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The changing impact of parenthood on earnings inequality

Family earnings inequality in the U.S. has for decades been on a steep upward trajectory (McLanahan 2004; Martin 2006; Western, Bloome, and Percheski 2008; Wodtke 2014). Family processes play an important role in shaping this inequality. One stream of work addressing these family processes points to the growing contribution of single-parent families to increases in income inequality (Martin 2006; Western et al. 2008). Another stream focuses on income dynamics among couples, showing that increasing economic similarity of spouses has contributed to inequality (Schwartz 2010; Gonalons-Pons and Schwartz 2017). In new work, Gonalons-Pons, Schwartz, and Musick (2021) further demonstrate that, in recent decades, changes in couples’ earnings following parenthood have been the key driver of this increase in couples’ economic similarity. Wives have become more likely to remain employed after parenthood, while husband’s labor supply following parenthood has remained largely unchanged.

In this paper, we show that increases in partnered women’s work attachment following parenthood have had an important impact on earnings inequality in the last thirty-five years. We use a novel approach to demonstrate how parenthood effects on earnings among partnered women play into aggregate earnings inequality. This approach advances the literature in three key ways: First, it provides a more direct link between individual-level changes and aggregate-level processes and thus allows for a more precise accounting of aggregate trends in inequality. Second, it shows how parenthood effects on earnings inequality depend on the households’ position in the earnings distribution. The insight developed here is that even if the effects of parenthood are similar by economic position, the consequences for aggregate inequality will not be (Shen 2021). Third, it distinguishes between inequality within and between income groups. We will expand the current focus on parenthood among married and cohabiting women to include unpartnered mothers in subsequent analyses.

Employing this approach, we show that the current level of household inequality as measured by the squared coefficient of variation is about 4 percent higher due to the changing impact of parenthood since 1985. The parenthood effect has increased both inequalities within and between low-, medium-, and high-income households. The decomposition by economic position indicates that the rise in between-group inequality is largely attributable to high-income households earning more following childbirth than three decades ago. The rise in within-group inequality, by contrast, is attributable to greater variance in earnings responses to parenthood among low-income households than in 1985. While the overall impact of parenthood has increased, we also find that recent changes in inequality are increasingly determined by factors other than parenthood.

As part of this project, I am developing the R package “ineqx” to model inequality.