Child care and parent labor force participation: a review of the research literature

Early care and education (ECE) enables parental employment and provides a context for child development. Theory suggests that lower child care costs, through subsidized care or the provision of free or low-cost arrangements, would increase the use of ECE and parents’ employment and work hours. This paper reviews the research literature examining the effects of child care costs and availability on parental employment. In general, research suggests that reduced out-of-pocket costs for ECE and increased availability of public ECE increases ECE attendance among young children, and has positive impacts on mothers’ labor force participation and work hours. However, there is considerable heterogeneity in findings. Among U.S. studies that report the elasticity of employment to ECE price, estimates range from ?0.025 to ?1.1, with estimates clustering near 0.05–0.25. This indicates that a 10 % reduction in the price of child care would lead to a 0.25–11 % increase in maternal employment, likely near 0.5–2.5 %. In general, studies using more recent data or data from non-U.S. countries find smaller elasticities than those using U.S. data from the 1990s. These differences may be due to historical and cross-national differences in ECE attendance, labor force attachment, and educational attainment among mothers with young children, as well as heterogeneity in the methodological approaches and data used across studies. More research in the U.S. using contemporary data is needed, particularly given recent changes in U.S. ECE policy.     

The labor supply of married women and spousal tax deductions in Japan—a structural estimation

The Japanese tax system offers an opportunity to investigate the labor supply response of married women to the income tax and the intrahousehold resource allocation mechanism, since the deductible amount from the husband’s income decreases as the wife’s earnings increase. Using cross-section data, I structurally estimate the labor supply of married women under the piece-wise linear budget constraint created by the Japanese tax and social security system. I find that the wife’s labor supply response to her husband’s decreasing deduction tends to be greater than the response to her own income tax. This suggests that not only the unitary model is rejected but also that female labor is allocated inefficiently within a family. Finally, this study shows that the choice of household model affects the predicted effect of policy reform and that the currently proposed reforms will have less of an effect on the labor supply of married women than previous studies claim.

The labor supply effects of child care costs and wages in the presence of subsidies and the earned income tax credit

This paper uses CPS and SIPP data between 1990 and 2004 to examine the effects of child care expenditures and wages on the employment of single mothers. It adds to the literature in this area by incorporating explicit controls for child care subsidies and the EITC into the estimation. Doing so provides an opportunity to examine mothers’ sensitivity to prices and wages net of policies that influence these amounts. Results suggest that lower child care expenditures, higher wages, and more generous subsidy and EITC benefits increase the likelihood of employment. Allowing the impact of child care subsidies and the EITC to vary with expenditures and wages reveals substantial heterogeneity. In particular, the largest labor supply effects of child care subsidies are generated for mothers with higher child care costs, while the largest labor supply effects of the EITC are found for mothers with lower wages.     

The effect of child support on the labor supply of custodial mothers participating in TANF

Child support is a critical source of income, especially for the growing proportion of children born to unmarried mothers. Current social policy supports custodial parent employment (e.g., the Earned Income Tax Credit [EITC] and other work supports have largely taken the place of an entitlement to cash assistance for single mothers of young children). Given many single mothers' limited earnings potential, child support from noncustodial fathers is also important. This raises questions about the effects of child support on custodial mothers' labor supply, and whether policies that increase child support receipt will thereby discourage mothers' employment. This paper addresses these questions, taking advantage of data from a statewide randomized experiment conducted in Wisconsin. Unlike previous nonexperimental research, we do not find any negative effect of child support on the likelihood to work for pay or the number of hours worked in a given week. Recent U.S. social welfare policies have focused on increasing both custodial mothers' child support collections and their labor supply. The results suggest that these may be compatible policies; the absence of a negative labor supply effect strengthens the potential antipoverty effectiveness of child support.     

