The Willingness to Pay for Job Amenities: Evidence from Mothers' Return to Work

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1 ILRRevew Volume 65 Number 2 Artcle The Wllngness to Pay for Job Amentes: Evdence from Mothers' Return to Chrstna Felfe Unversty of St. Gallen,

2 The Wllngness to Pay for Job Amentes: Evdence from Mothers' Return to Abstract The author examnes the extent to whch mothers are wllng to trade wages for non-wage ob attrbutes wthn the context of maternty leave. The key aspect of ths framework s that mothers can decde whether and when to return to ther guaranteed ob. In contrast to prevous studes that analyze the ob search of employed workers, n ths framework one does not need to observe the wage/amenty offer process. It s the frst study of ts knd to estmate mothers margnal wllngness to pay (MWP) for ob amentes drectly. The author derves the MWP for ob amentes from duraton data and uses data from the German Soco-Economc Panel and the Qualfcaton and Career Survey to estmate mothers leave-length decsons by a dscrete duraton method. The MWP for amentes s nferred through the estmated response of the leave length wth respect to the amentes and the wage. Results ndcate that mothers are wllng to sacrfce a sgnfcant fracton of ther wage to reduce hazards and to enoy a flexble work schedule. Keywords Margnal Wllngness to Pay, Maternal Labor Supply, Dscrete Duraton Models Ths artcle s avalable n ILRRevew:

3 THE WILLINGNESS TO PAY FOR JOB AMENITIES: EVIDENCE FROM MOTHERS RETURN TO WORK CHRISTINA FELFE* The author examnes the extent to whch mothers are wllng to trade wages for non-wage ob attrbutes wthn the context of maternty leave. The key aspect of ths framework s that mothers can decde whether and when to return to ther guaranteed ob. In contrast to prevous studes that analyze the ob search of employed workers, n ths framework one does not need to observe the wage/amenty offer process. It s the frst study of ts knd to estmate mothers margnal wllngness to pay (MWP) for ob amentes drectly. The author derves the MWP for ob amentes from duraton data and uses data from the German Soco-Economc Panel and the Qualfcaton and Career Survey to estmate mothers leave-length decsons by a dscrete duraton method. The MWP for amentes s nferred through the estmated response of the leave length wth respect to the amentes and the wage. Results ndcate that mothers are wllng to sacrfce a sgnfcant fracton of ther wage to reduce hazards and to enoy a flexble work schedule. Accordng to recent statstcs from the Organsaton for Economc Cooperaton and Development (OECD), almost 40% of mothers n OECD countres are not partcpatng n the labor force (OECD 2010). Among women wth chldren younger than three, ths percentage s even hgher: 47% are nactve. Conversely, labor force partcpaton among chldless women s smlar to that of all men (73% for women, 75% for men). Because a maor challenge many ndustralzed countres face s the declne of the workforce relatve to the total populaton and because career nterruptons lead to human captal deprecaton and, hence, to a loss n long-term ncome and career opportuntes, t s crucal to understand mothers preferences wth respect to certan ob attrbutes. Such understandng may allow us to actvate some unused work potental. My research nvestgates how mothers evaluaton of ob attrbutes nfluences ther decsons about whether and when to return to work after chldbrth. There s some evdence that unfavorable workng condtons may be mportant deterrents to returnng to work (Bratt et al. 2004, De Lere and Levy 2004). Yet we lack any drect measure of the extent to whch mothers work decsons are trggered by ob features. Ths study s the frst to provde a drect estmate of the extent to Chrstna Felfe s Assstant Professor of Emprcal Economc Research, Unversty of St. Gallen. A data appendx wth addtonal results and copes of the computer programs used to generate the results presented here are avalable from the author, ILRRevew, 65(2), Aprl by Cornell Unversty. Prnt /Onlne X/00/6501 $05.00

4 428 ILRREVIEW whch mothers are wllng to trade wages for certan ob attrbutes, what I desgnate as mother s margnal wllngness to pay (MWP). Ths study s based on the German maternty leave system, whch guarantees that a mother may return to her ob after chldbrth. It focuses on the tme that mothers decde to spend out of the labor force after chldbrth. The key hypothess s that maternty leave wll be shorter f a mother s ob offers more attractve characterstcs, such as hgher wages and famly-frendly condtons. For ths reason I compare the effect of the amentes provded by the guaranteed ob on mothers leave length to the effect of the wage pad by the guaranteed ob on mothers leave length. Ths comparson allows me to nfer what wage fracton mothers are wllng to gve up for the presence or avodance of certan ob amentes. The advantage of usng German data s Germany s generous parental leave system; n contrast to the Unted States, for nstance, where women are enttled to a leave of only 12 weeks, German workng mothers are enttled to a leave of 36 months. The perod s remarkable length allows for suffcent varaton n the chosen duraton of maternal leave. More mportant, the fact that obs are guaranteed for the whole perod enables observaton of all relevant alternatves that recent mothers wegh whle on leave, whch n ths case are only stayng at home or returnng to ther guaranteed ob. Thus, n contrast to prevous studes (e.g., Gronberg and Reed 1994) that focus on the ob search of employed male workers to derve an estmate for workers MWP, my study can overcome the lmtaton of not observng all potental ob offers entertaned by the worker. Because mothers may search for a new ob whle beng on leave, I may lkewse fal to observe possble external ob offers. The data, however, demonstrate that mothers rarely change obs durng maternal leave (only 2% do so). The ob guarantee durng the maternal leave perod s thus the key element n ths strategy to estmate the MWP. Ths study provdes new nsght nto the prce mothers are wllng to pay to enoy certan ob amentes. Moreover, because the ob guarantee combned wth a long leave perod allow observaton of all relevant alternatves avalable to recent mothers, the study mproves upon the exstng emprcal lterature on the MWP for ob-related amentes and provdes an accurate measure of mothers MWP for amentes. Parental Leave Legslaton Germany s one of the OECD countres wth the most generous parental leave systems. It conssts of maternty protecton, protected parental leave, and parental benefts. The frst component, maternty protecton, regulated by the maternty protecton law (Gesetz zum Mutterschaftsurlaub, enacted January 1 st, 1979), s a perod of sx weeks before and of eght weeks after brth durng whch tme mothers must not work but receve ther net wage rate. The second, protected parental leave, allows mothers to choose between stayng on leave

