Labor Supply Heterogeneity and Demand for Child Care of Mothers with Young Children

36 Pages Posted: 28 Apr 2012 Last revised: 24 May 2012

See all articles by Patricia F. Apps

Patricia F. Apps

The University of Sydney Law School; IZA Institute of Labor Economics

Jan Kabatek

University of Melbourne - Melbourne Institute of Applied Economic and Social Research; IZA; Netspar

Ray Rees

Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Date Written: April 25, 2012

Abstract

This paper introduces a static structural model of hours of market labor supply, time spent on child care and other domestic work, and bought in child care for married or cohabiting mothers with pre-school age children. The father's behavior is taken as given. The main goal is to analyze the sensitivity of hours of market work, parental child care, other household production and formal child care to the wage rate, the price of child care, taxes, benefits and child care subsidies. To account for the non-convex nature of the budget sets and, possibly, the household technology, a discrete choice model is used. The model is estimated using the HILDA dataset, a rich household survey of the Australian population, which contains detailed information on time use, child care demands and the corresponding prices. Simulations based on the estimates show that the time allocations of women with pre-school children are highly sensitive to changes in wages and the costs of child care. A policy simulation suggests that labor force participation and hours of market work would increase substantially in a fiscal system based solely on individual rather than joint taxation.

Keywords: time use, income tax, child care subsidies

JEL Classification: J22, J13, H24

Suggested Citation

Apps, Patricia F. and Kabatek, Jan and Rees, Ray and van Soest, Arthur H. O., Labor Supply Heterogeneity and Demand for Child Care of Mothers with Young Children (April 25, 2012). Netspar Discussion Paper No. 04/2012-015. Available at SSRN: https://ssrn.com/abstract=2047036 or http://dx.doi.org/10.2139/ssrn.2047036

Patricia F. Apps

The University of Sydney Law School ( email )

Faculty of Law, New Law Building F10
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9351 0241 (Phone)
+61 2 9351 0200 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jan Kabatek

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

IZA ( email )

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Ray Rees

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Munich, D-80539
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Arthur H. O. van Soest (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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