The economics of leaning in and out

The other day, a blog reader/podcast listener sent in a version of a question I get asked a lot. Good childcare is expensive. Many women — even those with high salaries — earn less than their male partners do. At some point in new parenthood, families run the numbers and note that, after taxes, Mom isn’t earning a whole lot more than the cost of childcare. Since the family is living on Dad’s income whether she works or not, why would it make sense for her to stay in the workforce?

At first glance, this seems like a good question. But neither income nor childcare costs are static. With economics in general, it’s often wise to run the numbers with a long time horizon, rather than look at a specific point in time.

To show this, let’s consider two hypothetical women, Jane and Sally. They are both high-flyers, earning $100,000 a year at around age 30 when they have their first kids. As high-flyers, both expect to see their salaries go up by about 10 percent per year. Both plan to have 2 kids, approximately 2-3 years apart.

Both are also married to very high-earning men — high enough that neither “has” to work, and high enough that when you consider federal, state, local, and payroll taxes, they, as secondary earners, are basically looking at marginal tax rates around 40 percent.

Let’s say that both plan to hire a nanny because this makes more sense with their and their husbands’ work schedules. With payroll taxes, overtime and the like, childcare could definitely run $50,000 (or more) a year.

So Jane and Sally look at this point in time and see some rather dismal economics. Their take-home pay is (maybe) $60,000, and childcare takes almost all of that.

Jane says “why am I doing this? I don’t have to work — why would I miss my kids’ childhoods to earn less than minimum wage? I’ll stay home for a few years until my kids are in school.”

But someone gives Sally a copy of I Know How She Does It as a baby shower present, and she runs a slightly different calculation. First, just as a mental accounting measure, she notes that she could support her family on her own, albeit at a reduced level from her husband, and so if a parent were to stay home, it would not have to automatically be her. Childcare allows both of them to work, so childcare is a joint expense. Only half needs to be charged against her salary. That makes this point in time look better. Again, this is mostly a mental accounting measure, but sometimes it’s helpful.

This part, however, is less of a mental accounting gimmick: Because Sally stays in the workforce, over time her salary rises and her childcare costs fall. If her salary rises by 10 percent a year during those career-growth years of her 30s, through the miracle of compounding, she will be making approximately $214,000 in 8 years when the two children she plans to have are both in elementary school.

At this point, the family’s childcare costs will likely go down; an after-school sitter is generally cheaper than a full-time nanny. It’s also possible that, after 8 years of gaining seniority, Sally (and her husband!) might have more flexibility in their jobs, which can lower some of those costs too. (Since Sally read I Know How She Does It, she manages her schedule to work from home on Wednesdays. She does an hour of work before the kids get up, so she can be done when they get off the bus in the afternoon. Let’s say her husband does the same thing on Fridays….)

Meanwhile, if Jane does want to re-enter the workforce after 8 years, she will not have any of that compounded income growth. Indeed, she will be quite lucky to land a job paying what she earned when she left — partly because she might find those sorts of jobs challenging to take. Her family has gotten used to her being the solution to all family schedule difficulties. If one of her kids gets sick and needs to be picked up at school on her second day on the job, this is going to be a learning and growing experience for all involved.

But even if Jane does land a $100k job after 8 years out of the workforce, and sees her income rise 10 percent per year (i.e. exactly what she would have expected when she left) if Sally continues to see the same rise, then the gap between them continues to grow. Ten years later, when Jane and Sally’s oldest children are looking to go to college, Jane will be earning about $259,000. Sally will be earning $555,000. That is quite a gap (even if both are very high numbers — we need not weep for Jane to acknowledge this!)

Now obviously, these assumptions are all simplistic. Not everyone’s income goes up by anything close to 10 percent per year every year, and even people who want to stay in the workforce can wind up out at various points because of layoffs, health issues, etc. School is not childcare — as many families are rediscovering this year — which means that childcare costs might linger for longer than families might hope. I know this is also a harder decision if mom’s working “costs” the family money at first (that is, she earns less after taxes than the family pays in childcare costs), even if it’s a “loan” that rising income could eventually pay back.*

The point I’m trying to illustrate is that early years figure disproportionately in compounding, which is why decisions based on income shouldn’t be viewed only at a single point in time.

