Simon Bensnes and Ingrid Huitfeldt and Edwin Leuven
This paper reconciles different approaches to estimating the labor market effects of children. Combining elements from event study and instrumental variable estimators we find that while both approaches estimate a 15 percent child penalty, they differ in what drives this gap. The standard event study attributes the penalty primarily to reduced maternal earnings, but our results suggest maternal changes account for less than half. We show that women time fertility as their earnings profile flattens, causing the event study to overestimate the maternal penalty. This finding has broader implications for event-study designs, as pre-trends may be uninformative about selection bias.