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Estimating Net Child Care Price Elasticities of Partnered Women With Pre-School Children Using a Discrete Structural Labour Supply-Child Care Model

  • Xiaodong Gong
  • Robert Breuing

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://cbe.anu.edu.au/researchpapers/cepr/DP653.pdf
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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 653.

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Date of creation: Nov 2011
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Handle: RePEc:auu:dpaper:653
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  1. 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.
  2. Andrew Leigh, 2008. "Returns To Education In Australia," Economic Papers, The Economic Society of Australia, vol. 27(3), pages 233-249, 09.
  3. 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.
  4. 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).
  5. 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.
  6. Ribar, D.C., 1993. "A Structural Model of Child Care and the Labor Supply of Married Women," Papers 5-93-1, Pennsylvania State - Department of Economics.
  7. 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.
  8. 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.
  9. Sándor, Zsolt & Train, Kenneth, 2004. "Quasi-random simulation of discrete choice models," Transportation Research Part B: Methodological, Elsevier, vol. 38(4), pages 313-327, May.
  10. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2.
  11. 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.
  12. 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.
  13. Gong, Xiaodong & Breunig, Robert & King, Anthony, 2010. "How Responsive is Female Labour Supply to Child Care Costs: New Australian Estimates," IZA Discussion Papers 5119, Institute for the Study of Labor (IZA).
  14. 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.
  15. 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.
  16. Ribar, D.C., 1990. "Child Care And The Labor Supply Of Married Women: Reducted Form Evidence," Papers 9-90-9, Pennsylvania State - Department of Economics.
  17. Rammohan, Anu, 2004. "Child care and female employment decisions: A theoretical note," Working Papers 3, University of Sydney, School of Economics.
  18. 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.
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