That’s not to say Jane’s decision is wrong or isn’t “worth it.” I suspect that when high-earning women say they are leaving the workforce because they make very little after childcare expenses the bigger issue is that they would prefer not to be in the workforce when their children are young. That is a perfectly fine preference. I understand it. I know, from the time diaries in I Know How She Does It, that women with big jobs still spend large numbers of hours per week with their children. They are not missing their children’s childhoods. But if people would prefer to stay home with their children, and their partners can support the family financially, that is great. I just think the economics are more complex than people often see in those hard early days of pumping and racing home to put a baby to bed and having seemingly little cash to show for it.

*One case I’ve seen recently with the genders reversed: the family paid a nanny more than the father earned at his residency — but the expectation, and reality, was that his income would quickly rise with the end of training.

Photo: Nothing to do with this post, but I love that my roses are still blooming in November. 

36 thoughts on “The economics of leaning in and out

  1. As someone who “earned less” than my nanny all through medical school (when I was paying for school and childcare) and residency, I say thank you again for reviewing this math. Many years later, I still think it is was worth it.

  2. I want to yell every time I read yet another article charging all of the childcare against mom’s salary alone. This is a good reminder.

  3. Another consideration is how much satisfaction and sense of accomplishment you get from your job/career. Can you live without it? Will you be a different person without it? My decision to stay in the workforce after the birth of my daughter was not an economic decision, it was a decision about who I am.

    1. THIS. I really wanted to stay home with my kids, so we were able to make it work, and after about 15 months, I realized I missed work a lot, and that my younger daughter was going to miss out on toddler daycare which was amazing for my older one. I could also tell my younger one wasn’t as happy to just stay home and hang out all day like my older one – she wanted lots of activities and changes in scenery. Putting her in daycare and going back to work part-time was amazing for both of us! I worked part-time for about 2 years, then went back to full-time work once the younger one was in school. I was also off work for about 6 months between contracts when both of my kids were in school and realized I got bored very easily 😉 But I wouldn’t have known this if I hadn’t tried all my choices (not working, part-time, full-time).

  4. Definitely spent more than what I made on childcare for about 7 years. That investment is definitely paying dividends now, both financially and in terms of job satisfaction and personal growth. It’s so easy to fall into the trap of thinking the childcare is so that I can work, when it’s really so both of us can.

  5. Great post Laura.
    I can not agree more to it. The narrative whether the chilcare cost offset the women’s income need to change and move towards the combined income. This is also in the mind of many women and articles like this hopefully help to change that.

  6. Not a parent, but completely agree with the premise — that childcare is an investment in both parents’ careers, and that a long view needs to be taken to make the best decision for a family. I’d be curious if other high-performing mid-career women are experiencing 10% salary increases annually… that’s more than the typical promotion raise at my (large corporation) company, and that’s certainly not an annual occurrence! I think a challenge for many is that salaries for both women and men seem to be outpaced by increases in childcare costs.

    1. @M – I just chose that number for illustration purposes. I would think in many places, if you’re doing the same job, you probably aren’t looking at a 10% annual raise. However, if you get promoted in there, there could be a significant jump (or jumps) – not continuous but more of a lumpy looking growth that could average out to a high annual percentage growth.

      1. 3-7% is probably more close to reality for most people, even taking into account promotions, though there are certainly exceptions on both ends of the spectrum.

  7. While I agree with the general conclusions of this article, it is completely unrealistic to expect 10% salary increases each year. In my experience and from what I’ve heard from other people I know, some companies doll out small increases (2-3%) each year and larger ones if you get a promotion, but many companies also have pay freezes and pay cuts right now.

    Even well-earning healthcare providers may not get much of a salary bump because the margins are slim for many of these organizations. On top of that, insurance premiums go up, so your take-home pay may not go up that much anyway even if you get a small salary bump.

