The Child Penalty in the Labor Market: Working Hours and Joint Career Choices

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Recent literature identifies parenthood as the main driver of the gender pay gap. In addition to increasing the financial needs of a household, the arrival of a child requests parents to spend a large amount of time at home. These changed necessities impact substantially the joint labor market choices of parents, who often decide to specialize in either work or childcare activities. To help parents reconciling work careers with childcare, several developed countries introduced the right of transiting from full-time to part-time schedules. However, these policies do not fully address the request for flexibility in working hours. When it is hard to change schedules within the job, those switching to a part-time schedule (mainly women) face difficulties in returning to a full-time schedule when the children grow older (the so-called part-time trap). In this project, we will quantify the extent to which flexible hours arrangements impact couples’ opportunities and choices in the labor market, as well as the firms’ hiring and wage decisions, and how these adjustments jointly affect the child penalty. We will develop a quantitative joint household search equilibrium model with heterogeneous working hours, an aspect of the job contract that is often overlooked in the literature. We will use this structural model to assess how alternative institutional set-ups in temporal flexibility influence male and female life-cycle labor market patterns, and which are the main mechanisms at work. Since the characterization of equilibrium wage distributions in joint household search models is still lacking, we will devote a specific work package to this theoretical analysis. In addition, we will empirically evaluate the effect of a recent bridge part-time reform in Germany that introduced the right of reducing working hours temporarily and going back to previous working hours afterwards. We will utilize a difference-in-difference approach by exploiting the introduction of this policy for larger firms. These findings can also be used for validation of our structural model.