This paper concentrates on the role of job matching frictions in influencing the interactions between fertility choice and wage offers and show that job market frictions are a crucial factor in wage differentials among female workers. The goals of this paper are to examine how the home-stay alternative and asymmetric market frictions influence this wage differential and whether the well documented negative correlation between fertility choice and female earnings still holds in the face of life-cycle choices. To address these questions, we develop a search-theoretic model that incorporates fertility and job decisions and assume that the workers with children face a lower job matching rate and a higher job quitting rate relative to the rates faced by the workers without children. As a result, we find that a wider wage differential is associated with more asymmetric market frictions and that the wage differential has a positive effect from output differential, a positive scale effect from the output of mothers and a negative effect from the utility from staying home. The wage differential is positively correlated with both fertility and home-stay rates and negatively correlated with market thickness and matching technology. Furthermore, by having both fertility and home-stay choices endogenously determined, we can show that a tighter market will enhance the fertility rate and the home-stay rate and a better job matching technology would not only increase the home-stay rate but decrease the fertility rate. In general equilibrium, the effects of both market tightness and the matching technology on the wage differential are indeterminate. These results indicate that the home-stay choice actually gives workers with children not only an alternative but also the power to negotiate higher wages. This shrinks the wage differential. Finally, the result that a higher fertility rate enlarges the wage differential also implies a negative relationship between the fertility rate and the earnings of workers with children. This result is consistent with standard empirical findings.
