International Differences in the Family Gap in Pay: The Role of Labor Market Institutions

Daniel Fernandez Kranz, Saint Louis University Madrid

Labor market policies that reduce wage dispersion have an ambiguous effect on the family gap since on the one hand these policies increase the relative wage of mothers but on the other may lead to more frequent and longer spells out of employment around childbirth. Using microdata for 35 countries over the period 1985-1994-2002 we find that more compressed male wage structures are weakly associated to a lower family gap. Reduced-form specifications indicate that labor market policies that help women continue in the same job after childbirth, such as parental leave, job protection against dismissal and restrictions to the use of temporary contracts by firms, decrease the family gap, with a particularly strong effect for job protection against dismissal. We also find that policies traditionally associated to more compressed wage structures, such as unemployment insurance, the minimum wage and collective bargaining coverage are associated to a higher family gap. Of all the countries we study mothers in Southern Europe suffer the biggest family gap and our analysis indicates that this is due to the bad combination of labor market policies in these countries. Overall, we take these results as suggesting that the main reason mothers lag behind other women in terms of earnings is the loss of accumulated job market experience caused by job transitions around childbirth.

Date: 07 November 2006