5 THE WILLINGNESS TO PAY FOR JOB AMENITIES 429 and returnng to work durng a certan perod after gvng brth. In theory, both parents are elgble to go on leave; n practce, however, fewer than 5% of the fathers do so. Snce the parental leave s the true perod durng whch a mother s free to decde about her labor force partcpaton, my study focuses on ths perod. The Federal Law of Parental Leave and Parental Beneft came nto effect n It allows a woman to take some extra months off beyond the maternty protecton perod and keep the opton to return to her former ob; and the employer has to guarantee her a poston comparable to her former one. The parental leave perod, ntally 10 months at the tme of the law s passage n 1986, was subsequently extended untl 1992 to a length of 36 months. A mother s elgble for parental leave f she has worked at least sx months n the same ob before chldbrth. It s mportant to stress that the mother has to nform her employer as well as the socal securty agency about her leave plans sx weeks before she gves brth. Hence, her decson about leave length s based entrely on pre-leave crtera. Ths law also regulates maternty benefts, the thrd pllar of the maternty leave legslaton. The government pays the beneft as long as the mother remans on leave. But snce 1992 t has covered, at most, 24 months of the total parental leave perod. Although before 1994 the parental beneft was not lnked to household ncome, after that year t became dependent on the household ncome remanng after maternal earnngs are deducted n the year before chldbrth. Dependng on the perod, dfferent ncome thresholds apply: n months 1 to 6, the ncome threshold for a two-parent household les at 51,000, and for a sngle-parent household at 38,000. In case famly ncome exceeds the allowance, a household loses all ben efts. In months 7 to 24 the ncome thresholds are substantally lower (20,500 for a two-parent household and 16,500 for a sngle-parent household), but n case a household s ncome exceeds the respectve threshold, the famly only experences a gradual reducton of the beneft. Snce 2001, famles can moreover choose between two dfferent versons of the beneft: ether a beneft of up to 300 for 24 months or a beneft of up to 450 for only 12 months (the ncome thresholds explaned above apply). Prevous studes have shown that the leave legslaton, especally the total leave length, affects mothers work decsons (Ondrch et al. 2003; Schönberg and Ludsteck 2006). I thus consder only the years from 1992 to 2006, durng whch perod the parental leave rules went unchanged. Basc Theoretcal Model A Model of Maternal Leave Length My theoretcal model estmates the extent to whch mothers are wllng to trade wages for exposure to or avodance of certan ob attrbutes. I focus on several negatve ob characterstcs, dsamentes, that s, on the amount of

6 430 ILRREVIEW wages mothers are wllng to gve up n order to avod such dsamentes as work-related hazards and heavy workloads. In addton, I nvestgate dfferent aspects of the work schedule, such as the number of hours worked per week, evenng or nght work, and rotatng shfts. It s not clear a pror f aspects of the work schedule are benefcal for balancng work and famly demands, f mothers are thus wllng to sacrfce wages for a better work schedule, or f mothers prefer to trade wages to avod specfc aspects of the work schedule. The parameter of nterest, whch measures the trade-off between wages and ob attrbutes, s the margnal wllngness to pay (MWP). I defne the MWP as the wage a mother would be wllng to gve up to avod a ob dsamenty, keepng her welfare constant: (1) U EMWP E dw, A, [ ] E da U 0 0 =, 0 W, 0 where W,0 represents the hourly wage rate, A,0 a specfc ob attrbute, and U the utlty of mother. Assumng that the ob attrbute A,0 enters a mother s utlty functon negatvely, whle the wage enters t postvely, the MWP for the ob attrbute A,0 s expected to be postve; that s, the mother would have to receve a wage compensaton for exposure to ths dsamenty. The opposte s true for an amenty that enters a mother s utlty functon postvely. In the sprt of Gronberg and Reed (1994), I derve the MWP for ob attrbutes from duraton data. In partcular, the dentfcaton strategy s based on the German maternty leave system and thus on the tme a mother decdes to spend out of the labor force. Assumng that maternty leave wll be shorter f a mother s guaranteed ob mples more attractve attrbutes, the MWP can be nferred by comparng the response of the leave length to the condtons mpled by the guaranteed ob to the response of the leave length to the wage offered by the guaranteed ob. Before layng out the model that estmates a mother s decson about her leave length, I need to pont out that her decson has to be made before chldbrth and, thus, s entrely based on the nformaton avalable at that tme. Let s now assume that a mother s utlty n any month after chldbrth s a functon of her ncome, lesure (or home producton), and ob attrbutes f she s workng. Let s furthermore suppose that a mother chooses the length of maternty leave, or the month when to return to work after chldbrth, so as to maxmze her expected dscounted lfetme utlty. At any month durng the leave perod, she can decde f she wants to stay on leave or return to her guaranteed ob. Theoretcally, a mother also has the opton to search for a new ob. Yet n practce, mothers see the ob guarantee as a knd of nsurance and thus rarely change obs durng ther maternty leave (only 2% of the women represented n my data). Once the ob guarantee expres after month 36, a mother has to start searchng for a new ob f she would

