Enticing even higher female labor supply: the impact of cheaper day care

Abstract

We ask whether cheaper child care can spur labor supply of mothers in an economy with high female labor supply. We exploit exogenous variation in child care prices induced by a public reform. A triple difference approach is put forward. The results show that reduced child care prices led to a rise in labor supply of mothers by approximately 5 percent. A "back-of-the-envelope" calculation estimates an elasticity of approximately -0.25, which is at the lower end compared to other studies, suggesting that labor supply is less elastic when female employment is high. Since a capacity-increase was introduced at the same time, the positive labor supply effect may be a result of both reduced prices and increased capacity.JEL classification: J13, J18, J22

Work, childcare, or both? Experimental evidence on the efficacy of childcare subsidies in raising parental labor supply

“…Thus, while the documented generally modest increases in parental labor supply are mostly in line with findings in the literature (e.g., Hardoy and Schøne 2015;Herbst 2010), the differentiated analyses also highlight the importance of considering heterogeneous responses to childcare subsidies. In this regard, subsidizing childcare especially boosts the labor supply of people born in Switzerland and those with more monetary resources.…”

“…This is in line with our theoretical considerations. Also, as expected and in line with existing research (e.g., Hardoy and Schøne 2015;Powell 2002), the higher the household income from other sources, the less parents tend to choose to work at all (significant on the 10 percent level). This is especially true for mothers who are significantly less likely to opt to work full time, the higher the household income from other sources.…”

“…Since higher subsidies also increase the opportunity costs of the hours not spent working, we expected higher levels of childcare subsidies to increase labor supply. On the other hand, according to previous research results (e.g., Hardoy and Schøne 2015;Herbst 2010;Michalopoulos et al 2010;Viitanen 2011), we expected these positive effects to be rather small. We also hypothesized that lower status parents would respond more strongly to subsidies, since the costs of childcare have a greater impact on their household budgets.…”

“…On the other hand, Hardoy and Schøne (2015) find a positive effect of reduced childcare costs. However, because the reform in question was accompanied by an increased supply of day care slots, the finding might have been induced by the latter circumstance or a combination of both factors (Hardoy and Schøne 2015). In Germany, subsidized childcare was found to have only a small effect on maternal employment decisions compared to other countries such as the US, Canada or the UK (Haan and Wrohlich 2011;Wrohlich 2004).…”

Maternal employment: the impact of triple rationing in childcare

“…Their estimates vary across a wide range but indicate that, on average, childcare prices affect labor supply negatively. For example, Blau and Robins (1988) find for the United States an elasticity of maternal employment relative to the price of childcare of -0.34; 1 Ribar (1995) reports an elasticity of -0.09 for married women in the United States; Wrohlich (2004) finds an elasticity of -0.21 for German mothers with full-time working husbands; Mahringer and Zulehner (2013) find an elasticity of -0.13 for Austria; and Hardoy and Schone (2013) find an elasticity of -0.25 for Norway. Gong et al (2010) state that this variation partly reflects the fact that childcare and other welfare institutions vary across countries and that differences in methodology and data sources may also play an important role, making a direct comparison difficult.…”