New moms “opt down” to lower-paying firms

“Any moms change career paths after having kids? ...”

Among the discussion threads on choosing a daycare and “cringy HR stories,” the Working Moms forum at the pregnancy website What to Expect includes lots of soon-to-be-moms, like this one, pondering a job change.

“… I’ve worked hard since I was young to get where I am now. I make great money, but I’m starting to feel like my career isn’t worth it anymore for the amount of time I’m taken away from my family and the stress.”

For any new parent, balancing a new baby with salary and career advancement can be a challenge. But it appears to send mothers and fathers down radically diverging career paths, on average, according to a new Institute working paper. Visiting scholar Brenden Timpe and co-authors Rebecca Jack and Daniel Tannenbaum, all of the University of Nebraska–Lincoln, assembled a unique combination of U.S. census data tracking millions of new parents and their employment journeys over 15 years (“The Parenthood Gap: Firms and Earnings Inequality after Kids”).¹ While prior research has documented the substantial “child penalty” paid by mothers, Timpe and co-authors break the trend into distinct components: the change in earnings relative to all other employees within a firm, and the effect of moving to a different workplace.

Their analysis reveals that American mothers and fathers follow very different paths after the birth of a first child (see figure).

“There’s a gender earnings gap before childbirth, but women and men move in parallel,” said Timpe. “And then childbirth is just so stark: Dads keep moving up the ladder to higher-paying jobs and higher-paying firms. Moms start bending ‘backward,’ going to lower-paying employers.”

Controlling for age, the economists find that one year prior to the birth of a first child, future mothers earn 14 percent less, on average, than future fathers. In the year of birth this gap widens to 38 percent as mothers—but not fathers—immediately experience reduced hours (and therefore earnings) within the firm.

Timpe and his colleagues are most focused on what happens in the decade after this initial earnings shock. Although mothers’ within-firm earnings begin to recover, they simultaneously move to lower-paying employers. “There’s a lot of talk about moms opting out of the labor force,” Timpe said. “This is more of an ‘opting down.’”

The sample follows new parents for 11 years after birth. By this point, the gap in average earnings between mothers and fathers has grown to 43 percent—primarily because of mothers moving over time to lower-paying firms. These calculations include only mothers and fathers who are working, so reported earnings are not skewed by stay-at-home parents.

Biggest drops for moms at top-paying firms

During this sample of births between 2001 and 2010, most new mothers did not report any break from work. (Parents in the analysis had at least four years of labor-force attachment prior to their child’s birth.) Seventeen percent of mothers had a pause in earnings for at least one quarter; 7 percent stopped working for at least a year. Even mothers with no break from the workforce experienced some opting down to lower-paying firms. However, the economists find that mothers who take more time away experience a larger drop.

They also find that the opting-down effect is especially severe for mothers who start at top-paying firms. “It’s really hard to maintain—to stay at those firms that pay the most—once you have a child,” Timpe said. The finding complements the idea of “greedy work,” defined by economist Claudia Goldin in an interview with Harvard Business Review as “a job that pays disproportionately more on a per-hour basis when someone works a greater number of hours or has less control over those hours.” Mothers might be less willing or able to put up with a “greedy” job, choosing new roles and substantial cuts in pay instead—and cumulatively deepening gender disparities in earnings.

When the researchers examine new parents’ job changes by industry, they find related patterns. While more fathers than mothers change jobs after the birth of a child, fathers are less likely to change industry (and thus able to retain more of the human capital built up through their career to that point). Mothers are more likely to leave finance, professional, and technical jobs and more likely to enter lower-paying fields like health and education. They also move into more “substitutable” types of roles, requiring fewer specialized skills and with lower returns to experience.

Just a choice of life over work?

One interpretation of the findings is that many new mothers take advantage of the options available to them in the labor market; those who opt down are trading future salary and advancement in favor of other priorities and job amenities. The economists find that mothers who moved to lower-paying firms worked fewer hours, had shorter commutes, and were more likely to be fully remote. Interestingly, the returns to opting down in salary—in terms of work-life balance—appear to be greater for women, further tilting the incentives.

The pattern does not apply to all job amenities. Mothers who opt down in salary are less likely than fathers to have employer-sponsored health insurance for their household.

While the data reflect the conscious choices and trade-offs made by many new mothers, it’s not so simple. For one, the labor market does not offer a continuous menu of options. “Jobs are kind of ‘lumpy’ in some sense,” Timpe said. The substantial financial impact of many mothers’ choices suggests “there’s some sort of mismatch between the jobs that parents want and the jobs they can get. It’s either you’re all in or you’re opting down.”

Even if mothers are freely choosing flexibility over money, the outcomes are likely suboptimal from a social or economic standpoint. The new research illustrates how these collective choices undermine gender earnings parity. “There has been all of this progress in terms of women entering the labor market,” Timpe said. “But moms still bear the brunt of child care. That remains the norm and it goes to the next generation.”

It is also likely inefficient for firms to disproportionately lose female workers when parenthood hits. “You have a worker who’s been working for you for years,” Timpe said. “They’ve built up knowledge, they know the systems, they’ve developed relationships with customers. If they can’t continue, you lose all that.” For the economy in general, many new mothers are downshifting into jobs where their specialized skills are not optimally used. Firms and workers lose that prior investment.

To keep a clear view of the trends, Timpe and his co-authors stopped their analysis in 2019, just before a pandemic forced a reckoning with work-life balance and pushed work-from-home into the mainstream. Future updates to the research could reveal whether new moms and dads, post-COVID, face an altered trade-off between career and parenthood.

Endnotes

1 The research combines employment and earnings data from the Longitudinal Employer-Household Dynamics (LEHD) program, fertility data from the Census Household Composition Key, and workplace amenity data from the American Community Survey. During the period studied, the LEHD covered 25 U.S. states. The final sample includes more than 4.5 million first-time mothers and fathers with sufficient pre-birth earnings history.