7 THE WILLINGNESS TO PAY FOR JOB AMENITIES 431 lke to partcpate n the labor market agan. A mother s optmzaton problem can thus be dvded nto two phases: phase 1, whch lasts from month 1 to month 35 after chldbrth and durng whch a mother can stay at home wthout losng the rght to return to her guaranteed ob; and phase 2, whch starts n month 36, the pont at whch a mother loses her guaranteed ob f she does not return to work. I focus on the decson durng phase 1 and thus on the decson of a mother who fnds t optmal to return to work before maternty leave s fully exhausted. The specfc decson a mother faces durng phase 1 can be descrbed as follows: a mother chooses when to go back to her guaranteed ob n order to maxmze her expected dscounted lfetme utlty; she can choose between returnng at any tme durng the 35 months after chldbrth or not returnng at all. The decson n phase 2 can be characterzed by a standard search problem and s descrbed n the appendx. The results derved for the MWP n phase 1, a dfferent optmzaton problem, are vald for phase 2 as well, as also shown the appendx. Because of the ob guarantee, a mother decdng about leave length n month 0 expects to face the same workng condtons as before chldbrth, and hence she has the same expected utlty from returnng to work rrespectve of the month of her return: EU [ t, ]. Ths utlty s constant over tme. 1 Leave The expected utlty ganed from remanng on leave EU [ t, ] s assumed to change over tme, n partcular, to decrease over tme. Ths s because a mother s tme spent at home mght be worth less over tme due to home productvty decreasng wth the age of the chld. In addton, the beneft pad durng leave declnes over tme. As a result, once the utlty from returnng to work s greater than or equal to the utlty derved from beng on leave at a gven month t, t remans hgher for any month thereafter. Moreover, gven human captal deprecaton and possble dsadvantageous treatment of mothers n the labor market, the characterstcs of any alternatve ob offer are assumed nferor to the ones of the guaranteed ob (e.g., Waldfogel 1997). Accordngly, f a mother decdes to return to work durng maternty leave, she returns only to her guaranteed ob and then stays there for all remanng perods (untl month 36). The decson to return to work s thus a once-and-for-all decson; as soon as the utlty of returnng to work s greater than or equal to the utlty of beng on leave, a mother returns to her guaranteed ob. As a result, t s suffcent to compare the perod utltes of workng n the guaranteed ob and stayng on leave to determne a mother s optmal month for returnng to work (see the appendx for detals). Accordngly, a mother s probablty of returnng to work at month t after chldbrth, also called the hazard rate λ(t), can be wrtten as follows: 1 Ths assumpton mght be too restrctve: a mother may arguably consder that a longer leave mples a loss n career opportuntes. In the emprcal counterpart of the model I therefore relax ths assumpton by ncludng average occupatonal wage growth as a determnant of mother s decson to return to work. In addton, I allow the effect of the ob attrbutes to vary wth the length of maternty leave.

8 432 ILRREVIEW (2) Leave λ, t, t () t = Pr( E[ U ] E[ U ] 0) t {, 12,, 35} The alternatve utltes of a mother for any month t of the leave perod, before makng any assumptons about functonal forms, are defned as follows: (3) (4) Leave Leave Le U = U( I ; B(( 1 I I ); tyr ; ); tl ; X ; α ; ε ave ) t,, 0, 0 t, t, 1 J U U( I ; W ; H ; A ; ; A ; X ; α ; ε ) t, =, 0, 0, 0, 0, 0 t, If a mother stays on leave (see equaton (3)),), she derves utlty from avalable ncome and from beng on leave drectly. Avalable ncome whle beng on leave s determned by the beneft B(1(I,0 Ī ); t; yr) and other sources of household ncome I,0. As ndcated by the subscrpt 0, other ncome sources are consdered at perod 0 because the mother must make the decson about maternty leave length before chldbrth and hence only nformaton avalable before chldbrth s taken nto account. Smlarly, the maternal beneft s calculated takng nto account whether or not the avalable household ncome les below a certan threshold, ndcated by 1(I,0 Ī ), before chldbrth; ths beneft vares accordng to the year of chldbrth yr and the leave length t. I model the utlty derved drectly from beng on leave by the drect dependence of the utlty on the months t a mother has been already on leave. A mother s personal and professonal characterstcs, denoted by X, also nfluence her utlty. Last, I ncorporate ndvdual heterogenety wth respect to the utlty derved from havng a baby n general, denoted by α Leave, and n the dfferent months after gvng brth, ndcated by Leave ε t,. If a mother decdes to return to work, as represented by equaton (4), she derves utlty drectly from avalable ncome and from the workng condtons. In addton to other sources of ncome I,0, avalable ncome s now determned by a mother s labor ncome, whch depends on the hourly wage rate W,0 and the hours worked H,0. Moreover, because of the ob guarantee, a mother expects to be exposed to the same work condtons as before maternty leave; that s, her utlty s determned by the set of amentes 1 A ; J, 0 ; A., 0 It s crucal to note that I assume that a mother consders all determnants of the utlty derved from returnng to work at perod 0. Ths s because a mother has to declare her leave-length ntentons pror to chldbrth and hence can only consder nformaton about the ob avalable pror to chldbrth when decdng about her future leave length; and because of the ob guarantee, she expects to receve the same wage rate W,0 and to face 1 the same ob attrbutes A ; J, 0 ; A., 0 no matter whch month she returns. 2 The data I use n ths study provde supportve evdence for ths assumpton (see Table 1); on average, ob characterstcs do not vary dramatcally upon a mother s return, workng hours beng the only excepton. The reason for the drop n workng hours s that snce 2001 mothers employed n a frm 2 Note that ths assumpton s not completely n agreement wth the fndngs of Ondrch et al. (2003).

9 THE WILLINGNESS TO PAY FOR JOB AMENITIES 433 Table 1. Comparson of Job Characterstcs before and after Maternty Leave Job characterstcs prevous to leave Job characterstcs posteror to leave Ln real gross wage Hazards load ng hours n the evenng Nght work Shft work Notes: Column 1 shows the characterstcs reported by a woman before gong on leave and column 2 the ones reported by a mother condtonal on havng returned to work. The sample szes s thus restrcted to the women who are returnng to work and whose ob characterstcs are observed both before and after leave (512 out of 1404 mothers). wth more than 15 employees have had the rght to reduce ther workng hours upon ther return to work. In fact, as the data demonstrate, 17.7% of all mothers n my sample use ths rght and reduce ther workng hours by at least 5 hours a week upon return to work durng the leave perod. Nevertheless, estmatng the model usng only those mothers whose hours stay constant upon ther return reveals that the estmates are robust to the assumpton that not only wages and amentes but also hours worked stay constant upon mother s return. Evaluatng the determnants of a mother s alternatve utltes, represented by equatons (3) and (4), reveals that the characterstcs of a mother s guaranteed ob nfluence the utlty derved from returnng to work but not the utlty derved from stayng on leave. Usng the dervatves of the hazard rate wth respect to the hourly wage rate and the amenty, t s then straghtforward to derve the followng equalty: (5) λ() t EU [ ] A, 0 EMWP [ ] = E = E A, 0 λ() t EU [ ] W, 0 W, 0 Ths equalty A,0 establshes then the followng result: the MWP for a specfc ob attrbute can be expressed by the rato of the margnal effect of the ob attrbute on the hazard rate and the margnal effect of the wage rate on the hazard rate. As a consequence, there exsts an estmable emprcal analogue to equaton (5). Ths result allows for predctons about the effect of the varables of nterest: Frst, the MWP s nversely related to the margnal effect of the wage on the hazard rate;.e., the hgher the margnal ncrease n the probablty of return to work due to hgher wages, the less wage a mother s wllng to sac-

