Identifying the effect of parenthood on labor force participation: A gender comparison

Abstract

Abstract. Identifying the factors that influence labor force participation could elucidate how individuals arrive at their labor supply decisions, whose understanding is, in turn, of crucial importance in analyzing how the supply side of the labor market functions. This paper investigates the effect of parenthood status on Labor Force Participation (LFP) decisions using an individual-level fixed-effects identification strategy. The differences across individuals and over time in having or not having children as well as being or not being in the labor force provide the variation needed to assess the association between individuals’ LFP behavior and parenthood. Parenthood could have different impacts on mothers than it would on fathers. In order to look at the causal effect of maternity and paternity on LFP separately, the data is disaggregated by gender. To this end, the effect of a change in the parenthood status can be measured using individual-level fixed-effects to account for time-invariant characteristics of individuals becoming a parent. The primary data source used is the National Longitudinal Surveys (NLS). Considering the nature of LFP variable, this paper employs Binary Response Models (BRMs) to estimate LFP equations using individual-level micro data. The findings of the study show that parenthood has a negative overall effect on LFP. However, paternity has a significant positive effect on the likelihood of being in the labor force, whilst maternity has a significant negative impact of LFP. In addition, the results imply that the effect of parenthood on LFP has been fading away over time, regardless of the gender of parents. These two pieces of evidence precisely map onto the theoretical predictions made by the related mainstream economic theories (the traditional neoclassical theory of labor supply as well as Becker’s household production model). These results are robust across different models specified and various estimation methods employed. These findings can contribute to the existing knowledge about the effect of parenthood on LFP decisions made in the US at an individual and behavioral level, and also aid in the shaping of economic policies and interventions to enhance the status of labor force participation in the economy. In the end, some potential threats to the identification of this causal effect, such as endogeneity of fertility, and some possible strategies to deal with those threats are discussed.

Keywords. Labor force participation, Parenthood, Individual-level fixed-effects identification strategy, Difference-in-differences, Binary response Models, Gender Comparison.

JEL. J10, J12, J13, J16, J21, J22.