A route out of poverty? Mothers’ employment and wages in the UK Families and Children Study Francesca Bastagli and Kitty Stewart Centre for Analysis of Social Exclusion London School of Economics Funded by the Nuffield Foundation Work in progress SPA Conference July 2010

Outline Motivation and questions The data Employment trajectories Wages Findings and discussion

Motivation and questions UK government policy emphasises employment as a route out of poverty.  “Getting a job, keeping a job and having the chance to progress up the earnings distribution out of low-paid work are the key to improving life chances” (HM Treasury, 1999). Mothers of young children encouraged to enter or return to work and to remain in paid work – through the tax credit system, childcare and labour market policies - to raise family income.  For example: “In addition to assisting with employment retention, childcare can also promote career advancement.... This will help to increase lone parent employment rates, decrease child poverty, reduce the gender pay gap and boost productivity” (Inter-departmental Childcare Review, 2002).

Motivation and questions Do mothers:  Enter and keep paid employment?  Progress up the earnings distribution? Special attention paid to:  Mothers of young children  Low-skilled mothers

The data UK Families and Children Study (FACS) Annual panel study of families with dependent children Sampled from Child Benefit records Wave 1-2: lone parents and low-income couples - Wave 3 (2001) onwards: higher-income couples included to yield representative sample of British families with dependent children.

Employment trajectories Employment trajectory sample sizes TrajectoryFrequencyPercent Working FT stable Working PT stable Working stable PT-FT No work stable Exiters Entrants At home with one work episode In and out Total

Employment trajectories Examples of individual employment trajectories Yellow: not working; Pink: working full time; Blue: working part time

Wages Hourly wage weekly wage/n. hours worked weekly Wage growth w gr = [w l – w f / w f ] w grw = w gr / y w l : last observed wage w f : first observed wage y: number of years between first and last observed wage

Wages Median hourly wages: by trajectory and skill level Source: FACS TrajectoryMedian hourly wage Low skilled Median hourly wage Skilled Working FT stable Working PT stable In and Out Total

Wages How does the final wage of mothers employed throughout the period compare with the final wages of mothers who moved in and out of work, controlling for starting conditions/initial wages? (Regressors in Model 2 include: age, own health, n of children, lone parent, tenure, new birth) OLS regression on final hourly wage (log). Source: FACS Model 1 Initial wage and work trajectories Model 2 + Personal and HH characteristics Initial wage (log)0.45***0.43*** Trajectory – FT stable omitted Working PT stable-0.09***-0.11*** In and Out-0.11***-0.14*** N R-squared

Wages Employment trajectory and final wage by skill level. OLS regression on final wage (log), includes personal and HH characteristics regressors (i.e. Model 2). Source: FACS Low skilledSkilled Initial wage (log)0.33***0.44*** Trajectory – FT stable omitted Working PT stable -0.05***-0.15*** In and Out -0.11***-0.14*** N R-squared

Wage growth Hourly wage growth: by trajectory and skill level (weighted by N of years between first and last observed wage) Source: FACS Note: Percentage change in hourly earnings weighted by years ( ) from Annual Survey of Hourly Earning (ASHE) for all employees: WOMEN: 4.8. TrajectoryWage growth Sample median Wage growth Low skilled Wage growth Skilled Working FT stable Working PT stable In and Out Total

Wage growth Probability for a working mother to experience: a) Wage growth above the sample median (4%) b) Negative wage growth. Dprobit on wage growth>=4%. Regressors: work trajectories, personal and HH characteristics. Source: FACS Note: Table reports marginal effects. Full sampleLow skilledSkilled Trajectory – FT stable omitted Working PT stable-0.06** *** In and Out-0.11***-0.09**-0.13*** N Pseudo R-squared

Wage growth Probability for a working mother to experience negative wage growth. Dprobit on wage growth<0. Regressors: work trajectories, personal and HH characteristics. Source: FACS Note: Table reports marginal effects. Full sampleLow skilledSkilled Trajectory-FT stable omitted Working PT stable 0.11*** 0.07**0.16*** In and Out 0.15*** 0.09**0.24*** N Pseudo R-squared

Findings 1. UK mothers follow a multitude of employment trajectories. Over the period: 17% In and Out, 33% Mixed Enter/Exit/PT, vs 7% in FT stable employment. 2. Compared with working mothers in FT stable employment, mothers following interrupted pathways have lower final wages (controlling for initial conditions and changes in circumstances over time). 3. This difference is significantly higher among skilled women than for low skilled women; the “wage penalty” is higher among skilled mothers.

Findings 4. Working mothers following interrupted work pathways are less likely (-11%) to experience a wage growth rate equal to or above the sample median. For skilled women the probability is -13%, while for low skilled women it is -9%. 5. Mothers on In and Out trajectories are more likely to record negative wage growth (15%) compared with those in FT stable employment. For skilled women, this probability reaches 24%, while for the low skilled it is 9%.

Thank you. Francesca Bastagli: Kitty Stewart: