Child-Rearing, Social Security and Married Women’s Labor Supply Over the Life Cycle

Abstract

This paper studies how career interruptions during child-rearing years affect the labor market trajectory, lifetime earnings, and Social Security benefits of married women in the United States. To this end, I develop a dynamic structural life-cycle model of female labor supply, savings, and Social Security benefit claiming and estimate the model using the Method of Simulated Moments for the 1943-1954 birth cohort. Utilizing the estimated model, I evaluate the effects of revenue-neutral introduction of the Social Security Caregiver Credits that cover lost earnings during early child-rearing years through change in retirement benefits. The model predicts that introducing the provision of earning credits for child care in the Social Security system would lead to a sizeable reduction in gender gap in average career earnings at the Social Security Early Retirement Age. The findings suggest that instituting caregiver credits for child-rearing in the absence of the marriage-based Social Security benefits would offset a substantial portion of the motherhood penalty in lifetime labor earnings of married women and increase their retirement benefit adequacy.

Keywords: Caregiver Credit, Female Labor Supply, Life-cycle Model, Social Security

JEL Classification: D15, E21, H55, I38, J13, J21, J26