New study (US): women earn 50% less after having children

Researchers from Columbia University calculate the true cost of motherhood.

Jana Hlistova

Jan 14, 2024

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Welcome to our #219 weekly newsletter.

“For women taking control of their financial future”

-Jana Hlistova

From The Purse

In this week’s newsletter, we highlight new research by Columbia University which has calculated the penalties for motherhood (US). Drawing on two decades’ worth of earnings and employment data for hundreds of thousands of families, the research is the most statistically powerful of its kind.

It follows that the motherhood penalty accounts for the vast majority of the gender earnings gap. So what are the solutions? Read on..

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And you can review the news in brief so you stay on top of global financial, economic and investing trends.

I hope you enjoy this week’s newsletter.

Until next week,

Jana

New study (US): women earn 50% less after having children

Researchers from Columbia University calculate the true cost of motherhood.

Researchers from Columbia University have calculated the true cost of motherhood (US), as reported by Columbia Magazine.

Drawing on two decades’ worth of earnings and employment data for hundreds of thousands of families, the research shows that women’s wages fall by 50% after having children and their wages remain low for many years after.

The study, by Columbia economist Douglas Almond and graduate student Yi Cheng ’20GSAS, along with Cecilia Machado ’10GSAS of Fundação Getulio Vargas’s Brazilian School of Economics and Finance, is the most statistically powerful of its kind.

Whilst previous studies have shown that mothers lose earnings largely because they work less, either dropping out of the labour force or reducing their hours, the Columbia researchers have identified new insights:

Even women who were breadwinners before having children, tend to pause their careers and endure huge income losses afterward.
One of the largest motherhood penalties in ‘female-breadwinner’ families, where higher-earning women experience a 60% drop from their pre-childbirth earnings relative to their male partners.
Women are less likely to switch to a higher-paying firm post-childbearing than men and are substantially more likely to quit the labour force.
Strikingly, women out-earning men in the United States are insufficient to alter the within-couple dynamic so as to generate fatherhood penalties, as rudimentary economic theory would predict.
Women are more penalised in firms where the leader is a woman ie the firm’s ‘female-friendly’ gender characteristics do not protect female employees from the motherhood penalty, nor do they create a more ‘family-friendly’ working environment as we might expect.
We suspect the gendered culture and social norms surrounding parenting would need to change if the large motherhood penalties are to be eliminated.
While challenging, changes to established norms are not unprecedented and may hold more promise in reducing the motherhood penalty than proximate policy tools, like “family-friendly” worker policies.
The motherhood penalty accounts for the vast majority of the gender earnings gap.

According to Almond, this undercuts a theory that many economists have used to try to explain the motherhood penalty in the past, which states that couples strategically decide to have the lower-earning partner:

The data suggests that many dads who ought to be stepping up and taking charge of the childcare, for the economic well-being of their families, aren’t doing so…

In her own research, Jane Waldfogel, a Columbia professor of social work and public affairs, ‘has shown that many women, if given the opportunity to stay at home with their baby for six to twelve months and then return to their jobs, choose to take it, thus maintaining their careers and avoiding significant wage loss.’

She also adds that: another priority should be to provide universal access to high-quality, publicly subsidised childcare….’where both women and men are able to contribute their full talents to society and the economy’.

The UK has the largest motherhood penalty out of all OEDC …

…countries at 40%, which is in line with the US. According to a report by consultancy PwC, women continue to be priced out of work and suffer from a growing gender pay gap because families can not afford childcare in the UK. What follows is often less career advancement and lower pay in a woman’s career.

Based on the PwC report, net childcare costs represented almost a third of the income of a family on the average UK wage, compared with as little as 1% of income in Germany.

However, whilst childcare affordability is an issue, so is the low take up by fathers of shared parental leave. This was estimated at only 2-8% in 2019.

What is clear is that societal and gender norms continue to influence who takes up the majority of childcare.

And this in turn affects women’s career trajectories and earnings; how much they can save and invest in order to grow their personal wealth.

Therefore, women must become intentional about their money and finances from the beginning.

They must focus on protecting and growing their personal wealth even before they embark on having children; in fact, especially so. Crucially, this applies to who they select as their life partner.

The right life partner will not only play an active (equal) role in looking after the children, but they will engage in open and honest conversations about money, financial planning and how to invest from the get-go.

So what are the solutions to the motherhood penalty?

Affordable childcare
US: increase maternity (& paternity leave) from 12 weeks to 6-12 months
A redesign of parental leave policies to support a ‘dual earner-dual carer model’
An effective Equal Paid Parental Leave system in the UK
And fathers taking more parental leave.

Financial news

The Red Sea's inflation threat: the disruptions in the Red Sea have roiled global supply chains and pushed up freight costs. The Houthis have pledged a “big” response to airstrikes. Iran wins either way with US airstrikes on Houthis in Yemen.
Mind the gap: Taiwan Semi is trading at a political discount, which is unlikely to narrow after the election of the China-critical candidate Lai Ching-te.
To put things into perspective: Japan's Yen is 46% undervalued vs the Euro when measured by Big Mac Purchase Power Parity.
US inflation ran hotter than expected on both the headline and core. Headline CPI climbed 3.4% YoY, a 30bp acceleration vs +3.1% in Nov (above Street’s +3.2% forecast).
Economists: UK still at risk of technical recession. Several economists are warning that the UK could have slid into a technical recession at the end of last year, even though the economy grew by 0.3% in November.
The "multipolar world" will remain a major topic in 2024 as the rewiring of the global commerce system creates geopolitical risks & business model shifts that will last decades. The Dollar’s & Euro's share in global CenBank reserves dropped.
While it's true that a record high 58% of American households do own stocks via mutual funds or as individual shares, in the aggregate the amount of stock most of these folks own is tiny. The wealthiest 10% of U.S. households now own nearly 93% of the stock market.
The head of JP Morgan has warned of the risk of disruption from wars in the Middle East and Ukraine.
Nvidia hit fresh ATH after the chip company unveiled new products and partnerships at the annual Consumer Electronics Show (CES).
Microsoft dethrones Apple as most valuable stock in the world. Windows software maker’s value last topped Apple in 2021. The stock has gained 3.3% in 2024, adding $92bn in value.

Crypto: bitcoin, ethereum, DeFi & NFTs

SEC approves the spot bitcoin ETF: bitcoin trades at $46k while ether jumps 9% to $2,500.
The nine spot bitcoin ETFs (including BlackRock, Fidelity, Bitwise) saw over $4.5bn in the first day of trading, much of it again from BlackRock and Grayscale. The preliminary data marks a "monster start" for spot bitcoin ETFs, according to the Wall Street Journal.
Trading just below $43,000 now, Bitcoin is down about 2% from where it was seven days ago. Over the past month, BTC is totally flat. But hodlers are still happy to see Bitcoin up over 120% since this time last year.
Speculation of the ETH ETF is upon us: Ethereum hit an 18-month high of nearly $2,700. But according to TD Crowen, the SEC unlikely to approve spot Ethereum ETFs 'any time soon’.
ETH is changing hands at $2,555 today. But over the last week, it's up over 14%, and up more than 12% for the last month. The one-year return is about 80%.
Ethereum scaling networks also had a strong week, with Arbitrum (ARB) up 22% and Optimism (OP) popping 16%.
Tezos (XTZ) and Stacks (STX), both posting double-digit percentage gains over the past week.
Morgan Stanley: Spot bitcoin ETF approvals are a 'potential paradigm shift' in global view of crypto.