Optimal income taxation with Kalai wage bargaining and endogenous participation

This paper characterizes the optimal redistributive tax schedule in a search–matching framework where (voluntary) nonparticipation and (involuntary) unemployment are endogenous and wages are determined by proportional bargaining à la Kalai. The optimal employment tax rate is given by an inverse elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two responses. For plausible values of the parameters, our matching environment induces much lower employment tax rates than the usual competitive model with endogenous participation only. However, optimal employment tax rates are larger (in absolute value) when a given level of the global elasticity of employment is more due to search frictions and less due to participation responses.     

Economic and social implications of aging in Singapore

The economic and social impacts of population aging in Singapore are examined, particularly their impact on labor supply and the extent to which traditional family and community care providers can meet the challenges of an aged population. The adequacy of public policy responses, such as the new employment policy and the Central Provider Fund, are explored. Government strategy to shift the burden of care to the family and other community providers is challenged.     

The Labor Supply of Female Heads of Household: Comparisons With Male Heads and Wives*

This paper compares a model of labor supply for female heads of household, male heads, and wives. Not only have female-headed households increased significantly as a proportion of all households in recent years, but these households are also more likely to be in poverty than are other households. Yet, the determinants of labor supply for this increasingly important demographic group still are largely unknown. Analyses are performed on a sample of employed female and male heads and wives from the 1976 Survey of Income and Education. We examine the effects of wages, unearned income, number of children, and several other variables on hours worked per year, allowing for race interactions. We find that female heads and wives are similar in the effects of wages on their labor supply, while female and male heads are similar in the positive effect of children. We conclude that although financial need, as evidenced by low wages and children, increases female heads’labor supply, employment in more advantaged, non-female dominated jobs and core industries is needed to promote their full participation in the labor force.     

TAX EFFECTS VERSUS BUDGET EFFECTS ON LABOR SUPPLY

This paper analyzes the effects on labor supply of parallel changes in taxes and public spending of various types. A number of important recent developments in the labor supply behavior of households are highlighted by such a study of various types of "budget effects," rather than isolated "tax effects." This comes out in particular when considering cross substitution effects on labor supply of changes in public spending on goods and services or of the subsidization of goods and services provided by private markets. Moreover, the income effects of tax changes are often mitigated, or possibly even removed, by the income effects of the accompanying expenditure changes.     

Collective Labor Supply and Child Care Expenditures: Theory and Application

In this study we examine the collective labor supply choices of dual-earner parents and take into account child care expenditures. For this purpose we use data of the Flemish Families and Care Survey (FFCS, 2004–2005). The main findings are, firstly, that the supply of paid labor is hardly affected by changes in the prices of child care services. Secondly, child care price effects on the individual labor supplies are much smaller than the wage effects. Thirdly, we find that additional earnings due to an increase in household non-labor income minus the child care expenditures are mainly transferred to the wife.     

Family ties: Labor supply responses to cope with a household employment shock

We use data from the European Union Statistics on Income and Living Conditions (EU-SILC) to explore labor responses of individuals (not only the spouse) to a negative employment shock suffered by another household member. We focus on Italy where family ties other than spousal ones are particularly strong and grown up children live in their parents’ household till late, especially when they are students. Two main results emerge. First, we find strong and robust evidence that households hit by an employment shock do respond by increasing labor supply. Second, we document an added worker effect that is affecting not only wives, but also teenage children and students independently of their age, with important policy implications in terms of human capital formation. Results are robust across gender, household financial conditions and the crisis, yet they do not point to differential reactions along these dimensions.     

Foster care and the earned income tax credit

Foster care is a source of significant costs to both governments and foster children. Policies that provide income support to households potentially reduce entry into foster care via reducing child maltreatment and improving child behavior. As part of the American Recovery and Reinvestment Act in 2009 (ARRA2009), the federal government expanded the earned income tax credit (EITC), which is an important income support program for low-income working households. Using state-level data, we investigate the impact of this EITC expansion on state-level foster care entry rates. Typically, states with state-level EITC match federal EITC spending at a specific rate, meaning that increases in federal EITC spending increase state-level spending as well. We find that expansion of EITC decreased foster care entry rates by 7.43% per year in states with a state-level EITC, relative to those without. In models that separately examine foster care entry rates by age of the child, we find that the ARRA2009 had different effects on foster care entry based on the child’s age. We find that ARRA2009 decreased foster care entry rates for children age 11–15 by nearly 12% in states with a state EITC and it decreased foster care entry rates for children age 16–20 by roughly 17% in states with a state EITC, relative to states without a state EITC.     

