Across the world, many people—often mothers—reduce the hours they spend doing paid work after childbirth or choose to work full time at home as a parent. This can be a complex decision, and many parents weigh a number of personal and financial factors. For some parents, the cost of childcare is greater than, or similar to, their working wages.
In these cases, the choice to stay at home may seem financially “neutral”—but HKS research fellow Ursina Schaede has found that, for a group of female teachers in Switzerland, the shift to part-time work after having a child was not neutral at all. When women reduced their hours from full time to part time, they saw a 35% dip in overall lifetime earnings and a 43% loss in retirement savings. In the long term, these losses far outweighed the additional costs of childcare, even though Switzerland, like the United States, has relatively expensive childcare. We spoke with Schaede, who is a fellow in the HKS Women and Public Policy Program and teaches economics at Tufts University, about the study that led to these findings. Read lightly edited excerpts of the conversation below.
What were the “hidden” costs of reducing paid work after childbirth?
We worked with female teachers in a particular German-speaking region of Switzerland. We did this to understand how much money these women might be “leaving on the table” when they reduced their hours, because teachers in Switzerland have a clear salary scale—so you know how much someone is going to earn over their lifetime if they work full time or just part time.
Essentially, we calculated how much you would earn if you were to work full time from when you entered the teaching profession until retirement. How much total money would you earn and how much total pension would you accumulate?
And then we benchmarked that against the case of the average female teacher, and we calculated how much an average female teacher’s salary and pension would be reduced by switching to part-time work after childbirth.
The result was 35% less salary. For the pension, because there’s cumulative interest and a threshold, the effects are larger. The result would be 43% less in retirement savings for women reducing hours after childbirth.
What questions do you recommend new parents ask in considering part-time work?
They should ask, “How long do you want to reduce your hours for, and to what extent do you want to reduce your hours?”
And they should not just think about the implications in terms of salary right now that they are taking home, but also the parts of salary that are less visible.
So, for example, they should think about pension or retirement contributions, the contributions that your employer makes, maybe health care benefits that your employer provides, all those things. And the third thing to take into account is salary growth.
You want to get a good sense of whether you think there’s, for lack of a better word, a penalty on your wage if you work for a prolonged period of time at reduced hours or you don’t work outside the home at all.
Does financial education influence these decisions?
At the beginning of the period where teachers were deciding how much to work in the year ahead, we showed teachers a short video. And the video showed a teacher and her husband talking about how much she should work next school year.
They talked through: if she currently works two days a week versus if she were to work four days a week, would that even be worth it? Because they would have more childcare expenses and face higher taxes. And so maybe at the end of the month, there’s not so much additional money in their bank account.
But then they start to think about the longer-term implications, and they talk about the more invisible parts of the salary—so the amount of pension contribution that she would gain if she worked more and what that means over her lifetime. And they talk a little bit about the financial risk of separation or of a bad life event happening.
The woman expresses some concerns that she’s just going to be financially more dependent on the partner. The video ends by saying, “every family is unique, and you need to know what's the best decision for your family.”
Then we gave them access to a tool with which we calculated the numbers for the video. Teachers could essentially put in their work history and their plans for the future, and it would tell them how much they would earn over their life, how much pension they would get each moth under different workloads, and how much more money they would need to spend on childcare.
How did teachers react to the video?
The teachers weren’t very happy to receive that information. We did get a lot of feedback that said, “you can't just boil this down to numbers. There is no price on the time spent with my child.”
Nevertheless, for some women, it seems to have, in the long-term, changed their behavior. Some were working more a year after the intervention.
Were there any patterns in which teachers decided to work more and which didn’t?
At the beginning of the study, we measured how well informed the teachers were financially about the consequences of part-time work. The group that was least well informed, that had the fewest pieces of information, who were thinking “this is not going to impact my pension,” adjusted and worked more one year later.
The other group of more informed teachers didn’t adjust their employment level. They just want to get better informed in terms of financial resources.
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