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Forgone income and motherhood: What do recentBritish data tell u?HUGH DAVIES , HEATHER JOSHI & ROMANA PERONACIPublished online: 09 Dec 2010.

To cite this article: HUGH DAVIES , HEATHER JOSHI & ROMANA PERONACI (2000) Forgone income and motherhood: Whatdo recent British data tell u?, Population Studies: A Journal of Demography, 54:3, 293-305, DOI: 10.1080/713779094

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hours, and pay parameters observed in 1980 arefrozen in perpetuity. We now ask if the relevantparameters have in fact remained stable. Dorelationships between variables observed in the mid-1990s resemble those we took from 1980? If not,what do the new parameters imply for the estimatesof lifetime earnings and forgone earnings caused bymotherhood? Do these still suggest inadequacy ofpension, divorce, and daycare policies? Is thereevidence of increasing polarization between highskilled and low skilled women in the extent to whichemployment and childrearing are combined? Hasthe distribution of the earnings opportunity cost ofchildren between the two parents and the statechanged, and for whom?

There have been a number of indications thatMrs Typical (our central case of a British motherwith middle-level qualifications) was becomingrather out of date. In the archetypal biography, themother stayed out of the labour force while herchildren were under school age, but since 1980 therehas in fact been a spectacular increase in theproportion of British mothers of children underfive who have paid work. It was 28 per cent in 1979,30 per cent in 1985, 43 per cent in 1991, and 49 percent in 1995 (General Household Survey). Rates offull-time employment grew from six per cent in1979 to 16 per cent in 1995. The growth in theproportion of mothers employed full time since themid 1980s has been particularly associated withcontinuous employment following maternity leave(Callender et al. 1997). The proportion of womenwho had been employed during pregnancy whowere actually in work nine months after the birth

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I N T RO D U C T I O N

In data on the lives and employment of Britishwomen in 1980 several relationships were clearlyapparent. Motherhood reduced women’s participa-tion in the labour market and often confined themto part-time jobs. Hourly earnings were lower inpart-time jobs and lower for those with interruptedemployment than for those with a more continuouswork history. Over a lifetime, therefore, motherswould earn less than childless women throughhaving fewer years of earnings, lower hours of workwhen employed, and lower rates of pay. Estimateswere made of the forgone earnings of a hypotheticalmother with various numbers of children (Joshi1990). On this reckoning, the typical mother of twochildren earned only about half as much as shewould have done if employed from the age of child-bearing to retirement, the missing half representingthe earnings opportunity cost of motherhood.

Our models were subsequently elaborated toencompass women with a range of educationallevels, and to simulate the effects of taxes, pensionsand pension contributions, and the pooling of netincome costs with a spouse. The models were appliedto the economics of fertility, of divorce, and ofdaycare. The results were compared with analogoussimulations for other European countries. In TheTale of Mrs Typical, Joshi, Davies and Land (1996)summarize a number of other papers on thesetopics, including papers by Davies and Joshi (1992,1994, and 1995, and Joshi and Davies 1992).

The lifetimes simulated in all this previous worktake place in a time warp where the participation,

Forgone income and motherhood: What do recentBritish data tell us?

HUGH DAVIES, HEATHER JOSHI, AND ROMANA PERONACI

Abstract. Children affect women’s opportunities in the labour markets of most advancedcountries in three ways: an immediate effect on employment, and effects on longer termearning power and pension coverage. This paper quantifies these impacts on women’s lifetimeincome for hypothetical illustrative British cases. New results, based on data collected duringthe 1990s, are compared with estimates from 1980. Although childrearing and employmenthave increasingly been combined over the period, the estimated loss of gross earningsassociated with motherhood remains substantial. It still amounts to around half potentialearnings post childbirth for less qualified sections of the British female labour force, but hasbecome smaller for highly qualified women. The paper examines the effect of the tax/benefitsystem on the costs, and makes some assumptions about the distribution of net costs betweenmothers and fathers. It also shows how far motherhood jeopardizes financial security in oldage, particularly for the least qualified.

Population Studies, 54 (2000), 293–305Printed in Great Britain

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was 25 per cent in 1979, 45 per cent per cent in 1988,and 68 per cent in 1996. Although public provisionof daycare remains low by most internationalstandards, the use of privately purchased childcaregrew rapidly in the 1990s (Finlayson et al. 1996).The qualification level of British women hascontinued to improve relative to men, and relativerates of pay for identically qualified and expe-rienced men and women have also improved (Joshiand Paci 1998; Davies et al. 1998). While the payoffto increasing employment experience has risen alittle in the wages of women in full-time work, thepay penalty of part-time employment hasworsened. The log premium to full-time employ-ment in 1980 was reported by Ermisch and Wright(1992) at 0.15 for the average married woman; ourestimate for 1994 is 0.30 (for partnered women,using parameters estimated over all women –Davies et al 1998). This widening gap between thefull-time and part-time wages of women is part ofthe process of increasing wage dispersion in a lessregulated labour market (Hills 1995). Men’searnings too have become more dispersed anduncertain, though their wives’ labour forceparticipation seems to have become less affected byhusbands’ income. Many of these developmentswould tend to increase the proportion of Britishmothers who stay in the labour market while theyraise children. Some of the developments in wageswould have increased the cash forgone by notearning, particularly not earning full-time. Oursimulations with new parameters, estimated withdata from the British Household Panel Study up to1994, explore how far, and for whom, the picturehas changed.

