IZA DP No. 13839: Female Employment and Childcare
Childcare and women's employment decisions are intimately linked. I develop a dynamic model designed to analyse the effects of childcare subsidies on labour supply, fertility, marriage, and childcare decisions in a collective setting. In the model, children are a household good, produced by both parental time and time in childcare. Couples cannot commit to insure one another against the lower wages and lower consumption associated with spending time with a child. I estimate the model using the Panel Study of Income Dynamics in the United States to evaluate the impact of childcare subsidy programmes on various life-cycle outcomes of women and men. Offering a 10 percent childcare subsidy expands the labour supply of single women from lower-education backgrounds by 5.4 percent while married women, and higher-educated single women, respond much less. Finally, I show that there are large increases in childcare take-up associated with childcare subsidies, which improves the quality of children as a household good. This increases gains from marriage and results in an increase in the married fraction of the sample.