10 434 ILRREVIEW rfce n order to avod a negatve ob attrbute. Second, assumng that a specfc attrbute A,0 enters the utlty functon negatvely, a mother prefers to return to work later f her guaranteed ob mples ths condton. Thus, the hgher the margnal dsutlty of a ob attrbute, the hgher the wage compensaton a mother would have to receve n order to accept exposure to ths condton. The opposte s true for an amenty that affects a mother s utlty postvely. Ths model s, of course, smplstc and gnores the possblty of a mother havng another chld durng the leave perod. But the man purpose of my study s to estmate the mpact of the attrbutes mpled by the guaranteed ob on the decson to return to work, and explctly ncorporatng the decson to have another chld durng the leave perod would unnecessarly complcate the model. Nevertheless, as dscussed n the appendx, the estmates are robust to allowng for the alternatve opton of a mother to have a second chld. Taken together, the assumpton of no ob search combned wth the ob guarantee, whch mples the absence of any uncertanty regardng the ob attrbutes and hence the utlty derved from work, s the key element of the model that allows for an economc nterpretaton of the parameters and for an accurate dervaton of mothers MWP. Implementaton In order to estmate the model, I need to make some assumptons about the functonal form of the utlty and the dstrbuton of the shocks. For smplcty, I assume lnear ndvdual utlty functons, so that the alternatve utltes are as follows (6) Leave I B U = β ln I + β B(( 1 I I ); t; yr ) + γ ( 1 γt) t,, 0, Leave + η X + α Leave + ε, t Leave (7) t,, 0, 0, 0 = 1, 0 I W H J A U = β lni + β lnw + δ H + Σ δ A + η X + α +ε t, Let me brefly descrbe how I ncorporate the dfferent determnants of a mother s utlty n the estmaton procedure. In both scenaros, alternatve ncome sources are measured n relatve terms (lni,0 ). Smlarly, a mother s wage, receved f back to work, s ncluded n relatve terms lnw,0. The beneft B(1(I,0 Ī ); t; yr), receved f on leave, s captured by a set of dummes for the dfferent ncome categores and by a set of year and month dummes. All ncome-related coeffcents β I, β W and β B are expected to be postve because a hgher dsposable ncome s assumed to ncrease the utlty. The effect of beng on leave on utlty s assumed to be not only drect but also to change over tme, whch s captured by a decomposton of the leave coeffcent: one general coeffcent, γ 0, and another one, γ 1, whch nteracts

11 THE WILLINGNESS TO PAY FOR JOB AMENITIES 435 wth the leave length t. Ths s the way I allow the utlty of beng on leave to decrease over tme. Ths effect s controlled for by a set of month dummes. Personal and professonal characterstcs X contan mother s age, partnershp, educaton, regon of resdence, the number of chldren, the sector n whch the mother works, and the average wage growth n her occupaton. The two latter varables are assumed to capture opportunty costs of not workng, such as mssed promoton opportuntes or deprecaton n human captal. Allowng the coeffcent η to depend on a mother s workng status reflects the possblty that professonal and personal features mght nfluence the utlty dfferently, dependng on whether a mother s on leave or returns to work. The man nterest of ths study les n the ob attrbutes to whch a mother s exposed as soon as she returns to her guaranteed ob. Thus, besdes the hourly wage rate, measured n relatve terms lnw,0, and the hours worked 1 2 J per week H,0, a great varety of amentes, A, 0, A, 0 A, 0, are ncluded n the regresson. The respectve coeffcent δ A s expected to be postve n the case of a desred ob attrbute, but negatve n the case of an undesred ob attrbute. Usng the lnear specfcaton of the utlty functons outlned n equatons (6) and (7) and assumng both a normal dstrbuton of the error terms ε Leave and ε t, wth mean zero as well as an addtonal measurement error υ,t, whch follows a logstc dstrbuton, the hazard n month t, can be wrtten as follows: 3 (8) Leave W λ() t = Pr( E[ U, t ] E[ U, t ] υ, t 0) = Pr( υ, t β lnw +, 0 δ = 1, 0, J A B + Σ δ A β B(( 1I I ); tyr ; ) γ ( 1 γt) + ηx + α ) = 1+ e W H A B I I tyr e W H J A B β ln, 0+ δ, 0+ Σ = 1δ, 0 β (( 1, 0 ); ; ) γ0( 1 γ1t) + ηx+ α W H J A β W 0+ δ H 0+ = 1δ B ln,, Σ A, 0 β B(( 1 I, 0 I ); t; yr ) γ0( 1 γ1t) + ηx + α Leave Leave where η and α summarze ( η η ) and ( α α ), respectvely. As a result, the decson about the leave length can be estmated usng a dscrete logstc duraton model; the lkelhood functon ncludes all months a mother stays on leave, modeled by (1 λ (t)), and the month when she returns to work, expressed by λ (t). For the estmaton, I use all leave spells, followng frst (66.5%), second (24.5%), and further brths. If the brth of a further baby les wthn the maternty leave perod after the brth of a prevous baby, ths spell s treated as a censored spell (10.5% of the spells n my data). Note that the estmaton of the coeffcents s complcated by the fact that, even though they are observatonally dentcal, mothers mght dffer systematcally n ther unobserved characterstcs, represented by α. Because the composton of the sample of mothers who stay on leave changes H H, 0 3 The results are robust to dfferent assumptons about the error dstrbutons and are avalable upon request.