The plan of the paper is as follows. The nextsection (1) gives a brief introduction to the newparameter estimates and the method of simulatingillustrative lifetimes. Section 2 presents some of thelifetime participation profiles simulated for a rangeof women on the basis of parameters for the 1990s.Section 3 converts these profiles into lifetime grossearnings, and Section 4 focuses on the earningsforgone as a result of motherhood. The distributionof the net earnings costs of motherhood isexamined in Section 5, which takes into accounttransfers of earnings within the couple and to thestate as well as into old age provision. The pensionconsequences of children are reviewed in Section 6,and conclusions are discussed in the final section.

I. M E T H O D A N D A S S U M P T I O N S

Our simulation model generates the lifetimeearnings of illustrative people from econometric

functions and then applies tax, benefit, and pensionrules to these simulated gross earnings. In this sectionwe briefly describe the elements of the model.

Participation and earnings

The participation and earnings functions wereestimated with data from the British HouseholdPanel Survey (BHPS). The data were drawn fromWave Four of the BHPS (mostly collected in thefourth quarter of 1994), though supplemented byhistorical data from earlier waves. The estimatedequations are given in the Appendix to Davies andJoshi (1999).

Wage equations are based on standard humancapital specifications, with educational attainmentmeasured by dummy variables rather than years ofschooling. For men, the effects of (actual) employ-ment experience on wages were modelled by twoquartics – one for those with only school-leveleducation, and another for those with post-schooleducation. (This specification is closely related tothat employed in Davies and Peronaci 1997). Forwomen, separate equations are fitted for earnings inpart-time and full-time employment. Sampleselection effects are modelled via a reduced-formmultinomial logit which includes family structurevariables. In all other respects, the full-timeearnings equation for women has a specificationsimilar to that employed for men. For women’spart-time earnings, a linear term in full-timeexperience was found sufficient. Experience in part-time work was found to be not significant inexplaining women’s wages (see Davies, Peronaci andJoshi 1998). This contrasts with estimates from the1980 Women and Employment Survey (Ermischand Wright 1992 and 1993) which underlay ourearlier estimates of forgone earnings. Time out of employment measures very different things formen and women: for men, it primarily reflectsunemployment, whereas for women it mainlyreflects time spent in domestic work (principallychildcare). The median length of time out ofemployment for men in the wage regression sampleis about four months, whereas for women it is aboutfour years. The current estimate of the effect of timeout of employment on women’s wages is very similarto that estimated by Ermisch and Wright (1992 and1993). In the equations used here, a year out of full-time employment produces a decay in the full-timewage of about 1.35 per cent, which may becompared with an estimated 1.15 per cent using the1980 data. The estimated decay in the part-timewage is much smaller in both cases – about 0.03 percent in 1994 and about 0.045 per cent in 1980.

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The labour force participation of women ismodelled by a multinomial logit for which theoutcomes are ‘not employed’, ‘employed part-time’,and ‘employed full-time’. The specification allowsfor considerable detail in the way the number ofchildren and their ages (especially the age of theyoungest child) affect participation. The effect ofearning power on participation is captured by thewage in full-time work predicted by the equationdiscussed above. This specification contrasts withthat used earlier, where the measure of earningpower employed did not vary over the lifecycle. Thepresent specification allows a woman’s own non-labour income and her partner’s net income toaffect her participation differently, and thereforedoes not impose the assumption of income-poolingwithin the family.

A woman is assumed to participate when herprobability of doing so is greater than 0.5. Hours ofpaid work depend on sex, occupational grade, andwhether the employment is part-time or full-time.For the part-timers, hours are assumed to increasewith the probability of full-time relative to part-time employment (our investigations of hours ofwork having shown these not to be very sensitive toeconomic variables within the full-time and part-time sectors). Men are assumed to be employedcontinuously. All the econometric equations wereestimated on the assumption that decisions aboutfertility were exogenous.

Words of caution

A few words of caution about the method are inorder. It imparts some upward bias in our mainillustrative biographies if these are compared toactual participation rates for mid-age to olderwomen in the 1990s. This is due to threeassumptions we make in order to constructscenarios. One is the ‘first past the post’ decisionrule that anyone with a probability of employmentof over 50 per cent is counted as employed, eventhough she might have a chance of up to 49 per centof being out of paid work. The application of thisrule can, secondly, generate a cumulative upwardbias as simulated employment experience feeds intothe next period’s imputed wage, in turn raising theprobability of being counted as employed. Thirdlywe have made the simplifying, but unrealistic,assumption that there are no sources of absencefrom a job other than childrearing (and derivedwage effects). Thus any scenario with sickness,unemployment, elder care etc. would have loweremployment probabilities than any of our illustra-tive people. This would affect earnings and pension

in a scenario for women without children as well asfor mothers. Though these assumptions are obvious-ly boosting lifetime incomes, their effects on thecosts of motherhood are not obvious, and could goeither way or be neutral. It would be desirable toextend the model to simulate a distribution ofindividuals not just ‘illustrations’, but doing so insuch a way that one can be confident that the resultsaccurately represent even a single birth cohortwould be a major undertaking.