    You will often only get a significantly larger salary if you change jobs and move to another company, which is not something every working mom wants to do very often with all the other pressures of life.

    It’s great to encourage women to stay in the workforce, but let’s not spread unrealistic assumptions about getting big, regular salary increases year after year. Earning $100,000 at age thirty is not all that common either, although I know that’s Laura’s preferred audience.

    1. Why even do “calculations” to prove a point when the numbers are so far-fetched? That’s not “economics.” That’s just completely inaccurate.

      How many jobs exist that pay $555,000, which Sally will be earning by the time she is 48? How many of these high-paying jobs exist in her industry and her skill set? Within commute distance? Within a single company?

      It’s so outrageous to make it sound like, ohhh, Sally will be earning half a million dollars if she just stays in the workforce long enough and hangs in there doing her thing. The opportunities to increase your pay by that level are not readily available to most people and would probably involve many job changes and cross country moves and a lot of luck too.

      There is a ceiling that people can reach in their careers. It’s not an endless ladder of ever-increasing income. And guess what? Your income might go down too.

      1. @Linda- I have a non-zero number of blog readers who do earn in that range, by 48 (or younger!) They tend to be partners in professional service firms (law, consulting, accounting) or physicians in certain specialties, or in the top tier of executives at major companies, or business owners. In general, they make that kind of money because they did stick it out through those early years of training, business-building, strategic moves around the corporate universe, or making partner. I am well aware that many careers have a lower ceiling. I am also aware that income can go down or stay flat (talk to me about losing a multi-six-figure line of business this year in in-person speaking gigs! I have mostly made it up with other things, but I won’t go up by 10 percent this year). In any case, I don’t view the idea of high-earning women with kids to be ridiculous.

        1. While I understand your response to Linda, and the fact that 555K+ salaries aren’t ridiculous, it seems to miss the fact that many of these careers with high ceilings either start off with high salaries (such as first year associates as Big Law firms, who currently make 190K in their first year), and/or the pay raises are clear and expected (such a doctors who make less during residencies and fellowships, but have a huge increase quickly once they’re done). This group of people don’t really need to hear a “stick with your career during the childcare years because you can earn so much money if you do” message. These are not the people who are talking themselves out of working because of childcare costs. (Or if they say they are, I call BS and would say they’re being dishonest about their reasons for quitting.)

          I think that the argument that you’re making in this post is an important one, but it’s an argument that should be directed towards women who have much lower incomes, and who work in fields that have much lower ceilings. The people who quit their jobs because of daycare costs are far more likely to be people who make less than 100K, not more than it. And there are far more opportunities for your readers to land in jobs that pay between 100-200K than to land in jobs making 555K+. Directing this message at people in high paid careers or high salary ceilings is tone deaf. And while you do have people in the latter group in your blog readership, all of these comments suggest that you have far more readers in the former category. (As an aside, have you ever actually surveyed your readers to find out this demographic information? It may actually help you get better information on your target audience.)

          And FWIW, I’m actually your perfect/better example of what you’re trying to illustrate here. I landed a job as a lawyer with the Federal government fresh out of law school making 65K. I actually did get a 10K+ raises annually (raises that were guaranteed so long as met a certain performance standards), and am now making 150K seven years out of school. Only one of those raises (the most recent one from 140K to 150K) was because of a promotion. I didn’t have kids early in my career, but if I had, and if I was inclined to quit because of high childcare costs, I’m the person who would have needed to hear that I shouldn’t quit because I’d be leaving so much money on the table. But if I had read this post at a time I was considering quitting, I would have dismissed it entirely because I would have said I’m not likely to make 555K in my field.

  8. I understand your targeted reader is likely the female demographic. I encourage you to use more inclusive terms- partner, spouse, co-parent etc when referring to the second parent in the household. Even better would be to allow for either gender (or non-gendered folx) to feel at ease when reading your work by using inclusive pronouns, examples and names.

    1. Do you have any idea how tiring it is read these type of statements? Perhaps – brace yourself – Laura choose to write the article as is – because that’s the way she wanted to write it. She also didn’t start with a prayer (Those religious folk are going to super pissed), nor praise her spouse or children (I hope she has a home to return to).