12 436 ILRREVIEW over tme wth respect to both observed and unobserved characterstcs, gnorng ths unobserved heterogenety can lead to nconsstent estmators. Hence, I estmate the leave decson usng a dscrete logstc duraton model and allow for unobserved heterogenety ntroducng a log-normally dstrbuted tme-nvarant ndvdual component α. 4 Combnng equaton (5) and equaton (8) and beng aware of the fact that the hourly wage rate s measured n relatve terms, I calculate the expected MWP of mother n absolute terms as follows: (9) λ() t A, 0 δ EMWP [ ] = E = λ() t β W, 0 A W W, 0 The absolute MWP s the wage amount, measured n Euros, a mother s wllng to sacrfce to enoy a postve ob amenty, or, the wage compensaton a mother requres to accept exposure to a ob dsamenty. In order to get the relatve MWP,.e., the percentage of the wage a mother s wllng to trade for a ob attrbute, I need to multply the expresson n equaton (9) by the rato of the specfc amenty and the wage rate: (10) EMWP [ ] % λ() t A A, 0, 0 δ = E = λ() t W, 0 β W, 0 Note that the suggested estmaton method corrects for only tme nvarant heterogenety among mothers, whch s ndependent of ther ndvdual observable characterstcs. Hence, ssues such as mothers sortng nto occupatons accordng to ther personal preferences mght not be tackled wth ths random-effect type model. So far, bear n mnd, the estmated coeffcents have to be nterpreted as the causal effect of the characterstcs of the guaranteed ob on the leave length plus the preference of a mother for a certan type of ob. Occupatonal sortng s dscussed n more detal n the appendx. A W A,0 4 Gven that the sample contans more than one leave spell for some mothers (10.5%), the random effect represents only mother-party combnatons. Thus, the baselne specfcaton gnores potental correlaton between some random effects. Yet, the estmaton results are robust when restrctng the sample to one party per mother by droppng randomly one leave spell for all mothers who are observed twce n the sample. I also estmate the model assumng dfferent functonal forms for the unobserved heterogenety (e.g. gamma dstrbuton, dscrete mass ponts). The results, however, do not alter sgnfcantly and are avalable upon request.

13 THE WILLINGNESS TO PAY FOR JOB AMENITIES 437 Data The German Soco-Economc Panel and the Qualfcaton and Career Survey For my analyss of mothers MWP for ob-related amentes, I use two datasets: the German Soco-Economc Panel (GSOEP) and the Qualfcaton and Career Survey (QCS). The GSOEP s an annual survey of Germans and foregners n East and West Germany that has followed ts subects contnuously snce 1984 (Wagner et al. 2007). My study uses waves 1992 to 2006, whch correspond to the years durng whch the maternty leave perod has remaned unchanged. The QCS s a survey of employees carred out by the German Federal Insttute for Vocatonal Tranng (Bundesnsttut für Berufsbldung) and the Insttute for Employment Research (Insttut für Arbetsmarkt und Berufsforschung). There were four surveys launched n 1979, 1985/86, 1991/92, and 1998/99, each coverng about 30,000 ndvduals. For my study, I use the latest cross-secton because t les wthn the tme at whch the sample of mothers took parental leave and t s the only cross-secton that ncludes a 4-dgt occupatonal code that allows a mergng of the two datasets. The GSOEP and the QCS have several features that make them especally sutable for the proposed methodology to estmate mothers MWP for amentes. The GSOEP has detaled annual nformaton on personal as well as on such professonal characterstcs as the ndvdual s occupaton, wage, and work schedule. Furthermore, t provdes monthly nformaton on fertlty as well as professonal actvtes, such as whether the ndvdual s workng or on maternty leave. Ths nformaton allows me to construct maternty leave spells for each woman and to determne her occupaton before chldbrth. The QCS contans a great varety of occupatonal amentes, whch complements the occupatonal nformaton provded by the GSOEP. Detals about the amentes contaned n the QCS follow. Because a substantal part of the nformaton s reported retrospectvely and thus, not all necessary nformaton can be recovered for the last avalable wave, that of 2006, the sample of nterest ncludes all women who gave brth durng the perod from1992 to 2005 and were elgble for maternty leave. Elgblty for maternty leave s condtonal on havng worked at least sx months n the same ob. Accordng to the Federal Statstcal Offce, n 2003, 90% of West German women qualfed for maternty leave, whle not even 65% of East German mothers dd so. In spte of beng less often elgble for maternty leave, East German women more often exercsed ther rght to maternty leave: 95% of elgble women n East Germany took some leave, whle n West Germany only 80% dd so. The data provded by the GSOEP suffer from two shortcomngs: frst, the monthly actvty hstory s partly left censored, whch complcates the dervaton of mothers elgblty for maternty leave. Relaxng the elgblty condton and treatng as elgble every woman who s observed n an employment

14 438 ILRREVIEW contract for at least one month before gvng brth, 85% of West German and 65% of East German women n the sample qualfed for maternty leave n The second problem n the data s that actvtes are often smultaneously and sometmes ncorrectly reported. If a woman states several parallel actvtes, I gve preference to beng on leave. Accordng to the maternty protecton law, women are not allowed to work n the frst eght weeks after gvng brth, but about 5% of the women reported workng durng the maternty protecton perod. Snce I cannot be sure that these spells are msreported, I exclude all leave spells that are shorter than two months. The fnal sample ncludes 1,404 leave spells (28,587 ndvdual-month observatons), whch correspond to 1,256 women; n other words, 148 women n our sample are observed to gve brth twce. The 1,404 leave spells belong to the brth of the frst (66.5%), second (24.5%), thrd (7%), fourth (1.5%), and ffth chld (0.5%). In 607 cases, the leave spell ends wth the return to the guaranteed ob, and 208 leave spells last for the whole parental leave perod ndcatng that these women dd not exercse the rght to return to work durng the frst three years after gvng brth. The remanng 589 spells are rght censored, thus we do not know whether and when they returned to work. That sad, we observe hgh panel attrton, an ssue I dscuss further n the appendx. Amentes The GSOEP contans nformaton on ndvdual wages and work schedules, n partcular workng hours (ncludng overtme), frequency of workng n the evenng (6 to 9 p.m.), durng the nght (9 p.m. to 6 a.m.), and n rotatng shfts. The QCS provdes nformaton on addtonal, more specfc ob features that are not provded by the GSOEP: physcal demands of the ob; lftng heavy weght (>20 kg); lyng down or kneelng; standng durng most of the shft; whether or not the ob s trng for the eyes; whether or not the ob exposes the worker to dust or smoke, a drty workng envronment, extreme clmate condtons, nose, and rsks of nury. These ob attrbutes can be matched wth the sample of women on maternty leave by usng the 4-dgt occupatonal code of the Federal Statstcal Insttute that s contaned n both datasets. Thus, the fnal sample contans nformaton about the occupaton n whch a woman worked before gvng brth, the ndvdual wage, the personal work schedule, and the average occupatonal aspects of workloads and work hazards. In order to create representatve average occupatonal characterstcs, I restrct the 1998/99 wave of the QCS to women of chldbearng age (16 to 46 years), lke the ones n the sample of nterest. These women are engaged n 772 dfferent occupatons. For each occupaton, I calculate the mean of every amenty. In the orgnal QCS questonnare, the women are asked f they are never, rarely, sometmes, often, or always exposed to the respectve condton, whch s coded nto dscrete values of 0 to 4. Averagng these dscrete values for dfferent occupatons produces values that are close to beng

