When Firms Care: Family-Friendliness and the Child Penalty

This paper studies how firms shape the labor market consequences of parenthood. Using matched employer employee and birth registry data for Uruguay, we follow both mothers and fathers within the same household from three years before to ten years after the birth of their first child. We document substantial and persistent child penalties in the Uruguayan labor market. Following childbirth, mothers experience large declines in formal employment, wages, and job mobility relative to fathers. However, these penalties vary systematically with firm characteristics. Mothers employed in family friendly firms experience faster wage recovery following childbirth. Yet these workplace environments do not necessarily translate into smaller gender gaps. From a household perspective, fathers also benefit from these arrangements and, in many cases, experience larger gains than mothers. Family friendly firms often facilitate the household's adjustment to caregiving demands while preserving, and sometimes strengthening, fathers' labor market attachment. We further show that firms contribute to child penalties through differential sorting mechanisms. Mothers who change employers after childbirth experience smaller penalties than the overall population of mothers, but they do not climb the firm wage ladder in the same way as fathers. Fathers are more likely to move toward higher paying firms and maintain access to firms with stronger wage setting policies, whereas mothers are more likely to remain in similarly paid firms or move to lower ranked employers. In short, our findings suggest that firms play an active role in shaping post-childbirth trajectories through workplace amenities, wage setting practices, and mobility opportunities. Understanding gender inequality after parenthood therefore requires considering both employer characteristics and the joint labor market decisions of couples.