We must emphasize that our illustrative peopleare not representative of everybody. They are notan average. The mechanisms involved are toocomplicated to generate an average, withoutgenerating a whole population of thousands ofindividuals. It should be borne in mind particularlythat our scenarios do not cover checkeredemployment histories, and that many people wouldhave lower lifetime earnings than the central casepicked here; others, perhaps not so numerous,would have higher life-time earnings.

The individuals

Our simulation model allows for three occupationallevels, determined by educational attainment variables. Our central figure has some formalacademic qualifications (Ordinary levels – obtainedin secondary school but insufficient for universityentry) and works in a clerical occupation – think ofher as a secretary. We compare her with a graduate(perhaps a teacher), and another woman who leftschool with no qualifications and takes only low-skill jobs, such as a shop assistant. We also created ahusband for each woman. The husband has someeffect on the woman’s gross earnings, since, ceterisparibus, a woman is less likely to participate thebetter paid is her husband (but only to a smallextent in these estimates). More importantly,however, the husband’s earnings will affect thepossibility of income redistribution within thepartnership and the widow’s pension the womancan expect.

In this exercise we concentrate on couples inwhich both partners are in the same skill band,though we also include the case of a man in a high-level occupation married to a woman in a low-leveloccupation, a combination which is becoming lesscommon as women’s skill levels increase insuccessive cohorts.

There are four types of fertility history in thesimulations: married women with no, one, two andfour children. A woman marries at age 20, 22 or 24,depending (positively) on her occupational level. Ifshe has two children, one is born three years after

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marriage, the other three years after that. If she hasfour children, the first arrives two years after themarriage, and the others at two-year intervals.Although these marriage and fertility assumptionsare rather out of date from the perspective of thelate 90s, we keep them unaltered from previouswork to facilitate comparisons. In each case theman is assumed to be two years older than his wife.The marriages studied here are lifelong partner-ships: even today, 60 per cent of marriages inBritain are not expected to end in divorce. Men areassumed to live up to age 78, and women up to age81.

Our emphasis on partners who are equallymatched educationally is not too much at variancewith the pattern of partnership in Britain in the1990s. A wide sample of partnered women from theBHPS Wave 4 showed that about half had the sameeducational level as their partners, and in 30 percent of cases the men were more highly qualifiedthan the women. For women under 35, almost asmany of them (25 per cent) had the higherqualification in the couple as vice versa. Cases ofthe woman being more qualified than her husbandare no longer rare (although we have not simulatedany such case here). Among the equally matchedcouples with wives under 35 in the BHPS survey,about two-fifths each had higher qualifications(university degree) and mid-level qualifications(academic qualifications gained at secondaryschool), and one fifth had low or no qualifications.

Timing

The simulations reported here take place in a timewarp, as in a lifetable. There is no inflation oreconomic growth; earnings levels are calibrated toJanuary 1998 levels. We assume that all relevant taxand benefit rates are fixed at their April 1998 levels,except as noted below. Rules for pension schemesare fixed to be those faced by someone entering thelabour force in 1998.

Institutional features

Our model calculates the major components of the(direct) tax, benefit, and pension systems as theyapply to those who do not suffer from long-termillness or disability. In particular, we include thefollowing components of the British system:

Income tax: The income tax system provides both a personal and a married couple’s allowance. Acouple can choose to split the married couple’sallowance (except for the age addition) betweenthem to minimize their joint tax liability. We assume

that the couple splits the married couple’sallowance equally, unless assigning the entireallowance to one partner would result in a lowerjoint tax liability.

Child benefit is paid (usually, and always in ourhypothetical families) to mothers of dependentchildren (here children under age 16). It is nottaxable and is paid at a higher rate for the first child.For a woman with two children it was £20.75 perweek in April 1998.

National Insurance contributions are paid only bypeople under National Insurance Pension Age, andonly on the tranche of earnings between a lowerand an upper limit.

National Insurance Pension Age: We assume acommon pension age of 65 for men and women, aswill apply to young people today. The NationalInsurance Basic Pension is paid at this age –entitlement depends on a person’s contributionhistory (or their spouse’s). Credits towards theaccumulation of the basic pension (‘homeresponsibility protection’) are granted for up to 19years in which a person is not employed but isresponsible for the care of a dependant child.

Earnings-linked pensions: It is possible to‘contract-out’ of the state earnings-related pensionscheme (SERPS) into a private pension scheme.Most of those who are contracted out are in final-salary pension schemes, contributions to which aredeductible from taxable income. We have assignedeach person a default pension type. For men thedefault is a final-salary scheme, except that low-skilled men are assumed to be in SERPS. Bydefault, women are assumed to be in SERPS exceptfor the high-skilled who are assumed to be in a finalsalary scheme. Those who are contracted out ofSERPS pay a lower rate of National Insurancecontribution. SERPS benefits are related to(lifetime) earnings between the National Insurancefloor and ceiling. In the following we count thecontributions payable in respect of SERPS aspension contributions rather than as taxes, andSERPS benefits as pensions rather than statebenefits.

When SERPS was amended in 1988, there was aplan to introduce Home Responsibility Protectionto this scheme, in lieu of the previous provision torelate pension to the Best Twenty Years earnings(see Tonge and Self (1999), chapter 21, p.33).Implementation of this aspect of SERPS requiressecondary legislation, which has not been made.Nevertheless, our simulations incorporate thisfeature of the scheme, as do the GovernmentActuary’s costings of SERPS. This provision wouldbe worth little (see below).

