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How to Incorporate Children into Labor SupplyEquations? A General Framework

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  • Olivier Donni

    (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

  • Anderson Vil

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris)

Abstract

We provide a novel method for modeling and estimating the impact of children on labor supply decisions. We rely on the literature on equivalence scales and collective models.Our approach considers both the time and monetary costs of raising children. Using semiparametric restrictions on individual preferences, we identify the cost of children from the curvature of the labor supply equations with low data requirements. We apply the model to PSID data from the USA and investigate the women's labor supply sensitivity, the cost of children, and the women's price of time. We find that women's labor supply is highly sensitive to wage variations. In addition, we show that mothers allocate, on average, 44% of their net total expenditures to children. Finally, by comparing our findings to those derived from other studies using children's expense data, our model provides relatively consistent predictions regarding the cost of children.

Suggested Citation

  • Olivier Donni & Anderson Vil, 2025. "How to Incorporate Children into Labor SupplyEquations? A General Framework," PSE Working Papers halshs-05365740, HAL.
    • Handle: RePEc:hal:psewpa:halshs-05365740
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-05365740v1
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