Child Care and Mothers' Employment Decisions

This paper will focus on the child care decisions of women who differ by their level of skill, as measured by their level of education, and the role that costs play in determining their labor force participation. Our analysis will include four separate components. First, we will review the institutional background of the market for child care, focusing mainly on the government programs targeted at less-skilled women. Second, we will conduct a descriptive analysis of the utilization and cost of child care services, paying particular attention to differences that exist among women with different levels of skill. Third, we will survey the existing evidence regarding the responsiveness of female labor supply to child care costs, reviewing both econometric studies and the results of several demonstration projects that include child care components. Finally, since the econometric studies do not focus on less-skilled women, and the responses to child care incentives from demonstration projects are difficult to interpret, we conduct our own econometric analysis. In this analysis we focus not only on variation in the response to child care cost across skill levels, but also on reconciling some of the differences in the literature. Throughout the paper, where appropriate we will reflect upon the implications of our analysis for welfare reform.