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Widowhood: Under both SERPS and final salaryschemes a survivor’s benefit of one-half of theprimary beneficiary’s annual pension is paid to asurviving spouse. We have not simulated the errorsmade by the Department of Social Security (in1999) which have resulted in deferral of thephasing-out of the transitional provision whereby asurvivor could inherit the whole of a spouse’sSERPS entitlement.

Maternity benefits: These are not modelledexplicitly. The remuneration of those on maternityleave is treated as earnings.

Means tested benefits: We calculate entitlement totwo of the main means-tested benefits. FamilyCredit is payable to low-income families withchildren with at least one partner in paid work.Income Support is payable in certain circumstancesto those who do not have significant amounts ofpaid employment. In the context of the otherassumptions used here, it is potentially payable toretired people with very low pensions.

It is arguable that our assumptions about pensionschemes are backward – rather than forward –looking. Defined-contribution schemes are beginningto make inroads in private pension provision at theexpense of final salary schemes. The governmenthas reviewed its upper-tier pension arrangements,and SERPS is likely to be phased out in favour ofthe new State Second Pension and ‘stakeholderpensions’.

I I . L I F E T I M E PA RT I C I PAT I O N P RO F I L E S

The upper line in each graph of Figure 1 plots thefitted probability of any employment, and thelower, dotted, line shows the fitted probability ofbeing employed full-time. Hence the area betweenthese lines represents the probability of part-timeemployment. This is based on evidence from 1994for ages 20 to 59. We extend the simulated workinglives to age 65, in view of the coming raising ofwomen’s pension age. Since women aged 60–64 nowwould be a poor guide to behaviour once the newregime was in place, we have simply extrapolatedwhatever the model predicts at age 59 to apply alsoover ages 60 to 64. An alternative procedure wouldbe to assume that women’s participation probabili-ties declined between 60 and 65 as do men’s atpresent. However, since we are assuming that menstay in employment until they are 65, introducing adeclining participation profile for women over thisage range would distort comparisons between menand women. Furthermore, we would have no basisfor assuming differential patterns of early retirementfor mothers and non-mothers. It seems unlikely

therefore that employing such an alternativeassumption would affect the forgone income costsof motherhood.

The predictions of the model have been evaluatedfor four types of woman, each of which may haveseveral family-building scenarios. The four types ofwoman occupy the four rows of Figure 1: one hasno qualifications and neither does her husband(Low-Low); the second couple, the new Mr andMrs Mid, have middling levels of education; thethird (High-High) are both graduates and the last isan unqualified woman married to a graduate man.The two columns compare a scenario in which thewoman remains childless with one in which she hastwo children. Other fertility scenarios have beencomputed, and more could be. For presentpurposes the timing of each woman’s fertility is setat the same ages used in our earlier exercise.

The column of plots for the childless womenshow that all four of them have a fairly high level oflabour force attachment over all of their workingages, particularly the women with middle and higheducation. Part-time employment is limited for themid-educated and negligible for graduates. The twolow-skilled women at the top and bottom of thegraph have a slightly lower, though still high,propensity to be in employment, though this dropsoff in late middle age, and is somewhat more likelyto be part-time. That the low-skilled woman with awell-paid husband has participation rates verysimilar to those of the low-skilled woman with alow-skilled husband illustrates the relativeunimportance of income effects on women’sparticipation. These profiles are, however, sensitiveto the wife’s earning power.

This sensitivity to earning power becomes moreapparent if we look at the trajectories ofemployment probabilities when the woman haschildren. The child-rearing years are associatedwith a deep trough in the chances of beingemployed for the two less well qualified types ofwomen. These display the bimodal pattern whichbecame common in many countries in the post-warperiod (Organisation for Economic Cooperationand Development 1988). They also involve a rela-tively high probability of part-time employment,among those employed, once the woman becomes amother, and even after the children are no longerdependent. The probability of being employed(especially full-time) recovers rather faster for thecentral case than for the low-skilled women. At theother end of the skill scale, the graduate woman’sprobability of employment is hardly perturbed bybearing two children (at the somewhat later ages of27 and 30). Although this simulated participation

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pattern is the ‘most popular’ here, the estimatedprobabilities suggest that about a quarter of thegraduate mothers of two take only part-timeemployment between the births, and that about aquarter to a third may take part-time employmentfor five years after the two-year break.

The low-skilled mother of two (with a low-skilledhusband) has nine years when her probability ofemployment falls below 50 per cent. This increasesto 15 years if she has four children, but happens inonly four years if she has just one child. For MrsMid, the probability of participation drops below

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Figure 1. Simulated participation probabilities by age for women in Britain: Childless women and mothers of two at various skills.Notes: Low-Low: both have low skills (no formal educational qualifications). Mid-Mid: both partners have mid-level skills (Ordinarylevels – academic qualifications gained at school but insufficient for university entry). High-high: both partners have high-leveleducational qualifications (university degree). High-low: man has high level qualifications, woman has low-level qualifications (both asdescribed above). Proportion employed: proportion employed full-time plus proportion employed part-time (not shown separately).Source: authors’ calculations from simulation model based on the British Household Panel Survey data for 1994.

