Child Care and Mothers' Employment Decisions

Abstract

Rising female labor force participation and recent changes to the welfare system have increased the importance of child care for all women and, particularly, the less-skilled. This paper focuses on the child care decisions of women who differ by their skill level and the role that costs play in their work decision. After reviewing government child-care programs targeted at less-skilled women, we present a descriptive analysis of current utilization and child care costs. We emphasize differences across skill groups, showing that the least-skilled women both use less costly paid care and are more likely to use unpaid care. We then survey the existing evidence regarding the responsiveness of female labor supply to child care costs, reviewing both econometric studies and demonstration projects that include child care components. To investigate variation in the response to child care cost across skill levels, we implement models similar to this past literature. We conclude that while the overall elasticity of labor force participation with respect to the market price of child care is between -0.05 and -0.35, this elasticity is larger for the least skilled women and declines with skill. Throughout the paper, we reflect upon the implications of our analysis for welfare reform.