New parenthood causes large decreases in labor market incomes for mothers but not fathers, a stylized fact known as the “child penalty.” We combine a simple household model with estimates of child penalties in heterosexual nonadopting, adopting, and same-sex couples to better understand what causes the child penalty in heterosexual nonadopting couples. Our results largely rule out giving birth and the father’s advantage in the labor market as mechanisms, leaving preferences, gender norms, and discrimination as the main explanations. In addition, our paper provides novel evidence on the impact of children on labor market outcomes of adopting and same-sex couples.

Children’s and parents’ incomes are highly correlated, yet little is known about how early-career shocks contribute to this correlation. This paper focuses on a consequential labor market shock: job loss. We document three new results. First, adult children born into the bottom 20% of the income distribution have double the unemployment following job loss compared with those from the top 20% and 154% higher earnings losses. Second, this increases the rank-rank correlation 30% for those impacted. Third, richer parents provide career opportunities to their adult children after job loss, consistent with advantages from wealthy parents persisting well into adulthood.