A discrete choice model for labor supply and childcare

Abstract

Abstract:A discrete choice model for labor supply and child care for mothers of preschoolers is presented. The mothers are assumed to make choices from a finite set of job possibilities and from a finite set of child care options. The options in the markets for child care are characterized by opening hours, fees and a number of quality attributes, such as mode of care. Similarly, jobs are characterized by a (fixed) wage rate, working hours and a number of variables related to job satisfaction. In the estimation of the model we take into account that the number of options available might vary across work/care combinations, and that some mothers are rationed in the market for care at day care centers. The model is employed to simulate the female labor supply effects of the Norwegian home care allowance reform. Norway aim at improving work incentives for parents. However, they opted for a different approach when a "home care allowance" was introduced in 1998 that strengthen incentives to parents to provide care at home for their young preschoolers. The "home care allowance" gives parents of preschool children aged 1-2 years a transfer in cash, that depends on utilization of public or private day care centers: non-users are eligible to 36,000 Norwegian kroner (about 4,000 U.S. dollars) per year and per child in support, while provisions are scaled down to nil for users of full-time center-based care. 2 In effect, this means a substantial price increase of center-based care relative to the costs of other modes of care, i.e., other paid care and parental care. We expect that this policy change will reduce female labor supply. The total effect on labor supply is, however, not easily assessed since it depends, among other things, on the extent to which parents consider other paid care alternatives as an acceptable substitute for care at centers. KeywordsThe purpose of this paper is to develop and estimate a decision model for female labor supply and child care choices in order to predict the female labor supply responses of this policy change. We focus on mothers since they are assumed to be the primary caregiver and since results from empirical studies suggest that females are more responsive to changes in taxes and transfers than men.3 While traditional models of labor supply focus on the adjustment of hours spent at work and leisure, the literature on child care choices and labor supply emphasises that market work for 1 These figures apply to children 1-5 years old. Thanks to a generous maternity leave provisions, very few children attend day care centers in their first year. Children start school in their sixth year. 2 The term "home care allowance" is in accordance with the terminology used in Ilmakunnas (1997). However, the transfer might rather be characterised as an "out-of-child care center allowance". 3 There are, however, signs of convergence of opinions between the sexes in Norway regarding child care and outside work, which could mean that male income should also be treated as endogenous in future model pr...

The Effect of Unconditional Cash Transfers on Adult Labour Supply: A Unitary Discrete Choice Model for the Case of Ecuador

“…Haan (2004), Beninger et al (2007), Kornstad and Thoresen (2007), Bloemen (2010), Breunig and Gong (2010), Blundell and Shephard (2012), Löffler et al (2013), Aaberge and Colombino (2013), Kabátek et al (2014) and Dagsvik et al (2014)). It is quite intuitive that labour decisions are constrained on the choices of jobs and working hours, and then we prefer a discrete rather than a continuous labour supply model.…”

“…23 Kornstad and Thoresen (2007) estimated that mothers' labour supply could be reduced by 9 per cent by cash transfers in Norway. In the same way Breunig and Gong (2010) found that women living in regions with lack of adequate childcare facilities work less than their peers in opposite conditions, in Australia.…”

Taxing Childcare: Effects on Childcare Choices, Family Labor Supply, and Children

“…Closest to our analysis is a small literature on the introduction of home care (or cash for care) subsidies in other European countries (see Schøne 2004;Naz 2004;Kornstad and Thoresen 2007;Bettinger et al 2014 for Norway; Kosonen 2014 for Finland;and Piketty 2005 for France). All of these reforms were implemented at the national level, which makes it difficult to separate the reform effect from changes in the economic and social environment that also affect labor supply.…”

Maternal employment: the impact of triple rationing in childcare

“…For Russia, Lokshin (2004) models rationing by restricting the choice set of parents who report to be rationed in the childcare market. Kornstad and Thoresen (2007) follow a similar method for Norway. Both studies find positive labor supply responses to increased availability of the childcare sector.…”