Will Your Baby Cost You a Raise?

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I’ll cost you big bucks (Photo: Getty Images)

Children, it appears, are more expensive than we thought.

We all know about diapers and formula (or a breast pump) and eventually college. But a pair of recent studies suggest that having babies might cost more than we thought. It’s not just that your expenses go up when you have a kid. It’s likely that your income goes down as well. Both studies are focused on the wage effect of having children, and both find that women and to a lesser extent even men who have kids end up making less than their childless peers. And the difference can be large, as much as 40% less. The studies show that the wage effect can have a significant impact on when women chose to have children, as well as what professions they pick. That’s bad news. Here’s why:

It is easy to observe that women who take off time to have a child often see a drop in their wages. First of all, they lose out in the income that they would get while they are at home. Second it may take years for them to reenter the workforce. And when they do, many have to enter at a lower level or in a different profession than when they exit. It has been long assumed that much of that wage gap comes from women without college degrees or who have little job experience trying to restart their careers. Women with advance degrees and a high-skills, it was always assumed, would quickly make up the gap. That appears not to be the case. Worse, even women who don’t take off time might see a drop in their earnings after having a child.

Both of the studies, one headed by a professor of public health at Columbia and the other by two economics professors at Harvard, looked how having a child affects women of varying skill levels and professions. “The Mommy Track Divides,” which was head by Columbia prof. Elizabeth Wilde and published by National Bureau of Economic Research this week, finds surprisingly that it is the women with high-skills that tend to have the hardest time maintaining their wages after child-birth. High-skilled women who have children tend to earn as much as one-third less over the lifetime of their careers than their childless peers. Lower skilled women tend to see their incomes drop by less than 15%. Perhaps even more surprising: Wilde’s study also found that children tended to have a wage effect on men, though it was less pronounced than women.

Harvard professors Claudia Goldin and Lawrence Katz also found a large wage gap for mothers with advance degrees in their study “The Career Cost of Family,” which was released last week. Goldin and Katz looked at the wage penalty for highly educated women who take off time from work. The study found the “Mommy Penalty” differed by professional, but was nonetheless present in all areas of work.

The study found that female M.B.A.’s who have taken off 18 months from their career to raise children suffered a severe income penalty, leaving them earning 41 percent less on average than male M.B.A.’s. Regarding other female professionals who took 18 months off, the study found, female Ph.D.’s earn 33 percent less than male Ph.D.’s, female lawyers earn 29 percent less than male lawyers, and female M.D.’s earn 16 percent less than male doctors.

What causes the Mommy or even the Daddy Penalty? The assumption is that it is due to the time off of work, which can result in a change of employers and a loses of seniority. But that might not be the case. Wilde’s study found that even women who continued to work full-time in the first and second year after having a child for the same employer still saw a lifetime drop in wages of 14%. What matters most, according to Wilde, is when you have children.

The problem it appears has to do with flexibility. Either in perception or reality, there is judgment in the workforce that people with children lack the ability to work that “extra hour” when needed. That’s why Goldin and Katz say they saw less of a difference in careers where women have a greater ability to set their own office times or hours, or where more women work for themselves. Wilde saw less of an impact on women and men who had children later in their careers, where also they presumably would have more of an ability to name their own schedules or work situations.

But both of these baby effects can have a significant impact on the economy. First of all, if the Mommy penalty pushes women who would go into business into medicine or academia then that can be a major misallocation of human capital. And in an information economy more and more built on intelligence that can be a real problem. What’s more, the fact that the impact on wages drops with age, as Wilde finds, is good explanation for why women are waiting until later in life to have children. If so, the Mommy Penalty could be a significant contributor to the rising cost of healthcare and the infertility problem in America. Neither are good outcomes.

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