The Effect of Mandated Child Care on Female Wages in Chile

María F. Prada, Graciana Rucci, and Sergio S. Urzúa , April 2015.

Addressing disparities in labor market outcomes between men and women is a major focus of policy makers around the word. In Chile, just 47.8 percent of women participated in the labor force in 2012, a participation rate far lower than that in the United States, the European Union or even Japan. Under a provision of Chilean labor law intended to encourage more women to enter the workforce, firms with 20 or more female workers are required to make daycare centers available for employees with children aged 2 or under. A concern, however, is that employers may have responded to this policy by reducing wages for their female employees.

Prada, Rucci, and Urzúa investigate how the child care mandate has affected the wages of women in Chile. Their analysis uses unemployment insurance records that allow employees to be linked to their employers. They compare the wages for entry-level women at firms with more than 20 female employees—and thus subject to the child care mandate—to the wages for similar entry-level women at firms with fewer than 20 female employees. Prada et al find that women hired at the firms required to provide child care earned 9-20% less than similar female employees at firms not required to provide child care. These results suggest that the cost of the child care mandate is being borne in large part by the women whom it is intended to benefit and thus that the policy may not be as effective as hoped. Further, since disparities in entry-level wages can persist through one's career, this initial wage difference might contribute substantially to the long-term gender wage gap. Whether employers avoided hiring women in order to stay under the 20 female employee threshold was not investigated, as the study focused on firms large enough that they would eventually cross the threshold and thus would not much profit from delaying.

These findings suggest that policy makers seeking to address social disparities by mandating employer-provided benefits should consider the potential implications of such a mandate on wages and employment. If firms required to provide a benefit respond by reducing wages for the principal beneficiaries, as appears to have been the case with the Chilean day care mandate, or choosing not to hire members of the eligible group, the legal mandate may be less than fully effective in achieving its goals.

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