1. 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)

2. 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

3. 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

4. The effect of Children on Earnings, RES Conference CUL, 2010

5. 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

6. 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 :
N=103,966 women, in 1980 (born )
N= 119,976 men, in 1980 (born )
Outcome variables:
annual labour earnings
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

7. 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

8. Sample Statistics
The effect of Children on Earnings, RES Conference CUL, 2010

9. Results The effect of Children on Earnings, RES Conference CUL, 2010

10. The effect of Children on Earnings, RES Conference CUL, 2010

11. The effect of Children on Earnings, RES Conference CUL, 2010

12. The effect of Children on Earnings, RES Conference CUL, 2010

13. 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

14. 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

15. The effect of Children on Earnings, RES Conference CUL, 2010

16. Questions The effect of Children on Earnings, RES Conference CUL, 2010

17. The effect of Children on Earnings, RES Conference CUL, 2010

18. The effect of Children on Earnings, RES Conference CUL, 2010

19. The effect of Children on Earnings, RES Conference CUL, 2010

20. The effect of Children on Earnings, RES Conference CUL, 2010

21. 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

22. 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

23. Swedish Institute for Social Research (SOFI)