September 2005

IZA DP No. 1779: Labor Supply and Child Care Costs: The Effect of Rationing

published as 'The mismatch between employment and child care in Italy: the impact of rationing' in: Journal of Population Economics, 2007, 20(4), 805-832

In Italy the participation of women has not increased very much in the last few decades relative to other developed countries and it is still among the lowest in Europe. The female employment rate stands almost 13 percentage points below the EU average and 22 below the Lisbon target. One of the most important reasons is related to the characteristics of child care system. In this paper we analyze the characteristics of the child care system in Italy and its relationship to the labor market participation decision of mothers. We present a simple discrete choice framework in which the two decisions can be jointly considered, which also allows for simple forms of rationing and estimate a bivariate probit model of the child care and employment decisions and interpret the results within the framework of our model. We find evidence that rationing is an important factor in interpreting price effects on utilization rates.