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50 per cent for five years if she has two children. Ifshe has four children, there are twelve years whenshe is more likely to be non-employed thanemployed. Having two children rather than oneincreases the number of years when employment ismost likely to be part-time from ten to 20. Thegraduate mother is always more likely than not to beemployed, even if she has four children. Here thedifference comes in the number of years when part-time employment is more likely than full-time: noneif she has one child, two if she has two children (asin Figure 1), and seven if she has four children. It canbe seen from Figure 1 that both the profiles for theunskilled women run close to 50 per cent more oftenthan do the others. The latter therefore generatemore secure indicators of one representative or‘typical’ individual than do cases where almost asmany participate as do not, and vice-versa.

Overall, these new simulations reflect the upwardshift in the propensity of British women to be inpaid work, even when they have young children.The lowest skilled are least affected by these trends,and their labour force attachment may even havedeteriorated since 1980. In data collected retrospec-tively in 1991, Dex et al. (1996) detected the growthin the labour force attachment of highly educatedwomen (also noted by Corti and Dex 1995, Daleand Egerton 1997, and Hakim, 1996). This led tothe suggestion that differential maternal employ-

ment propensities were leading to a polarization, or‘widening gulf’ in family incomes. This polarizationwas also detected among women aged 30-35 in ouranalysis of the Family Expenditure Survey (Daviesand Joshi 1998). It seemed on the basis of 1991 datathat the highly qualified were leaving the restbehind, and this impression is confirmed by thesimulations reported here. This polarization is notas extreme as that observed in France (Dex, et al1993) and simulated for that country by Davies andJoshi (1994).

I I I . WO M E N’S L I F E T I M E E A R N I N G S

Our illustrative individuals were assumed to be inemployment for any year in which the probabilityexceeded 50 per cent, and were assumed to beemployed full-time or part-time according towhichever of these had the higher probability. Thisgenerated a set of employment histories, withearnings each year set by the parameters of thehourly earnings functions, and by hours of work.The results appear in Figure 2, showing theearnings trajectories of the four types of womanwith zero, one, two, and four children. Long breaksin earnings are apparent for most of the low-skilledmothers. Mothers of four in all types have morepart-time employment than those with fewerchildren. The mid-level mother of two (and one)

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Figure 2. Earnings profiles for childless women and mothers in Britain, at various skill levels.Notes: Vertical scale differs between panels. Earnings are in 1998 pounds. See also notes to Figure 1.

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loses earnings relative to her childless counterpartmainly through spells of part-time work. Once shereturns to full-time work her earnings do not takelong to catch up. The same goes for the graduatemothers, though the period of reduced earnings isshorter. Note that the vertical axes of Figure 2 areon different scales. The mid-level earnings profile isonly modestly above and steeper than that of thelow-skilled (levelling off at £14,000 per annum 1998prices for a continuously full-time employed worker,compared with £11,000 for the least skilled). Thegraduate earnings profile, by contrast, soars tomore than double (£29,000). This is a widening gulfbetween the highly educated and the rest comparedto our simulations for the 1980s. We suggested thatthe ‘typical’ graduate simulated here might be ateacher: the earnings peak (at 50) is not implausiblefor a continuously-employed teacher at 1998 salarylevels – it is close to the bottom of the pay scale forhead teachers, or what might be earned by aclassroom teacher with points for responsibilitiesand excellence (Department for Education andEmployment 1998).

I V. M OT H E R’S F O RG O N E E A R N I N G S

The areas in the graphs in Figure 2 between the linefor the childless woman’s earnings and those of thevarious mothers represent the earnings forgone as aresult of responsibility for children, because thewomen being compared are otherwise identical.The closer the lines, as for the High-High couple,the less the earnings forgone; the bigger the gap, asfor the low-skilled woman, the bigger the sumforgone. The (undiscounted) totals represented bythese areas are shown in Table 1. In the central case,the mother forgoes £257,000, or 47 per cent of herearnings, after the age of childbearing. This isremarkably close to our earlier estimate for asimilar woman with a 1980-style participationprofile, whose forgone earnings for two childrenamounted to £258,000 at 1998 prices. A similarabsolute sum is forgone in the present estimates bythe woman with two children in a low-skilledcouple, but represent a higher proportion of herlifetime earnings. This is a higher cash sum than theearlier estimate but, as for the mid-skilled woman,represents a lower fraction of potential earningsafter the first birth. The low-skilled and mid-skilledwomen who have four children are estimated toforgo both higher cash sums and higher percentagesof their potential earnings in these estimates than inour earlier ones. For the graduates, the estimates offorgone earnings have come down – to nil in thecase of the woman with only one child. Her lifetime

earnings have been unperturbed by the simulation,which does not preclude her having taken paidmaternity leave. The graduate mother of twoforgoes £39,000, amounting to just four per cent ofher potential earnings after motherhood, ascompared to 18 per cent in the 1980 simulations.

The loss of earnings arises from lost years ofwork, fewer hours when in employment, and lowerpay. Lower pay is due both to lost experience andthe lower rates of pay associated with part-timework. These components are also shown in Table 1.For the graduate, there is no longer any componentfor lost years in 1994, since she maintainscontinuous employment. The major source of anylost income is the reduced hours involved in workingpart-time rather than full-time. Rates of pay are alsoreduced, owing rather more to loss of full-timeexperience than to the operation of the part-timepenalty. For the mid-skilled mother of two, there isalso some sign of increased employment in the1990s. In the 1980 simulation she would have takenan eight-year break between first birth and re-entry,but in the 1994 simulation the break is for five years.Hence 22 per cent of the earnings lost in the 1994simulation is a consequence of lost years, comparedto 34 per cent in the 1980 simulation. The rest of the1994 forgone earnings are 41 per cent owing to fewerhours, 31 per cent owing to less experience and sevenper cent owing to lower pay in part-time work.Breaks in earnings account for a larger fraction ofthe total earnings loss among the low-skilledwomen than the other groups, but the lower hoursof part-time work account for the biggest fractionof the lost earnings among all groups.

