Abstract: Increasing mothers’ labour supply in a child’s preschool years can cause a reduction in time investments that can lead to a negative direct effect on mid-childhood and teenage outcomes. As mothers’ work hours increase, income will rise and we ask whether income can compensate for the negative effect of hours by adopting a novel mediation analysis that exploits exogenous variation in both mothers’ hours and family income in pre-school years. We find that income compensates at least partially for the negative direct effect of increasing mother’s hours on child test scores at age 11 and this compensation is larger for high educated mothers. By the age of 15, income can fully compensate the negative direct effect in low and high education households but for different reasons. For low educated mothers, both the direct effect and the income compensating effect fade out. On the contrary, for high educated mothers these two effects remain statistically significant but cancel each other out. Simulations reveal two policies for governments which can reduce inequalities in the effect of mothers’ work hours by parents socio-economic status - a progressive tax and benefit system
or raising the wage of low educated mothers.
Joint with Cheti Nicoletti (University of York) and Kjell G. Salvanes (Norwegian School of Economics)