Motherhood wage penalty in Japan: What causes mothers to earn less in regular jobs?

This study presents evidence of motherhood wage penalties in regular jobs in Japan. Limited previous studies examine the existence of motherhood wage penalties working permanently. This paper, therefore, investigates the causes of mothers’ lower wages in comparison to nonmothers in regular jobs. Japanese female workers are offered the choice between "general" and "integrated" career paths, and which path they choose is likely to affect the magnitude of the wage gap between mothers and nonmothers. This research estimates wage equations that consider observed and unobserved individual characteristics using unbalanced panel dataset from the Japan Household Panel Survey (the JHPS/KHPS 2004-2015) under a fixed-effect method. The empirical estimates confirm there is indeed a wage penalty for Japanese working mothers who work in full-time employment. The result shows that the presence of children is related to penalties in wages of 5.4% per child. Besides, the penalty associated with the presence of one child is consistently higher than that of two children. This study divides regular working women into two categories, large versus small enterprises and estimates the motherhood wage gap for each separately to find what factors contribute to the existence of this wage gap. Interestingly, the result shows the wage penalty for motherhood is high in large companies and not evident at all in small companies. This finding reinforces the hypothesis that the motherhood wage penalties in regular jobs in Japan may be due to "unobserved individual heterogeneity" that there are different career tracks chosen by mothers and nonmothers. High wage penalties in large companies are generated from a comparison between mothers on "general career paths" and childless women who are in "company-specific skills". Meanwhile, there is no evidence of wage penalties in small companies because female workers tend to have the same "traditional pattern." Overall, the finding of high motherhood penalties in regular employment bears a close relationship to labor market practice in Japan that relies heavily upon on-the-job-training (OJT) in company-specific-skills, couples with wages that rise with tenure of employment. However, it pertains only to employees who have chosen integrated career tracks.