‘Biological clocks’, import competition, and the gender gap in earnings

Wolfgang Keller, Hâle Utar

The 20th century saw a steady increase in the number of women postponing motherhood to enhance their labour market opportunities. Sometime in the early 2000s, that trend ended. This column compares the experience of women in the US and Denmark and finds that women of childbearing age who experienced diminished labour market opportunities because of import competition from China turned towards family life, while men focused on finding a new career path in the labour market. Import competition from China raised the likelihood of marriage for women but not for men.

The 20th century saw an equalisation of women’s and men’s opportunities in the labour markets in many countries. Take labour force participation in the US, for example. Shortly after WWII, men were almost three times as likely to be in the labour force as were women; by the year 2008, women’s labour force participation stood at around 83% of men’s, as shown in the top panel of Figure 1.

Figure 1 Women’s labour force participation and first-time motherhood

In striking contrast to the strong trend throughout much of the 20th century, there has been little convergence in labour force participation rates across gender since the early 2000s. While a number of factors might play a role (Fortin 2005, Goldin 2014), in this column we argue that changing labour market opportunities should be seen together with family outcomes that determine the work-life balance of men and women. In particular, the lower panel of Figure 1 shows that sometime in the early 2000s, the rise in the number of women postponing motherhood – a choice typically made to enhance labour market opportunities – stopped for both US and Danish women.

Recent evidence shows that differences in the labour adjustment to globalisation made by men and women plays an important role in this change. When faced with a negative labour market shock of a given size, female workers are more likely than male workers to take time out of the labour market for family goals: only women give birth and, in contrast to men, women struggle to achieve their fertility goals beyond a certain age (a constraint we refer to as the ‘biological clock’).

In Keller and Utar (2020), we study the effects that the rising number of exports from China had on Danish workers as the country entered the WTO in late 2001. This intensified import competition from China closed many career paths in the manufacturing sector in Denmark, leaving a switch to the growing service sector as the only viable path. The study investigates how this loss of labour market opportunities for workers due to a plausibly exogenous shock affects fertility, childcare uptake, and the formation and duration of marital unions. Crucially, rising import competition is but one type of labour demand shock that women respond to by establishing a different work-life balance than men due to their biological clock; another instance is job displacement due to plant closure (Del Bono et al. 2012, Huttunen and Kellukumpu 2016).

We combined administrative data on all firms and their workers with complete family histories from population registers, which allows us to follow workers from job to job (or unemployment) as they make key family decisions on co-habitation, marriage, divorce, and children. The impact of the negative labour shock is found by comparing labour market and family experiences of workers employed at Danish firms that are hit hard by rising import competition from China with the experiences of less affected workers. Figure 2 shows the impact on labour earnings between 2002 and 2007 for four sets of workers, women and men who are either young or old (fertile-age and post-fertile-age, respectively).

Figure 2 The missing earnings of fertile-age women

Figure 3 Gender gap in trade adjustment costs

By 2007, labour earnings of affected older men are much lower than earnings of unaffected older men, in line with a negative impact of import competition on earnings. For younger men, there is no comparable impact, because affected young men are able to adjust to the shock by switching to jobs in other sectors without delay. Human capital theory tells us that young workers are more willing than older workers to pay the cost of adjustment because they have a longer career ahead to recoup the investments.

It is striking that the impact of the negative labour shock is very similar for fertile-age and older women: both groups lose about 80% of their initial annual earnings over the course of five years following the shock. As a result, we show that import competition leads to a substantial gender earnings gap, but only among fertile-age workers (Figure 3). Put differently, the advantage of being young disappears for women adjusting to globalisation. What explains the finding that fertile-age women adjust as poorly to the labour market shock as do older women?

One possibility is that women were hit harder than men by import competition from China because women tend to be employed in particularly vulnerable firms, industries, or occupations. Another possibility is that young women have lower earnings than young men because they are more negatively affected by the technology shocks correlated with import competition. Our analysis rules out both hypotheses.

Rather, fertile-age women who experience diminished labour market opportunities because of import competition from China turn towards family life, while men focus on finding a new career path in the labour market. Figure 4 shows that import competition from China raises marriage likelihood for women but not for men.

Figure 4 Impact of exposure to rising import competition on marriage likelihood

Figure 5 shows that women respond to rising import competition by having more babies; the same is not true for men. Women in Denmark can respond to a negative labour demand shock by increasing fertility in part because the country has substantial insurance and transfer policies that limit personal income losses despite a decline in earnings.

Figure 5 Impact of exposure to rising import competition on childbirth

In our paper, we develop the findings in the figures in a rigorous difference-in-difference framework. We also document that as long as female workers are of fertile age, the tendency to move to family life increases with age, which supports the idea that they are motivated by their biological clock.

The move towards family activities most often happens when women are in a weak labour market position due to import competition, such as unemployment or a spell outside the labour market. This supports the view that the shift of women from the labour market to family activities is induced by lower labour market opportunities.

In sum, our analysis highlights substantial differences in trade adjustment of workers across genders and proposes fertility-related biological differences and the biological clock in particular as a new factor behind the non-convergence in labour market performance indicators across gender.

References

Del Bono, E, R Winter-Ebmer and A Weber (2012), “Clash of Career and Family: Fertility Decisions after Job Displacement”, Journal of European Economic Association 10(4): 659-683.

Fortin, N (2005), “Gender Role Attitudes and Women’s Labour Market Outcomes”, mimeo, UBC.

Goldin, C (2014), “A Grand Gender Convergence: Its Last Chapter”, American Economic Review 104(4): 1091-1119.

Huttunen, K and J Kellokumpu (2016), "The Effect of Job Displacement on Couples’ Fertility Decisions," Journal of Labor Economics 34(2): 403-442.

Keller, W and H Utar (2020), “Globalization, Gender, and the Family”, NBER Working Paper 25247.