Swedish Institute for Social Research (SOFI) The Effect of Children on Earnings Using Exogenous Variation In Family Size: Swedish Evidence Lalaina Hirvonen Swedish Institute for Social Research (SOFI)

Backgrounds Persistence of the gender wage gap Motherhood penalty: in the U.S.: Waldfogel (1997): -6% for 1 child and -13% for 2 or more children Budig & England (2001): -7% per child; (-5% with experience) In Sweden: Albrecht et al (1999): a year of parental leave has a small negative effect on women’s wages Harkness & Waldfogel (1999): -6% for 2 and -10% for 3 or more children The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Backgrounds Problem: number of children is endogenous One solution: parents’ preference for mixed sibling-sex composition influence them to have a third child Previous evidence: Andersson, Hank, Rønsen&Vikat (2006) - Angrist & Evans (1998): negative short-term effect of childbirth on female labour supply. no effect on college educated women and women with high wage husbands Michaud & Tatsiramos (2008): negative long-term effects in various European countries, exl. Sweden The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Purposes Estimate short and long-term effect of children on men and women’s earnings using sex-mix IV strategy by Angrist & Evans (1998) Estimate effects on participation and earnings, conditional on having a job Investigate whether the effect is stable over time Look at the heterogeneity of the effect by education The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Data Population register data: 35% of Sweden-born Match children to biological mothers and fathers by order of birth Individuals have 2 or more children at the end of 1980, second child born 1965-1980: N=103,966 women, 23-35 in 1980 (born 1945-56) N= 119,976 men, 23-40 in 1980 (born 1940-57) Outcome variables: annual labour earnings 1980-2005 indicator for labour force participation Main explanatory variable: Third Child dummy=1 if individual has a 3rd child before or during the year her earnings are observed The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Econometric Framework Model of female labour supply: where is a measure of labour supply, is fertility Angrist & Evans (1998): exogenous variation preference for balanced sex-ratio the sex of a child is randomly assigned families with 2 children of same sex tend to have a 3rd IV-estimator of : where the instrument is The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Sample Statistics The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Results The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Summary Large first-stage statistics: sex mix of two first children strongly affects fertility OLS tends to exaggerate the impact of children on earnings: 5 %-age points 1980 and 2% drop in participation in 1990 40% cut in earnings in 1980 and 18% in 1990 IV results are poor in precision 9%-age points in 1980 &1981, 7% in 1984 &1985 for participation 27% in1984, 19% in 1988 for earnings The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Summary Short-term effects are larger than long-term ones Women recover gradually from negative effect on earnings and participation (Mincer & Ofek,1982; Corcoran, Duncan and Ponza, 1983) Effect for men is small and low in precision (Angrist & Evans,1998) Effect is stable over time Heterogeneous effect by education: OLS: negative effect mostly for low educated women IV: effect is negative and imprecise Angrist & Evans: no effect on college educated women The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Questions The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Is the effect stable over the years? Change the base year from 1980 to 1995 Motivations: - changes in family policies changes in labour market conditions different trend in preferences Parents’ preference for children of a balanced sex-ratio remains in 1995 No notable changes in the results The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

Heterogeneity by education Impact might vary with the earnings potential Schooling is a predictor of earnings potential Analyze the effect conditional on schooling: academic:primary, lower secondary, short upper secondary education N= 31,460 (48,548) non-academic: long upper secondary, short and long university and more N= 72,506 (71,428) The effect of Children on Earnings, RES Conference CUL, 2010 2019-01-17

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