Does child care availability play a role in maternal employment and children’s development? Evidence from Italy

This paper investigates the effects of public child care availability in Italy in mothers’ working status and children’s scholastic achievements. We use a newly available dataset containing individual standardized test scores of pupils attending the second grade of primary school in 2009–2010 in conjunction with data on public child care availability. Our estimates indicate a positive and significant effects of child care availability on both mothers’ working status and children’s Language test scores. We find that a percentage change in public child care coverage increases mothers’ probability to work by 1.3 percentage points and children’s Language test scores by 0.85 percent of one standard deviation; we do not find any effect on Math test scores. Moreover, the impact of a percentage change in public child care on mothers’ employment and children’s Language test scores is greater in provinces where child care availability is more limited.     

Does work during childhood affect the health of Guatemalan adults?

The diversity of potential relationships between child labor and health makes the empirical disentanglement of the causal relationship a difficult exercise. This paper examines the long run impact of child labour on health by controlling for unobserved household specific characteristics. In order to control for the unobserved households specific effect, we estimate a conditional fixed effect model using data on siblings constructed from the Guatemalan National Survey of Living Condition. The estimation results reinforce the conventional wisdom that child labor is harmful for health in the long run. The results can be interpreted as a lower bound of the true impact since healthier children are most likely to offer themselves for employment and to be appointed. The views expressed in this paper are those of the authors and do not necessarily represent those of IMF and IMF policy.     

Inverse J Effect of Economic Growth on Fertility: A Model of Gender Wages and Maternal Time Substitution

This paper presented a model where economic growth, via growth in female wages relative to male wages, encouraged households to raise paid female labor supply and have more children by substituting child care for maternal time. A threshold logarithm per capita output, above which fertility decline reverses, was predicted to depend on subsidized child care, maternity pay, and the value placed on children and maternal time spent rearing children. The predictions explained recent evidence and identified cross country differences in gender wages, family policy and willingness to substitute maternal time in childrearing as important factors in an inverse J-shaped effect of economic growth on fertility. The analysis was robust to the introduction of education and cost sharing among children in child rearing. Economies of scale in child rearing reduced the threshold logarithm of per capita output. Demand for child quality continued to rise with wages despite fertility decline reversal.     

Maternal employment and food produced at home: evidence from Japanese data

This paper examines whether mothers’ labor supply discourages home production, focusing on food preparation at home in Japanese families. Although empirical studies on home production are usually conducted using time use data, we use data collected by scanners, which cover daily goods purchased by over 10,000 households over 3 years. Based on the composition of daily food expenditures for foods consumed, we measure how many products are made using time-consuming processes at home, and examine if time-consuming home production is discouraged by mothers’ employment away from home. Controlling for unobserved heterogeneity among households using the panel structure of our scanner data, we first show that mothers’ out-of-home employment has a negative effect on home cooking. This effect is shared across economic classes, particularly when mothers work part-time, as compared with non-working mothers. Second, we show that this negative effect is more apparent in the low economic class. Households in this class show a particular decrease in time-consuming home cooking, especially when the mothers work part-time. Third, the smaller negative effect among the higher class can be explained by stronger health-consciousness and aversion to less-healthy products in this class.     