In the old estimates for the central case, the mid-skill mother of two spread her earnings lossesalmost equally over lost years, lost hours, and lostpay. Now the lost years account for under a quarterof the total, with lost hours now accounting forover 40 per cent, and a smaller increase in thecomponent resulting from lost experience. Thisdecrease in the lost years component is evident inthe other cases also, reflecting rising employmentparticipation rates of mothers with young children.Roughly speaking, the reduction in the lost yearscomponent and the increase in the lost hourscomponent are greater for women with higher levelsof education. The part-time penalty has remained asmall fraction of the total. The small size of thepart-time penalty may be surprising, in view of thedifferential between hourly pay in part-time andfull-time work – over a whole lifetime. However, thenumber of hours subject to the part-time penalty isa relatively small fraction of the total.

The payoff to experience is higher in the 1994

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model than in the 1980 version. This results in anincreased component attributable to lower pay fromlost experience for the mid-skilled and less skilledwomen. Although the university-educated womenexperience the greatest increase in the return toexperience in their pay, the component of lost payattributable to lost experience goes down, becauseso little time is spent out of the labour force.

Another contrast with the previous estimates isthe changed relationship of total costs with

numbers of children. It is only in the case of thelow-skilled woman married to the high-skilled manthat there is still a sharply diminishing marginalcost in moving from smaller to larger numbers ofchildren. For the low-skill woman married to thelow-skill man and for the mid-skill woman, themarginal cost falls only slightly. For the highlyeducated woman, however, the marginal costsincrease sharply – the earnings lost by going fromtwo to four children are more than four times the

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Table 1. Forgone earnings cost of motherhood in Britain: illustrative couples, by number of children and skill level

1994 Estimates 1980 Estimates

Number of children 1 2 4 1 2 4

Low-skill coupleForgone earnings

£ ‘000s, 1998 earnings levels 176 255 402 161 202 234As per cent of potential earnings after 1st birth 40 58 89 49 62 70

Composition of loss: percentage due to: 0 0 0lost years 20 31 30 28 35 40lost hours 48 37 35 49 41 35lower pay, due to:lost experience 29 31 35 23 23 26part-time penalty 2 1 0 1 0 0total, lower pay 31 32 35 23 23 26

Mid-skill coupleForgone earnings

£ ‘000s, 1998 earnings levels 140 257 460 196 258 318As per cent of potential earnings after 1st birth 26 47 82 42 55 67

Composition of loss: percentage due to:lost years 16 22 26 28 34 36lost hours 47 41 36 40 34 31lower pay, due to:lost experience 31 31 37 27 27 29part-time penalty 5 7 1 5 5 4total, lower pay 37 37 38 32 32 33

High-skill coupleForgone earnings

£ ‘000s, 1998 earnings levels 0 39 169 72 170 320As per cent of potential earnings after 1st birth 0 4 16 8 18 34

Composition of loss: percentage due to:lost years n/a 0 0 51 43 47lost hours n/a 53 63 0 10 4lower pay, due to:lost experience n/a 29 32 49 46 49part-time penalty n/a 18 5 0 2 0total, lower pay n/a 47 37 49 47 49

Mixed-skill couple (Man high; Woman low)Forgone earnings

£ ‘000s, 1998 earnings levels 190 334 401 164 192 220As per cent of potential earnings after 1st birth 44 78 92 57 67 74

Composition of loss: percentage due to:lost years 23 26 32 44 50 53lost hours 46 40 34 33 26 22lower pay, due to:lost experience 29 33 35 23 24 25part-time penalty 2 1 0 0 0 0total, lower pay 31 34 35 23 23 25

Source: author’s calculations from simulation modes based on data from Women and Employment Survey (1980 estimates) and fromthe British Household Panel Survey (1994 estimates).

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change between one and two. Thinking only of thiselement of the costs of adding to existing families,Britain seems to be moving away from arrangementswhere there are economies of scale in raisingchildren at home in their pre-school years, but thisdoes not apply evenly across the social spectrum.

V. D I S T R I BU T I O N O F T H E E A R N I N G S C O S T S

Although the earnings which the mother forgoeswould have been earned by her efforts, the costs offailing to earn them do not fall entirely during theyears she is of labour force age, and they do notentirely fall on her. Insofar as earnings-relatedpensions are reduced by motherhood, the mothermay be affected by having less pension in retirement(as well as by having had to make fewer pensioncontributions from her earnings). She will also beinvolved in transfer payments each year, to or fromthe state through taxes and benefits, and, if herpartner pools his income, within the family. If thenet marginal rate of tax less benefit is around 33 percent, and all family income is split, then everypound not earned by a mother will have anincidence which is roughly split in three equalportions between herself, her partner, and the state.This was another threefold division we found in theold estimates, at least in the central case (see Table2). We found that the state’s share increased withthe number of children (reflecting its contributionof Child Benefit) and with the income level of thefamily. Families with higher incomes paid higherrates of tax and so the government lost more whenthe woman did not earn, while Child Benefit was ahigher proportion of the lower lost earnings forthese families.