      1. And in turn it’s tiring to read these types of statements. It must be soooo tiring to get so worked up over mild suggestions you don’t think are necessary. The point presumably isn’t “let’s make sure every objection someone might have is addressed”, perhaps – brace yourself – the above commenter would like Laura’s writings to reach a wider audience and address their concerns, and to perhaps get away from the idea that the husband will always be the higher earner etc. Lindsey didn’t say they were pissed, they just offered a suggestion. Based on some of Laura’s previous writing it seemed like she was very interested in broadening how we view and talk about high earners, and supporting non-traditional family arrangements that aren’t necessarily what people have in mind when they think of high earning, happy families. But perhaps I’m mistaken.

  9. There are also financial losses on the back end with things like Social Security and retirement (assuming that maintaining an income means you’re also contributing to retirement accounts).

  10. thanks for this post, Laura. I think another common myth (at least from my generation) is that moms should take that time when their kids are young to somehow lay the lifelong foundations of relationship and character that supposedly, only a mother can give. In other words, the payoffs for spending all that time when they were young, would translate to “better adjusted teens and adult children,” which is an outcome that most parents would consider, priceless. I don’t think it is true, but I think there still exists a social stigma for moms whose kids are “stuck” in after-school, everyday, all the time.

    1. Thank you, Laura! I am so thankful for your reminders that childcare is a shared family expense and shouldn’t be deducted just from my salary. And Sophia- I completely agree.

    2. I agree this pressure is there. That the investment in your children will pay off later if you do the hard yards with them yourself. And that if you’re privileged enough to have a choice to stay home with them, you should. I’ve been subtly shamed for pursuing work goals because I’m ignoring ” what’s really important ” and I honestly believe my older child’s behavior has been chalked up to me “outsourcing ” parenting her. It’s not true but I’ve definitely let it get to me. Thanks for this Laura. With an 18-month old and a new business that tanked due to the pandemic, I’ve agonized about continuing to pay for our nanny. I’m making an investment, but if you “charged the mom” I’m way way in the red.

      1. @Rachel – thanks for the comment – I know the childcare decision feels particularly hard when things aren’t going well. I was pitching the book that became 168 Hours for over a year before it sold, back when my oldest child was little. There was an element of “why am I doing this?” at the time. But if I hadn’t done it, few of the opportunities I’ve had over the past 12 years would have been there. (Of course, who knows, maybe I’d have found something even better…?? Life doesn’t fit easy narratives)

        In any case, good luck with pivoting your business or starting something new — whatever you choose to do!

  11. Thank you! I completely agree. I’m an attorney in a demanding part of state government (but still the state) and my income increased by about 50% over the 8 years between my first child and my second child entering kindergarten. This was primarily due to a big promotion and salary increase and a change to a more demanding job that paid a lot more, rather than annual increases of 6% (my state talks about average raises in terms of 1% per year, for reference). Also, the other dirty secret is that people become disabled, divorced, or die. A partner who can support the family or theirselves is thus not thrown into poverty. Again, like myself.. a a few years my ex (also an attorney) made 2.5 x my salary) and I stayed in the work force and paid 1/4- 1/3 of “my take home.” But my ex—who has to pay me no child support beyond split medical costs—and I are sure happy now that we preserved my earning power!

    1. @Katherine – yep, I wasn’t even addressing this here, but if Jane is taking this big a hit to her earning potential based on this family decision, she is also banking that her husband will be able and willing to continue to support the family. I think it is important to acknowledge that this is part of the decision, and is not a 100 percent risk free assumption.

  12. Such a great post – this really puts those early years into perspective financially. Not to mention the personal fulfillment of pursuing a career that is interesting and develops growth. In my experience with many female friends who have taken time off to stay home and then tried to get back in the workforce – the likelihood of landing a job equal to the one they could have had (had they continued working) was slim to none. These moms I know have PhDs and end up making less than half of what they would if they had continued to work. Also, most of them hate their jobs because they are overqualified.