The Canadian temporary visa programme as an alternative to the European guest worker scheme

This article analyzes Canada's employment visa program, through which foreigners enter the Canadian labor market for relatively short time periods. It further demonstrates some major differences between this policy and the European guest worker scheme. Governments in Western Europe viewed guest workers' benefits as preventing wages and inflation from rising, allowing profits and investments to increase, and sustaining economic growth. A question to consider is whether guest workers' demands on social services, in relation to their tax and other contributions, exceed those of the indigenous population and thus reduce their profitability. Canada, in contrast, has avoided the need to provide services for the children of foreign workers or jobs for their spouses by limiting visa length to a maximum of 1 year. The majority of employment visa holders to Canada enter without dependents. Another difference is the far smaller scope of the Canadian program. Canada's employment visa program provides only about 0.5% of total employment, whereas guest workers in European countries may comprise up to 23% (Switzerland). The occupations of service and teaching account for the majority of workers included in the Canadian visa program, while manufacturing subsumes a large share of European guest workers. It is important to stress that, with relatively low levels for permanent immigration to Canada, the employment visa program rivals that flow as a yearly contributor to labor supply, indicating a need for closer attention to the evaluation of this policy.     

Child care policy: A need for greater advocacy

While some scholars have recognized the importance of child care to families in the United States (Kamerman, 2001; Waldfogel, 1998), child care has not been viewed as a core social policy concern in the United States. In this article, we provide an overview of child care needs in the U.S. followed by an analysis of three major federal programs that shape U.S. child care policy. The first, the Child Care Development Fund (CCDF), provides financial child care supplements to low-income parents to enable them to engage in paid labor. The second policy, The Family Medical Leave Act (FMLA), is technically a universally applicable policy enabling people to care for a family member in need, including all parents who choose to spend a few weeks of unpaid leave with a newborn child. The third is the U.S. tax policy, including child care exemptions, deductions and credits. We suggest that, though all of these policies exist to help families care for children, they fail the children and families that they are purportedly designed to help. We then discuss the crucial role that professionals who work with families and children can play in shaping U.S. child care policies.     

Tax reform and endogenous gender bargaining power

The conventional studies with unitary representation of the household have been seeking for the condition in which tax systems achieve improvements of both fertility and female labor supply. Such analyses may not be enough to capture the important aspects of family behaviors since their common-preference assumption is frequently inconsistent with observed economies. By making use of a family bargaining framework, we argue that the heterogeneity in parental preferences among household members influences the result of existing studies on tax systems. Our results show that when women prefer larger family size than men, the tax reform towards individual taxation raises the fertility rate even more. In this case, female labor supply can be still increased in spite of enhanced fertility due to bargaining allocation.     

A comparison of family policy designs of Australia and Norway using microsimulation models

Many of the Australian family support schemes are income-tested transfers, targeted towards the lower end of the income distribution, whereas the Norwegian approach is to provide subsidized non-parental care services and universal family payments. We contrast these two types of policies and discuss policy changes within these policy types by presenting results from simulations, using microsimulation models developed for Australia and Norway. Labor supply effects and distributional effects are discussed for the hypothetical policy changes of replacing the means-tested family payments of Australia by the Norwegian universal child benefit schedule and vice versa, and of reducing the childcare fees in both countries. The analysis highlights that the case for policy changes is restricted by the economic environment and the role of family policy in the two countries. Whereas there is considerable potential for increased labor supply of Australian mothers, it may have detrimental distributional effects and is likely to be costly. In Norway, mothers already have high labor supply and any adverse distributional effects of further labor supply incentives occur in an economy with low initial income dispersion. However, expenditure on family support is already high and the question is whether this should be further extended.     

Close to Home: A Simultaneous Equations Model of the Relationship Between Child Care Accessibility and Female Labor Force Participation

Rising rates of maternal employment among current and former welfare recipients have increased the use of non-parental child care. Little empirical work examines the relationship between women’s labor supply and the geographic supply of child care. We combine census data with child care provider information for the state of Maryland to explore the relationship between female labor supply and the geographic supply of child care. OLS and 3-SLS equations are estimated, and the findings are consistent across each estimator: Women’s labor supply is sensitive to the geographic supply of child care and vice versa. These results are important because states now spend significant money on quality improvement initiatives, many of which increase child care supply in low-income neighborhoods.