The 1990s estimates shown in Table 2 also showthis neat three-way split for the low-skilled and mid-skilled couples with one or two children. Coupleswith four children get less help (proportionally)from the state (except for the high-skilled). In thecase of graduates in the 1990s simulation, thecontribution of the state has gone up to 79 per centfor two children and 48 per cent for four. Theseresults reflect the fact that total lost earnings havebecome quite small for the higher paid, and soChild Benefit is large relative to earnings forgone.Furthermore, because the better paid women payhigher average tax rates on a year’s earnings, anytime they do take out of the labour force is moreexpensive for the state than is the time of low-skilled women. The contributions of the man andthe woman are nearly identical, but not quite. Weassume there is complete pooling of revenue whileboth are alive, but we also assume that the woman

outlives the man and therefore spends some yearsexperiencing a reduced pension without being ableto split the deficit with her now deceased spouse. Tothe extent that the marginal pound earned by awoman is not put into a family pool (and ourparticipation estimates suggest it is not), the splitbetween man and woman can be assumed to takedifferent values, which we have not so far explored.If there has been a shift away from family transfersspreading the net earnings costs of motherhoodbetween men and women, as Folbre (1994) suggests,women’s apparent gains might have to bereconsidered. It is also worth noting that greatercontinuity of employment involves other costs,notably those of providing maternity leave andchildcare. We have not attempted to quantify eitherof these, but some of them may fall on theemployer. Many people believe that the privatecosts of purchased childcare fall disproportionatelyon mothers.

V I . T H E P E N S I O N C O S T S O F C H I L D B E A R I N G

In this section we take a closer look at the deferredpart of these hypothetical earnings streams: thatpart of the pensions related to the woman’s owncontributions. The impact of children on pensionsis particularly interesting in the context of concernabout whether there will be enough contributors inthe next generation to finance pay-as-you-goschemes in the new century. How far pension isindeed reduced by motherhood depends not onlyon how far earnings are reduced, but also on howfar pension schemes are designed to give credit fortime spent on unpaid caring duties. The HomeResponsibility Credits provided in the British statesystem ensure that most of the mothers in ourexamples do not sustain any loss of the basic statepension from this source. There is a second tier ofearnings-related pensions, either from the privatesector, which may be final salary or defined-contribution schemes, or, by default, the state. Inthese examples, both the mid-skilled and low-skilled woman are assumed to be covered bySERPS, and the graduate woman to be in a final-salary type of occupational pension. This isassumed to count years in part-time employment aspensionable, although until a recent EuropeanCourt judgement, they seldom were (exceptpossibly for teachers and some other groups).Personal pensions or other defined-contributionschemes, though becoming more common, are notrepresented in the present examples.

As discussed above, our version of the SERPSrules includes some protection for home

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responsibilities, although this aspect of the schemehas (apparently) been abandoned. Our mid-skillmother of two would lose 25 per cent of hersimulated £1,200 per annum SERPS if thisprovision is never introduced. Mothers of four(whether low-skill or mid-skill) would lose 45 percent of their very small SERPS entitlements (£150and £420 per annum respectively).

Table 3 shows that Mrs Mid can expect 35 percent less pension than her childless counterpart,reflecting the earnings differential (47 per cent of allearnings after age 25 or 42 per cent of lifetimeearnings). The credits we have assumed to beimplicit in SERPS do not give much benefit becausethe entitlements are so low. Paradoxically thewomen given a pension scheme with no concessionsto motherhood, the graduates, lose even lesspension than earnings, if indeed they lose any ofeither. A graduate mother of four is estimated toforgo eight per cent of her pension and 15 per centof her lifetime earnings. There is a curious case inthe graduate mother of two who reduces her

lifetime earnings by three per cent but suffers no cutin pension relative to the woman with no (or one)child. This is because we assume (in line withcurrent tax law) that the maximum final-salarypension is two-thirds of the final salary – attainableon 40 years’ reckonable service with the industrystandard pension fraction of one-sixtieth. Thus, thetwo years part-time work which she is simulated totake when her children are young do not affect thereckonable years for her pension, and her finalsalary has itself recovered from the consequences ofthis discontinuity by age 64.

The pension costs of motherhood were greaterfor the middle skilled and high skilled cases in theprevious estimates than in the current estimates,largely because the earnings costs were greater.While the new estimates suggest that the highlyskilled women suffer no pension loss (or a relativelysmall one if they have four children), there remainsa strong tendency for the least skilled women tohave relatively small pension entitlements if theyhave children. Concern about female poverty in old

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Table 2. Who pays revenue cost of children in Britain? Percentage of labour market income1 by number of children and skill level

1994 Estimates 1980 Estimates

Number of children 1 2 4 1 2 4

Low-skill coupleWoman 36 36 37 36 35 32Man 36 36 38 36 35 34State 28 28 25 28 30 33

Mid-skill coupleWoman 34 34 34 34 34 32Man 34 34 35 34 34 32State 33 33 31 31 33 36

High-skill coupleWoman n/a 10 27 29 31 32Man n/a 10 25 28 28 28State n/a 79 48 43 40 40

Mixed-skill couple (Man high; Woman low)Woman 36 37 38 36 36 35Man 38 38 40 38 38 37State 26 25 22 25 26 28

