What Causes the Child Penalty and How Can It Be Reduced? Evidence from Same-Sex Couples and Policy Reforms

New parenthood causes large decreases in labor market incomes for mothers but not fathers, a stylized fact known as the “child penalty.” We use a simple household model combined with a comparison of child penalties in heterosexual non-adopting, heterosexual adopting, and same-sex couples to better understand what causes the child penalty. Our results largely rule out giving birth and comparative advantage within the household as mechanisms, leaving preferences and gender norms as the main explanations, although we cannot disentangle these last two mechanisms. Building on these results we also provide causal estimates of two policies aimed at reducing the child penalty. We find small and insignificant impacts of paternity leave use on the child penalty, but find a 25% reduction in the child penalty from a large Norwegian reform that expanded access to child care. This study evaluates the effects of financial uncertainty shocks in the US, investigating the role of the monetary policy stance. Estimating a nonlinear Vector Autoregressive, we find that an uncertainty shock triggers asymmetric and negative effects across the business cycle. The reactions of consumption and investments are state-dependent and drive the fluctuations of GDP. The variance of macroeconomic variables due to the shock is from four to six times larger in recessions than in normal times. A counterfactual exercise shows that the Balance Sheet-related monetary policy mitigates the persistence and the magnitude of the recessionary effects of the shock.