15 THE WILLINGNESS TO PAY FOR JOB AMENITIES 439 contnuous on a scale from 0 to 4. For nterpretatonal convenence, I rescale the average occupatonal characterstcs from 0 to 100: the occupaton wth the hghest level of a certan condton takes the value 100 and the lowest level takes 0. An example mght llustrate ths rankng: blue-collar workers n the plastcs ndustry are the ones most exposed to rsks of nury and death (they all report the value 4), whle secretares are the least threatened by these dangers (they all report the value 0). Thus, the plastcs ndustry gets the average value of 100 for rsks of nury, whle secretares get 0. The occupatonal characterstcs are very detaled and specfc. For the purpose of sgnfcance and plausble nterpretaton, I create two ndces (unweghted averages), summarzed as workload and hazards, accordng to the dstnctons made n the lterature on compensatng wage dfferentals (see Rosen 1986 or Vllanueva 2007). 5 The followng characterstcs are ncluded n each of the two ndces: workload ncludes havng a physcally demandng ob, lftng heavy weght (>20 kg), lyng down or kneelng, standng all the tme, and havng a ob that s trng for the eyes. Hazards ncorporates beng exposed to dust or smoke, drt or ol, extreme clmate condtons, nose, and rsks of nury. Accordng to Cronbach s Alpha, whch s an estmate of nternal consstency relablty and amounts to 0.7 for workload and 0.8 for hazards, the respectve amentes wthn the two groups are suffcently correlated among each other to represent relable measures of workload and hazards. Varables and Summary Statstcs Estmaton Results The frst step of my analyss of mothers MWP for amentes s to estmate the model of mothers decsons about maternty leave length. The determnants of nterest are wages, hours, and amentes. These characterstcs belong to the ob a mother holds before gong on maternty leave and to whch she can return durng the whole leave perod. An overvew of these ob features can be found n Table 2. For llustratve purposes, Table 3a provdes a lst of the top 10 obs, ranked n descendng order accordng to ther level of hazards and workload. Table 3b ntroduces the most common occupatons among recent mothers and dsplays the respectve mean of the ob attrbutes. As we can see n Table 2, the average hourly wage rate amounts to The nonpecunary characterstcs are grouped nto the followng three categores: work schedule, workload, and hazards. Wth respect to the work schedule we observe the followng: women work on average 35.1 hours, whch ncludes on average 2 hours overtme. Qute a few mothers work n the evenng (20.6%), at nght (9.0%), and n rotatng shfts (14.0%). Wth respect to average occupatonal workload and hazards, Table 3a shows that 5 Alternatvely, I employ factor analyss. Estmaton results usng the resultng factors barely dffer from our results and are avalable upon request.

16 440 ILRREVIEW Table 2. Summary Statstcs of Occupatonal Characterstcs Varable Obs. Mean Std. Dev Mn Max Real hourly gross wage Hazards load ng hours n the evenng Nght work Shft work Note: The sample conssts of women who are elgble for maternty leave. It contans 28,587 observatons. Table 3a. Occupatons Ranked n Descendng Order accordng to Ther Level of Dsamentes Rank Hazards load 1 plastcs worker (100) plastcs worker (100) 2 agronomst (65) glass producer (80) 3 chemstry lab worker (65) agronomst (75) 4 glass producer (60) ndustral engneer (70) 5 ndustral engneer (60) anmal breeder (68) 6 chemstry worker (57) nurse (operatons) (68) 7 ceramcst (55) elderly care (67) 8 motorcar engneer (53) horse breeder (65) 9 warehouse worker (52) panter/lacquer (65) 10 carpenter (51) car lacquer (65) Notes: I rank the occupaton n whch the women of the sample (women who are elgble for maternty leave) are workng n a descendng order accordng to ther level of dsamentes. The occupaton ranked number 1, the plastcs ndustry, exposes ts workers to the hghest amount of envronmental hazards, whle an agronomst s exposed to the second hghest amount, etc. In total there are 100 ranks avalable. The average level of hazards and workload are shown n parentheses. Table 3b. Level of Hazards and load Involved n Most Common Occupatons of Mothers Ln(wage) Hazards -load ng hours Evenng work Nght work Shft work Nurse Bank clerk Sales person Medcal secretary Secretary Educator Retal clerk Hardresser Offce clerk Dental assstant

17 THE WILLINGNESS TO PAY FOR JOB AMENITIES 441 Table 4. Descrptve Statstcs of Personal and Occupatonal Characterstcs Varable Mean Std. Dev. Mn Max Age Partner (n %) Educaton (n years) West (n %) East (n %) Other ncome sources Low ncome Intermedate ncome Hgh ncome Avg. occ. wage growth Technology (n %) Servce (n %) Manufacturng (n %) Agrculture (n %) Publc admn. (n %) Educatonal sector (%) the ndustry that demands the hghest workload and the hghest level of hazards s the plastcs ndustry. Mothers, however, work mostly n occupatons that expose them to slghtly better condtons (Table 3b). The most common occupaton among mothers, nursng, exposes workers to only 10.6% of the hazards and 64.0% of the workload nvolved n the plastcs ndustry. Notce, whle the level of hazards nurses are exposed to corresponds to the average level of hazards (10.6) nvolved n mothers occupatons, the physcal effort nurses have to exert (64.0) les above the mean (39.9). Further, popular obs among mothers, such as bankng and retal, offer better condtons: the workload level s 29.1 and 48.9, and that of hazards 2.2 and 7.0, respectvely. Indvdual characterstcs may play an mportant role n the leave decson. Table 4 gves an overvew of the personal and household characterstcs of the women n the sample. I control for age, partnershp, educaton, ncome, prevous chldren, and the average wage growth and the sector n whch the woman has been workng. The maternty leave decson s also nfluenced by nsttutons, such as the maternty beneft level or the chldcare facltes. The beneft s proxed by other ncome sources I 0 and a set of year (1992 to 2005) and month dummes (36). The month dummes also account for the fact that the utlty of beng on leave may declne wth the age of the chld. Although chldcare for chldren under the age of 3 s publcly avalable n East Germany, t s very scarce n West Germany; only 3% are actually covered by formal chldcare. Hence, I control for ths dfference by ncludng a dummy for East and West Germany. Results I estmate the leave decson by usng a dscrete duraton model wth a logstc hazard functon and log-normally dstrbuted random effects. Table 5

