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Estimating net chid care price elasticities of partnered women with pre-school children using a discrete structural labour supply-child care model

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  • Xiaodong Gong

    (National Centre for Social and Economic Modelling, University of Canberra)

  • Robert Breunig

    (Treasury, Government of Australia and Research School of Economics, Australian National University)

Abstract

The purpose of this paper is to improve our understanding of the relationship between child care price and women's labour supply. We specify and estimate a discrete, structural model of the joint household decision over women’s labour supply and child care demand. Parents care about the well-being and development of their children and we capture this by including child care directly in household utility. Our model improves on previous papers in that we allow formal child care to be used for reasons other than freeing up time for mothers to work (such as child development) and we allow mothers’ work hours to exceed formal child care hours. As informal and paternal care are important features of the data, this second relaxation of previous hour constraints is particularly important. We estimate the model using data from 2005 to 2007 from the Household Income and Labour Dynamics in Australia (HILDA) Survey. We find that on average a one percent increase in the net price of child care leads to a decrease in hours of labour provided by partnered women of 0.10 per cent and a decrease in the employment rate of 0.06 per cent. These estimates are statistically significant. Furthermore, we find that labour supply responses are larger for women with lower wages, less education, and lower income.

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File URL: http://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2012/child%20care%20price/downloads/PDF/Child-Care-Working-Paper.ashx
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Bibliographic Info

Paper provided by Treasury, Australian Government in its series Treasury Working Papers with number 2012-01.

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Length: 62 pages
Date of creation: Nov 2012
Date of revision: Nov 2012
Handle: RePEc:tsy:wpaper:wpaper_tsy_wp_2012_1

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Keywords: Child care demand; child care price; women’s labour supply; elasticities; discrete choice model;

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References

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  1. Charlene M. Kalenkoski & David C. Ribar & Leslie S. Stratton, 2005. "Parental Child Care in Single-Parent, Cohabiting, and Married-Couple Families: Time-Diary Evidence from the United Kingdom," American Economic Review, American Economic Association, vol. 95(2), pages 194-198, May.
  2. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, Spring.
  3. Denise Doiron & Guyonne Kalb, 2005. "Demands for Child Care and Household Labour Supply in Australia," The Economic Record, The Economic Society of Australia, vol. 81(254), pages 215-236, 09.
  4. Andrew Leigh, 2007. "Returns to Education in Australia," CEPR Discussion Papers 561, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  5. Connelly, Rachel, 1992. "The Effect of Child Care Costs on Married Women's Labor Force Participation," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 83-90, February.
  6. Ribar, David C, 1995. "A Structural Model of Child Care and the Labor Supply of Married Women," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 558-97, July.
  7. Breunig, Robert & Cobb-Clark, Deborah A. & Gong, Xiaodong, 2005. "Improving the Modeling of Couples' Labour Supply," IZA Discussion Papers 1773, Institute for the Study of Labor (IZA).
  8. Bhat, Chandra R., 2001. "Quasi-random maximum simulated likelihood estimation of the mixed multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 677-693, August.
  9. Xiaodong Gong & Arthur van Soest, 2002. "Family Structure and Female Labor Supply in Mexico City," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 163-191.
  10. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  11. David C. Ribar, 1992. "Child Care and the Labor Supply of Married Women: Reduced Form Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 134-165.
  12. David M. Blau & Alison P. Hagy, 1998. "The Demand for Quality in Child Care," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 104-146, February.
  13. Tom Kornstad & Thor Thoresen, 2007. "A discrete choice model for labor supply and childcare," Journal of Population Economics, Springer, vol. 20(4), pages 781-803, October.
  14. James J. Heckman, 1974. "Effects of Child-Care Programs on Women's Work Effort," NBER Chapters, in: Marriage, Family, Human Capital, and Fertility, pages 136-169 National Bureau of Economic Research, Inc.
  15. Trevor Breusch & Edith Gray, 2004. "New Estimates of Mothers’ Forgone Earnings Using HILDA Data," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 7(2), pages 125-150, June.
  16. Alan Duncan & Gillian Paull & Jayne Taylor, 2001. "Mothers' employment and the use of childcare in the UK," IFS Working Papers W01/23, Institute for Fiscal Studies.
  17. Rammohan, Anu, 2004. "Child care and female employment decisions: A theoretical note," Working Papers 3, University of Sydney, School of Economics.
  18. Jean Kimmel & Rachel Connelly, 2007. "Mothers’ Time Choices: Caregiving, Leisure, Home Production, and Paid Work," Journal of Human Resources, University of Wisconsin Press, vol. 42(3).
  19. Stephen Whelan & Anu Rammohan, 2005. "Child Care and Female Decisions," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 8(2), pages 203-225, June.
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Cited by:
  1. Patricia Apps & Jan Kabátek & Ray Rees & Arthur van Soest, 2012. "Labor Supply Heterogeneity and Demand for Child Care of Mothers with Young Children," CEPR Discussion Papers 677, Centre for Economic Policy Research, Research School of Economics, Australian National University.

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