Mom should stay at home

New working mothers always face the question of when to return to work. While their concern is the immediate well-being of the newborn, what about its long term prospects? It is now well establish that adult outcomes (education, wages) are largely set in the first years of life, especially in pre-school years. The empirical literature on the subject is largely inconclusive, but suffers of several issues: 1) mothers who work and use child care may be different from the others; 2) the child's cognitive abilities may influence the mother's choices.

Raquel Bernal corrects for these issues by avoiding the ominous reduced-form regression. She estimates a full-blown dynamic employment and child care choice model using data from the National Longitudinal Survey of Youth, the same dataset others used without clear results. Bernal obtains clear and significant results, though, showing that using child care during one of the first five years reduces the test score for cognitive ability at the start of schooling by 1.8%. While this does not seem much, this amounts to one eighth of the standard deviation of this score. For high ability kids, the impact is even stronger.

The nice thing with a structural model is that one can perform meaningful policy experiment. For example, introducing a 35% child care subsidy encourages the use of child care, but also reduces test scores by about 1% (it ranges for 0.23% to 1.87% depending on the test). Not particularly encouraging. A maternal leave policy is detrimental as well: as the mother can then rejoin the workforce under the same conditions as when she left it, it increases the opportunity cost of staying at home and she rejoins the labor market even earlier. Cognitive skills of the child are reduced by 0.1% to 1%. However, giving a baby bonus (a quarterly $250 lump sum) increases significantly the number of stay-at-home moms and test scores.

So much for all these policies encouraging women to work. They have perverse effect to slow the development of the youngest. One needs thus to complement these policies with incentives to stay at home during the pre-school years.