18 442 ILRREVIEW Table 5. Results for Coeffcents of Job Characterstcs ng 1 1 ng 2 2 ng 3 3 ng 4 4 ng 5 5 Ln gross wage 0.481*** 0.554*** 0.681*** 0.705*** 0.683*** (0.0981) (0.122) (0.145) (0.147) (0.146) [0.0109] [0.0119] [0.0118] [0.0126] [0.0123] Hazards 0.016*** 0.014*** ** ** ** ( ) ( ) ( ) ( ) ( ) [ ] [ ] [ ] [ ] [ ] load ( ) ( ) ( ) ( ) ( ) [0.0001] [0.0001] [ ] [ ] [ ] ng hours ( ) ( ) ( ) ( ) ( ) [ ] [ ] [ ] [ ] [ ] evenngs 0.261** 0.242* 0.301** 0.314** 0.304** (0.126) (0.128) (0.153) (0.157) (0.155) [0.0064] [0.0056] [0.0058] [0.0062] [0.0061] Nght work (0.172) (0.176) (0.208) (0.211) (0.208) [0.0008] [ ] [ ] [ ] [ ] Shft work 0.306** 0.313** 0.372** 0.370** 0.367** (0.129) (0.132) (0.157) (0.160) (0.158) [0.0077] [0.0076] [0.0074] [0.0076] [0.0076] Rho ** ** ** *** *** ( ) ( ) ( ) ( ) ( ) Observatons 4.854*** 5.858*** 6.057*** 6.483*** 6.200*** Notes: The coeffcents are from a dscrete logstc duraton estmaton wth fralty (log-normal dstrbuted ndvdual permanent resdual). Standard errors are shown n parentheses: *Statstcally sgnfcant at the 10 level; **at the.05 level; ***at the.01 level. Margnal effects are dsplayed n brackets. Rho s the coeffcent of the ndvdual tme-nvarant error term. 1 Column 1: no further controls are ncluded. 2 Column 2: Addtonal controls: partner, age, age squared, educaton, brth order, regon, and ncome. 3 Column 3: Addtonal controls, besdes the ones n model 2 are average occupatonal wage growth as well as sector, month, and year dummes. 4 Column 4: I use log(t) for the baselne hazard. 5 Column 5: I nclude t, t squared and t cubc for the baselne hazard. dsplays the resultng coeffcents of the ndvdual wage, the dfferent aspects of the personal work schedule, and the average occupatonal ndces workload and hazards. 6 Columns 1 to 3 compare the estmaton results, controllng frst for no varables other than mothers ob characterstcs, then addng personal characterstcs (age, educaton, partner, regon, total household ncome, and brth order), and fnally, average occupatonal wage growth, as well as dummes for sector, month, and year. I also repeat the estmaton under dfferent assumptons for the functonal form of the baselne hazard: ncludng, nstead of month dummes, ether the logarthm or a polynomal of the tme beng on leave (column 4 and 5, respectvely). The results barely change wth the dfferent specfcatons. Thus, my dscusson of the results focuses 6 The full set of estmated coeffcents s avalable upon request.

19 THE WILLINGNESS TO PAY FOR JOB AMENITIES 443 on the specfcaton assumed n column 3, ncludng the full set of control varables and usng a nonparametrc baselne hazard (month dummes). The theory outlned above predcts that the hgher the wage and, hence, the hgher the opportunty costs of not workng, the more lkely a mother s to return to her ob. The estmated coeffcent of the ln of real gross wage confrms the predcton: Women who have a ob that pays 10% more wage per hour are 0.1% more lkely to return to work n a gven month (at the 1% sgnfcance level). The estmated coeffcent of the hazards s also n lne wth the predcton of the model: Women who have been workng under bad workng condtons tend to stay sgnfcantly longer on maternty leave (at the 5% level): one standard devaton more hazards (whch corresponds to 10.6 unts and, for example, to the dfference n hazards a secretary or a nurse are exposed to) reduces the lkelhood to return to work by 0.2%. Estmatng the model usng as controls each of the dfferent aspects ncluded n the hazards ndex separately shows that the deterrent effect stems manly from obs exposng the women to dust, smoke, and other health rsks. 7 A test for ont sgnfcance of all components of the hazards ndex cannot be reected (the χ 2 - statstc s 10.1). The actual effect of workload s nsgnfcant. Nevertheless, lookng at the separate effects of the dfferent aspects of workload reveals that workng n an uncomfortable poston, such as stoopng or kneelng, has a sgnfcantly negatve effect on returnng to work. The hypothess of ont sgnfcance of the dfferent components of the workload ndex can, however, be reected (the χ 2 -statstc s 1.7). The work schedule nfluences the leave decson as follows: Mothers n obs entalng on average 10 hours more per week are 0.1% less lkely to work n a gven month. Jobs requrng nght work also are less attractve to mothers after chldbrth (by 0.3%). But both effects are not sgnfcant. In addton, women who have obs that nvolve workng n the evenng or n rotatng shfts are sgnfcantly (at the 5% level) more lkely to work n a gven month (by 0.6% and 0.7% respectvely). The effects of personal characterstcs on the leave-length decson are n lne wth the fndngs of prevous studes; women who are older and have a partner, several chldren, and more fnancal resources are less lkely to work soon after chldbrth, whle women who lve n East Germany and who are hghly educated tend to return to work earler. Moreover, the estmated coeffcents of the month dummes predct a decreasng utlty from beng on leave: Although durng the frst 12 months mothers are 0.7% to 1.9% more lkely to return to work than rght after chldbrth, ths probablty ncreases to 2.8% to5.5% durng the second year after chldbrth and to even 2.2% to 9.3% durng the thrd year after chldbrth. Testng for the presence of ndvdual tme-nvarant heterogenety, such as ablty or preferences, reveals n addton a sgnfcant mpact of these ndvdual unobserved charac- 7 The estmaton results ncludng all ob characterstcs separately are avalable upon request.

