cologne, Germany, for making the ISSP data available. All errors are our own.

Notes

¹ Lundberg and Rose (2000) find that job interruptions due to motherhood cause the time devoted to work by the husband to increase, partially offsetting the negative effect on the mother's earnings.

² A third explanation for the family gap results from an heterogeneity bias, since it is possible that being a mother is correlated with other variables, unobservable, that affect the earnings potential of a particular woman. In this case, the estimated family gap would simply reflect the effect of these unobservable variables on the earnings potential of mothers but not necessarily the fact that having children depresses wages in itself. In this article we use cross-sectional data and hence we are not able to quantify the extent of heterogeneity bias in our sample. However, since our analysis consists of a cross country comparison, all we need is that the correlation between unobservable variables and motherhood, as well as the distribution of the former in the population, is similar across countries.

³ Blau and Kahn (2003) report similar results in their study that also uses the ISSP data for the years 1985–1994, which suffers from similar variation in the way the earnings concept is reported.

⁴ The OECD Employment Outlook (2004) provides information on other aspects of the regulation of temporary contracts such as the maximum number of contracts that can be signed consecutively by the same firm and workers. The effect of these on job transitions is less clear than that of the index we use here and we found these other aspects to be nonsignificant when we included them in our models.

⁵ For a more detailed description of this methodology, see Blau and Kahn (2003, pp. 115–23).

⁶ In Blau and Kahn (2003), the log of earnings is adjusted for working hours, assuming a 40 h work per week for all individuals. This removes gender differences in part-time status from the calculation of the gender gap. Since here we are interested on the full effects of family status after controlling for human capital variables, and provided that one of the sources of the difference in earnings between mothers and childless women is the higher incidence of part-time status among the former, we want to allow for differences in part-time status between women with and without children to play a role in determining the family gap.

⁷ The three observations with negative numbers in FAMILYGAP correspond to Philippines (2002), Czech Republic (2002) and Taiwan (2002). When we dropped these observations the results we obtained were practically identical, although the fit of the various models was slightly lower.

⁸ This measure is normally bigger than trade union density, which measures the percentage of workers directly affiliated to unions or directly represented by them.

⁹ It should be noted that the number of observations changes across the different specifications. This is due to the fact that we have information on a specific covariate for some countries but not for others. We ran the same regressions by limiting our sample to the set of countries for which information on all covariates exists, and the results we obtained were practically identical to the ones shown in the tables.

¹⁰ Del Boca et al. (2003) and Adserá (2004) argue that in such labour markets women delay their fertility decisions until they have secured an indefinite contract that protects them against the possibility of being laid off because of a child spell.

¹¹ To avoid congesting the article with a large number of additional tables, these results are not presented here, but are of course available from the authors on request.