Effects of Parental Death on Labor Market Outcomes and Gender Inequalities

Nearly everyone experiences the death of a parent in adulthood, but little is known about the effects of parental death on adult children's labor market outcomes and the underlying mechanisms. In this paper, we use Danish administrative data to examine the effects of losing a parent on individual labor market outcomes and its contribution to gender earnings inequalities. Our empirical design leverages the timing of sudden, first parental deaths, allowing us to focus on the health and family support channels. Our findings reveal enduring negative effects on the earnings of both adult sons and daughters: sons' earnings drop by 2% in the fifth year after parental death, while daughters' earnings drop by 3% during the same period. Exploring the underlying mechanisms, we observe that both women and men experience increased mental health issues after parental loss, albeit manifesting differently: women tend to seek psychological assistance more frequently, while men receive more mental health-related and opioid prescriptions. Furthermore, we find that women with young children experience a comparatively larger drop (around 4%) in earnings after parental death due to the loss of informal childcare, a factor that significantly contributes to the gender pay gap. Lastly, we show that women experience a greater decline in earnings if their surviving parent requires higher levels of eldercare. These findings collectively underscore a substantial labor market penalty for individuals who experience parental death and emphasize the role of informal care in contributing to gender pay disparities.