20 444 ILRREVIEW Table 6. Margnal Wllngness to Pay for Amentes Assocated wth Relatve MWP (%) Absolute MWP ( ) Hazards * * (0.1148) (0.1137) Physcal demand (0.2932) (0.0790) ng hours (0.2335) (0.0722) evenngs * * (0.0455) (2.7069) nghts (0.0242) (3.3447) Shft work ** ** (0.0339) (2.7698) Notes: Standard errors are shown n parentheses: *Statstcally sgnfcant at the.10 level; **at the.05 level; ***at the.01 level. The relatve MWP for amentes, dsplayed n column 1, s calculated accordng to equaton (10), the absolute MWP, dsplayed n column 2, accordng to equaton (9). The underlyng coeffcents are the ones shown n column 3 of Table 7. terstcs on the maternty leave-length decson (the estmated coeffcent of the random effect s sgnfcant at 1%). The elastctes of the hazard rate wth respect to wages and the selecton of amentes now make t straghtforward to derve how much mothers are wllng to pay for the exposure to or for the avodance of these amentes. Frst, I ntroduce the relatve MWP, whch s the wage share mothers would be wllng to sacrfce n order to reduce a negatve ob attrbute by 1% (calculated accordng to equaton (10) and shown n column 1, Table 6). Second, I dscuss the absolute MWP, whch s the amount of hourly pay n Euros mothers would sacrfce to reduce a dsamenty by 1 unt (calculated accordng to equaton (9) and shown n column 2, Table 6). As can clearly be seen n Table 6, there s only a sgnfcant MWP for the ob attrbutes that also sgnfcantly nfluence a mothers leave decson: Mothers are wllng to sacrfce a sgnfcant share of ther wage for a decrease n hazards and for the avodance of a rgd work schedule. For less hazardous work, n partcular for 1% fewer health rsks, recent mothers are wllng to sacrfce 0.2% of ther hourly wage rate (sgnfcant at the 10% sgnfcance level); that s, for an ncrease n ob-related hazards by 1 percent, recent mothers would have to receve a wage compensaton of 0.2%. The results also suggest that workng n the evenng or n rotatng shfts s convenent for mothers: Mothers are wllng to gve up 0.1% of ther hourly wage rate to be 1% more lkely to work n the evenng (sgnfcant at the 10% sgnfcance level) or n rotatng shfts (sgnfcant at 5%). These percentages translate nto the followng monetary values (see Table 6, column 2): to be exposed to 1 standard devaton more hazards (whch corresponds to 10.6 unts), mothers would have to receve a wage compensa-

21 THE WILLINGNESS TO PAY FOR JOB AMENITIES 445 ton of 2.30 more per hour, whch corresponds to 20.3% of women s average hourly prebrth wage rate (11.20 per hour); to work n the evenng, mothers are wllng to sacrfce 4.80 per hour and 5.90 to work n rotatng shfts. Thus the MWP for workng n the evenng corresponds to 42.7% of women s average hourly prebrth wage rate and to 52.9% for workng n rotatng shfts. The reported estmates for mothers MWP to avod ob-related hazards and to work n the evenng or n rotatng shfts are surprsngly hgh. Thus, n order to provde some support for my fndngs I frst compare my fndngs wth the MWP found for males, for nstance, by Gronberg and Reed (1994) and Bonhomme and Jolvet (2008), and then provde further outsde evdence on the prevalence of certan ob-related amentes among the obs of recent mothers. Ths allows me to put my fndngs n the context of the lterature. Second, because stratfcaton accordng to ndvdual or nsttutonal characterstcs mght shed some lght on the determnants that trgger mothers MWP, I analyze the mpact of wages, hours, and amentes on the chosen leave duraton and dstngush between mothers regonal, fnancal, and educatonal backgrounds. The basc regresson results wth respect to ob hazards reveal a hgh tendency among mothers to sacrfce a sgnfcant wage share to avod ob hazards (20.3% for a reducton by 1 standard devaton). Ths estmate les slghtly above prevous fndngs for the MWP of male workers. Gronberg and Reed (1994), for nstance, fnd a MWP of 13.4% for U.S. male workers; Bonhomme and Jolvet (2008) confrm ths magntude for workers from countres that are culturally smlar to Germany (12.8% to 15.2% for workers from Austra, Denmark, and the Netherlands). The slghtly hgher MWP for good workng condtons among mothers s, however, n lne wth fndngs of prevous studes (DeLere and Levy 2004) that observe a crowdng of women, n partcular of mothers, nto safe obs. Nevertheless, when I dstngush between mothers wth dfferent fnancal and educatonal background the results ndcate that not all women are wllng or able to sacrfce sgnfcant parts of ther wage to reduce unpleasant or unhealthy condtons. Table 7a provdes the absolute MWP to avod hazards for mothers of dfferent ncome and educaton groups. It shows a clear pattern: The more fnancal resources, the hgher the wage share a mother s wllng to gve up to dmnsh these hazards; lkewse, the more educaton a woman has, the bgger the accepted trade-off between wage and hazardous condtons. Moreover, when I focus on the educaton of a woman s partner, ths confrms the trend assocated wth the ntellectual background: The more educated a woman s partner, the more averse s a woman toward occupatonal hazards. The MWP for a nonstandard work schedule among recent mothers mght seem unexpectedly hgh at frst glance. Bonhomme and Jolvet (2008), for nstance, fnd a much lower MWP for a convenent work schedule among Dutch and Dansh male workers (15.2% and 22.0%, respectvely), but hgher among French male workers (43.4%). Nevertheless, nonstandard work

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