  13. Love this post but I will admit the 10% raise has me jealous. Or maybe I just need to negotiate better. 🙂

    I know that it’s probably realistic for law (the salary ladders I’ve heard about are quite steep). Probably not as much for medicine (oh well!).

    1. @Kate – yep. In this example, both Jane and Sally will get 10 years of max contributions, so not so much an issue. But for most jobs, this is very much a consideration.

  14. I love the topic of this post and I always push back when people weigh childcare only against the woman’s salary. I just have one issue– I really wish you would retire the phrase ‘big job’! What is a big job? One where you earn a certain amount of money or have a certain job title? A job that has historically been male-dominated? It’s not entirely clear what you mean, but it has some potentially negative connotations. If there are big jobs, then I guess there are also small jobs, and maybe I don’t like that because I feel like many people would consider my job small ( I am a teacher). I think that women at a variety of income levels can benefit from what you’ve written here, but I just wish you could find a more meaningful way to describe women’s careers. Just my two cents– in general, I really enjoy your blog and podcast!

    1. @CZ – good point, but I’m curious what you’d use to replace the phrase? I haven’t come up with a better one! I agree that “small job” would not be a good counter-phrase, but I’m more trying to get at the idea of full-time, high-paying, high-responsibility kinds of jobs…

      1. Thanks for responding to me! I think a more specific way of talking about these kinds of jobs would be to just say careers, and modify that as needed–busy careers, high-paying careers, etc. I also think you shouldn’t limit it to high-paying jobs–there are many high-responsibility, full-time jobs that are not also high-paying. And women in these jobs can also benefit from your time-management ideas! I know that I have!

  15. I cannot tell you how many of my friends reference the cost of childcare in relation to their income alone. Perhaps even more puzzling to me is the fact that many of these friends do not share finances with their spouses. The husband pays for the “important” bills – mortgage, utilities, etc., while the wife pays for childcare, and kids’ activity registrations. It’s a really scary situation that leaves women without assets (assuming their names are not on their mortgages, which I know is the case for some) and assumes that childcare and its associated expenses are the woman’s responsibility. My husband does make more than I do (not by much! We have a continual competition with raises and promotions 😉 but I would never subtract the cost of childcare from my income alone, and I work because I truly want to.

  16. Excellent post about the hidden costs of leaving the workforce. Another point is the increased security and flexibility in having a two income household. Using me as an example, my spouse was willing to take a significant risk (leaving his secure job as a staff accountant at a firm) to start an accounting practice of his own. This meant that for the first year or two of self-employment, his take-home income diminished as he was growing and establishing the business. The pay off is better – eventual higher income, greater flexibility- but it takes some time, and risk, to get there. Having a second income (mine) made this decision much less difficult.

  17. Not a financial consideration exactly, but I found our relationship dynamic changed when I wasn’t working, and not for the better ;). I had these high expectations of doing “all the things” home and kid-related because I wasn’t bringing in income, and my husband got to be mostly “fun dad” who didn’t have to deal with a lot of the tedious stuff. We talked about it a lot, and things got better, but they went back to “good” when I went back to work part-time. I let go of the guilt of “not contributing” financially. Husband also felt SUPER stressed out about being the only source of income and worked even longer hours when I wasn’t working, so it wasn’t good for any of us. Granted, we earn roughly the same, so maybe we’re not like the couples in the example, where my salary didn’t matter. A 10% increase each year is pretty optimistic even for the tech industry, but 5% is reasonable. And it’s true that my really big income jumps have come from switching jobs or leaving my company and coming back so financially I haven’t taken the hit from a “spotty” work history, though I definitely have in title.

  18. Catching up on this blog post a few months late and wow, it seems to have hit a nerve! I think it’s a great, insightful article. This conversation isn’t happening enough. And I think you’re right–some women feel like they need the excuse of saying “it doesn’t make sense financially” when really, they want to be home with their kids part-time or full-time. All three options are ok! Can we embrace the fact that there’s no one right way to parent? Thanks for writing this Laura.

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