China's Two-Child Policy accidentally tanked women's wages because they became desperate for specific 'mom-friendly' jobs.
When maternity benefits are tied to employment, women who want a second child are willing to accept much lower pay just to secure a job that offers those benefits. This 'option value' creates a self-imposed wage penalty where mothers trade career quality for benefit eligibility, effectively paying for their own future leave through lower current wages.
From Liberalisation to Penalisation: Structural Origins of the Motherhood Penalty under China's Two-Child Policy
SSRN · 6461350
Following China’s 2016 Two-Child Policy, mothers’ employment income declined sharply and female labour force participation fell. This paper identifies a supplyside mechanism rooted in employment-contingent maternity benefits. We develop a dynamic search model with sequential fertility decisions in which employment at parity one acquires option value as a platform for accessing future paid maternity leave. This induces one-child mothers to lower reservation wages, generating an endogenous wage pe