Chhaochharia, Vidhi

LSE Research Online

The	tale	of	two	Germanies	highlights	how	childcareprovision	benefits	womenGender	inequality	in	firms	is	an	issue	which	has	concerned	both	economists	and	policymakers.	In	spite	of	significantimprovements	in	women’s	career	prospects,	the	gender	pay	gap	still	persists.	One	crucial	component	as	to	whywomen	on	average	earn	lower	wages	than	men	is	parenthood.	I	provide	evidence	of	the	positive	impact	of	child	carepolicies	on	women’s	careers	and	wages.Germany	provides	an	ideal	test	case	because	of	its	historical	antecedents.	There	is	a	distinct	difference	in	attitudestowards	working	women	between	the	former	East	and	West	Germany,	i.e.,	the	German	Democratic	Republic	(GDR)and	the	Federal	Republic	of	Germany	(FRG),	respectively.	The	higher	rates	of	child	care	facilities	as	well	as	morepositive	attitudes	towards	mothers	in	East	Germany	have	roots	in	the	former	socialist	system	of	the	GDR	thatsupported	working	mothers	both	ideologically	and	practically.	This	translates	into	much	better	publicly	provided	childcare	systems	by	the	local	and	state	governments	in	the	geographic	areas	which	were	in	the	erstwhile	GermanDemocratic	Republic.This	difference	across	geographical	areas	persisted	even	after	the	collapse	of	the	GDR	in	1990	and	is	stillobservable	today.	We	exploit	this	unique	aspect	to	study	the	effect	of	child	care	policies	on	the	gender	wage	gap	andwage	progression	of	women	across	different	counties	in	the	former	East	and	West	Germany.	However	focusing	onthe	cross-sectional	variation	across	East	and	West	Germany	opens	us	up	to	concerns	that	we	are	also	identifying	theeffect	of	time	invariant	attitude	differences	towards	women,	work	and	family	across	East	and	West	Germany.Therefore,	to	address	such	concerns	we	identify	the	effects	of	child	care	provision	on	women’s	career	outcomes	byexploiting	changes	in	child	care	provision	in	Germany	over	time	which	have	been	significant	on	account	of	differentgovernment	mandates	and	attitudes	towards	women,	work	and	family.We	find	that	government-provided	child	care	has	a	positive	impact	on	wages	of	women	and	thus	decreases	thegender	pay	gap.	Specifically,	a	one	standard	deviation	increase	in	childcare	provision	leads	to	a	39.2	per	centdecrease	in	the	gender	pay	gap.	The	effect	on	mothers	is	2-3	times	larger	than	the	baseline	effect	on	women.Additionally,	mothers	in	counties	with	more	childcare	provision	have	larger	wage	changes	that	are	likely	to	beassociated	with	promotions.	These	effects	are	causal	as	our	individual	worker	level	data	allows	us	to	control	for	timeinvariant	effects	of	attitudes	towards	women,	work	and	family	that	might	differ	across	different	regions	in	Germany.We	also	find	that	women	with	small	children	or	many	children,	women	in	the	highest	wage	bracket,	and	women	whoare	more	educated	are	more	likely	to	experience	these	benefits.	Taken	together,	our	results	suggest	that	governmentprovided	childcare	allows	women,	and	particularly	mothers,	to	earn	higher	wages	and	eases	out	the	trajectory	overthe	job	ladder	from	the	ground	up.LSE Business Review: The tale of two Germanies highlights how childcare provision benefits women Page 1 of 2		Date originally posted: 2018-04-19Permalink: http://blogs.lse.ac.uk/businessreview/2018/04/19/the-tale-of-two-germanies-highlights-how-childcare-provision-benefits-women/Blog homepage: http://blogs.lse.ac.uk/businessreview/Our	paper	contributes	to	the	literature	on	gender	quotas	and	their	impact	on	firms’	financial	outcomes.	One	policyimplication	of	our	results	is	that	a	top	down	approach	(like	the	mandated	quota)	to	correct	gender	disparity	in	firms	isnot	the	ideal	policy	method	if	it	is	not	accompanied	by	other	policies	tools	such	as	child	care	provision.	A	bottom	upapproach	that	improves	women’s	career	progression	through	family	friendly	policies	such	as	child	care	provision	isimportant	to	ease	the	progress	of	women	over	the	job	ladder.	In	other	words,	our	results	suggest	a	complementaritybetween	government	provided	child	care	policies	and	mandated	board	quota	to	promote	gender	equality	in	the	topechelons	of	the	firm.Thus,	we	present	new	results	as	to	how	child	care	provision	can	have	significant	positive	effects	on	not	only	women’slabor	supply	but	also	the	progression	of	women	in	their	careers.	Our	results	have	significant	implications	in	shapingpublic	policy	in	countries	such	as	the	US	where	there	is	very	little	attention	given	to	government-provided	child	care..♣♣♣Notes:This	blog	post	is	based	on	the	authors’	presentation	at	the	Royal	Economic	Society’s	annual	conference	at	theUniversity	of	Sussex	in	Brighton,	March	2018.The	post	gives	the	views	of	its	authors,	not	the	position	of	LSE	Business	Review	or	the	London	School	ofEconomics.Featured	image	credit:	Berlin’s	Checkpoint	Charlie,	by	Norbert	Aepli,	Switzerland,	under	a	CC-BY-2.5	licenceWhen	you	leave	a	comment,	you’re	agreeing	to	our	Comment	PolicyVidhi	Chhaochharia	is	associate	professor	of	finance	at	Miami	Business	School.	Her	researchinterests	are	corporate	governance	and	international	finance.			LSE Business Review: The tale of two Germanies highlights how childcare provision benefits women Page 2 of 2		Date originally posted: 2018-04-19Permalink: http://blogs.lse.ac.uk/businessreview/2018/04/19/the-tale-of-two-germanies-highlights-how-childcare-provision-benefits-women/Blog homepage: http://blogs.lse.ac.uk/businessreview/

The tale of two Germanies highlights how childcare provision benefits women

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The tale of two Germanies highlights how childcare provision benefits women

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