The average age of a mother when they have their first child has gone up by nearly ten years in a single generation. Thirty years ago in the UK, the average new mother’s age was twenty-three. The daughters born at that time are now waiting until they are over 30 before they start a family. Half of all women in the UK over thirty are childless. In Sweden there are now more babies being born to women over 45 than to those under 19. All the evidence shows that starting a family later means that the family will be smaller. The impact on overall fertility is huge.
Those individual decisions by couples are part of the huge transformation in society. This may be changing societal norms. A recent working paper from Sweden suggests that there is a strong economic arguement as well. It confirms a logic that professional women all over the world already understand well.
How to Grow Your Earnings
There are two basic ways to use a career to increase earnings. We can earn more by going up the “career ladder” within a particular employer. We get promoted and have a step change in income each time. The alternative is to go up a “job ladder”. We move organizations to a firm that pays more for a given role (or offers better promotion prospects). Government data in Sweden enables a sophisticated analysis of these strategies. Their data ties an individual employee to individual companies over time. The working paper looked at graduates from the age of 25 to the age of 45. It looked at careers for women and men. Especially those women who have had one or more children. Sweden is a good place to do the analysis. The participation rates are high and the same for men and women. 95% of all new graduates enter the workforce.
The Parenting Penalty
The Swedish data is very clear that there is a significant parenting penalty for women. By the age of 45, women who have one or more children, suffer a penalty in earnings. The result is also evident in a recent Bank of Italy report. (Newsletter #124: “Does Fertility Improvement Require a Cultural Change”). There they compared women who started with the same background, skills, and education. They were earning the same salary. After fifteen years, those that had children were earning half that of their childless companions.
It turns out that the dominant reason is because of missed promotions.Promotions are a key driver of lifecycle earnings. The data shows that, in a steady state, income increases by 0-4% per year. Without promotions we do not get significant pay rises. Promotions account for nearly half of all earnings increases up to the age of 45. The average Swedish promotion generated a 19% uplift.
Swedish women switch firms just as much as their male counterparts. They upgrade to higher paying firms to an almost identical extent. It is within companies that the promotion penalty applies. Women are not promoted as often as men. That difference accounts for 70% of the wage gap by the age of 45. The bulk of the missed promotion opportunities occur early in a career. Between 25 and 30 for every female promotion there are 1.3 male promotions.
The impact is even more concentrated around childbirth. 40% of the earnings gap comes from promotions in the year a woman gives birth and the year after. This is the period of maternity leave in Sweden. It makes perfectly logical economic sense to delay a first child until after the age of 30. That way you maximize promotions and earnings later in life.
A further 21% of the earnings gap comes from part-time working after a child is born. There is a smaller contribution from missed promotional opportunities before the first child. Interestingly that gap reverses after childbearing age and favours women over men.
Sweden Supports Families
The irony is that Sweden is very supportive of having children. It provides job protection and generous paternity pay. There are 390 days of family leave at 80% of salary. There are another 90 days at a lower flat rate. 60 days of that leave is proscribed for mother and father. The rest can be divided as they wish between them. There is also a right to part time work until the child is 8. Despite this the average “maternal age of first child” has risen to 30 in 2021 from just over 28 in 2000.
This very same support may be triggering the promotions gap. Extended parental leave is a cost to the firm. Anticipation of it may trigger less promotions before children. It is difficult for women to signal their intentions. The other problem is the nature of promotions. A promotion often occurs unexpectedly with a vacancy. Someone in the chain leaves. Opportunities open up as the firm is reconfigured. To promote someone on leave to that role means more effort. The promotee must be replaced and any interim removed. A suitable interim at the new level needs to be found.
It is difficult to legislate to close the promotions gap. Within best in class HR systems it can be done. Companies assess “competency” independent of role. Such job grading systems mean that salary is tied to competency level or grade rather than the role. Government departments and bigger companies often use this approach. A woman on maternity leave can still attend a “competency assessment centre” and have her grade increased. She is promoted. When she returns her role or job will be tied to her grade. One policy initiative would be to promote such a model.
Otherwise policy makers wishing to promote fertility are in a Catch 22. Increased support during the early years of children will merely extend leave. That in turn will increase missed promotions. Financial incentives to compensate professional women for missed opportunities would be very expensive. They would have to last for the rest of their lives.