Exits from the workforce, not gender, at heart of 'unexplained' wage gap
Motherhood leads to significant wage losses for working women, according to a new report.
This motherhood gap in wages largely occurs because of wage penalties women experience each time they exit and re-enter the workforce for a maternity leave, found Career Interrupted: The Economic Impact of Motherhood.
"Previous studies on wage differences by gender have found that roughly half of an observed 20 per cent gender gap cannot be explained by the usual factors that drive wages, such as experience, hours worked, occupation, industry, age and the like," said Beata Caranci, deputy chief economist at TD Economics and co-author of the report.
"The research leads us to conclude that exits from the labour force, most often related to family or motherhood — not gender — are the culprit behind this 'unexplained' wage gap."
Women who exit the workforce to have children tend to experience an unexplained, but persistent, three-per-cent wage penalty per year of absence. This persistent wage penalty is up to three times more severe for frequent exits (three or more) than it is for long absences.
So while a depreciation of skills is an issue with any extended leave, it is not the main cause for lower wages. Instead, employers typically see the frequency of entry and exit in the labour force as a signal of attachment or commitment.
Another contributing factor of the motherhood wage gap is mothers returning to the workforce have greater responsibility on the home front, which makes work-life flexibility more attractive to these women. These changing priorities can mean mothers become less responsive to classic job incentives, such as wages, and more attracted to work-life balance.
However, if employers want to attract mothers back to the workforce they need to be prepared to offer jobs with fair wages as well as a sense of greater responsibility, in order to entice women to make the trade-off with household responsibilities, states the report.
Reducing the gap
Women incur far less financial penalty if they are able to build more experience before temporarily exiting, irrespective of the length of time they ultimately remain out of the workforce. Returning to the same employer also lends itself to a lower wage penalty, as social networks and other firm-specific skills remain better preserved.
"With a significant portion of the skilled labour force in Canada retiring over the next 10 years, employers will need to do all they can to attract and retain highly-skilled women, including mothers," said Pascal Gauthier, a senior economist at TD Economics and co-author of the report.
"This new insight provides a vantage point for employers on how to re-engineer jobs and provide the flexibility this demographic demands while helping to put employees and companies ahead of the expected skilled-labour force crunch."
