Employment, work hours and wage rate driving a “motherhood penalty” for women, says Treasury

Flexible working arrangements may be one way Australia increases the likelihood of women staying in the paid workforce after having children, a new paper looking at children and the gender earnings gap says.

Federal Treasury last week published a paper as a part of its Round Up 2022 journal, saying women get a “motherhood penalty” — their earnings are reduced by more than half for the first five years of being a parent.

Authors Elif Bahar, Nathan Deutscher, Natasha Bradshaw and Maxine Montaigne found this gap in earnings between men and women continues to be significant a decade into parenthood.

“Men’s and women’s earnings follow similar paths until parenthood, at which point their earnings begin to diverge. The arrival of children reduces women’s earnings by an average of 55% across the first five years of parenthood,” the paper said.

“Men’s earnings are unaffected by entry into parenthood. Moreover, the motherhood penalty remains persistent for at least a decade into parenthood, though there is a slight recovery in the later years.”

The paper says that there are three key drivers giving rise to the “motherhood penalty”: employment, hours of work, and the hourly wage rate.

“There is a sharp drop in the probability of employment of about 45% in the year the first child arrives, with only modest recovery after five years. For women who remain employed, hours worked falls by about 35% across the first five years and does not significantly recover over this period,” the paper said.

“There is also some evidence that for women who remain employed, their hourly wages are about 5% lower than if they had not had children, though the estimates are imprecise and only just significantly different from zero.”

One of the indicators found by the researchers that helped ensure women stayed a part of the workforce after having children was a flexible workplace.

“Women who had greater access to flexible conditions before having children are more likely to remain employed after having children. Conversely, for women who remain employed, the hourly wage penalty is larger for women in more flexible occupations, potentially reflecting foregone promotion opportunities,” the paper said.

“These results suggest a role for workplace settings, particularly around the availability of flexibility, in potentially mitigating the motherhood penalty in employment and hours worked, but potentially at the cost of hourly wages.”

The research paper says that the motherhood penalty impacts gender equality and aggregate productivity.

“On average, Australian women are now more educated than Australian men — with 37% of women attaining a bachelor’s degree or above in 2020, compared to only 29% of men,” the paper said.

“Improving the utilisation of women’s skills would increase the returns on investments made in women’s human capital.”

Other papers published in Treasury’s Outlook deal with different aspects of productivity, new technologies and the Australian job market, and a paper that explores why the real wages of graduates with bachelor’s degrees have fallen.

This article was first published by The Mandarin.