1 Labour market income is defined as wages plus earnings-linked pensions minus contributions to those pensionsSource: As Table 1

Table 3. Pension costs of children in Britain by number of children and skill level as percentage of childless wife’s earnings-linked pension

1994 Estimates 1980 Estimates

Number of children 1 2 4 1 2 4

Low-skill couple 30 43 89 48 63 74Mid-skill couple 14 35 78 30 43 61High-skill couple 0 0 8 2 13 26Mixed-skill couple (Man high; Woman low) 29 77 88 58 66 73

Note: these illustrations assume that low skilled and mid skilled women are in SERPS, high skilled in final-salary pension schemeSource: as Table 1

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age could be suspended if women will have access tobetter pensions held by husbands and extended tothem as widow’s pensions, but their own resourcesfor old age look meagre. On this reckoning, it is thelow earners who would be most financiallyvulnerable in divorce, in the long term as well as theshort.

It seems that one way to ensure that mothers donot sacrifice pension rights is to make sure they donot sacrifice their own earnings. On the other hand,those who earn less in order to take care of theirchildren incur long-term costs, potentially leadingto a position of vulnerability or dependency whichstill needs to be recognized and understood.

V I I . C O N C LU S I O N S

Highly qualified women in Britain now appear to beeven more attached to full-time employment thanthey were more than a decade ago. Most women ofmiddle-level earning power are now also more likelythan not to be in the labour force (though on a part-time basis) during most of the years when they haveyoung children. Those of lesser earning power donot appear to have increased their attachment to thelabour force during the child-rearing years bymuch. Our method of simulating the lifetimeearnings of illustrative individuals suggests that theearnings costs of motherhood have gone down forwomen of high earning power and have gone downor stayed about the same for women of middleearning power depending on whether they have oneor two children. For the least qualified they havetended to go up. This adds new evidence to thatfrom a number of other sources that the experienceof employment after child-bearing is becomingpolarized. Motherhood is no longer the socialleveller it was, since the earnings of two-earnerfamilies will tend to grow relative to families withonly one breadwinner, who is increasingly likely tobe less well paid himself.

Maternity leave became more widespread inBritain between 1980 and 1994. The sample ofwomen observed while on maternity leave wassmall, even in our 1994 dataset, in which only about30 women reported themselves as on maternityleave (and were coded as employed) at the date ofinterview. In addition to the growth of maternityleave, other practices have been changing.Employers have been introducing various ‘familyfriendly’ practices, particularly for the benefit ofmore skilled workers (Forth et al. 1997). Theincreased use of childcare runs parallel to theincrease in career continuity. Those who can affordthese largely private childcare arrangements seem

to be making them (though informal childcarearrangements are still very common particularly formothers with part-time jobs). The indirect costs ofmotherhood are being transformed, for morewomen, into the direct costs of daycare. The modelof purchased childcare as an intervening factor inthe relationship between women’s employment andfertility (Ermisch 1989) is becoming increasinglyrelevant in Britain.

The sources of earnings loss have changed sincethe 1980 model and become more differentiated bytype of woman. In particular, the graduates are nowsimulated to have no earnings break. The increasein the pay penalty of working part-time has notplayed a major role in the simulated earnings gaps,as less part-time employment is simulated. On thedistribution of the costs of earnings reductions, westill find the threefold division between herself,her husband, and the state we found for the mid-skilled woman of 1980. Since the high-skilledwomen earn more, and forgo less through child-rearing, the fraction lost in taxes (and thus ‘borneby the exchequer’) increases. There are long-termconsequences of motherhood in reduced pensionrights, but the effects are also strongly sociallydifferentiated (at least on our pensions assumptions).High earners forgo even less pension than earnings,while low earners sacrifice a large portion of theirlesser pension rights, and face old age on verydifferent terms than do the higher paid.

We have done nothing here to allow for thepostponement of fertility which introduced anotherelement of change between the 1990s and the 1980s.Our model predicts that wages, and hence the costof leaving employment, will be higher at later ages.If non-graduate women have children in their latetwenties or thirties, this will tend to induce them tofind ways of combining motherhood and paid worklike the graduates; later childbearing goes withsmaller earnings costs. Such scenarios are the subjectof current investigation. The simulations suggest thatBritain is becoming one of those countries where thenumber of children rather than the age of theyoungest is the most important predictor of labourforce participation. Although this does not applyacross the board, it may have implications forprojections of the labour force as well as of fertility.We have not introduced divorce into thesesimulations because the observed non-participationof divorced mothers in the labour force reflects abenefit and childcare trap which is currently underreview. So too are schemes for splitting pensionentitlements after divorce. Further work could bedone on the model to make it useful forinvestigating these policy options.

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N OT E S

Hugh Davies is at the Department of Economics, BirkbeckCollege, London; Heather Joshi is at the Centre for LongitudinalStudies, Institute of Education, University of London, andRomana Peronaci is at the European Central Bank, Frankfurt.We are grateful to the Leverhulme Trust for supporting thisresearch, under the project ‘Living Arrangements andLivelihoods over the Life Cycle’ (grant F/353/G), and to the EssexData Archive for access to data from the British Household PanelSurvey. Romana Peronaci’s contribution to this work wascompleted while she was employed at Birkbeck College. Theviews expressed here do not represent those of the ECB.

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