DP9775 Childcare Subsidies and Household Labor Supply

Author(s): Nezih Guner, Remzi Kaygusuz, Gustavo Ventura
Publication Date: December 2013
Keyword(s): Childcare, Household Labor Supply
JEL(s): E62, H24, H31
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9775

What would be the aggregate effects of adopting a more generous and universal childcare subsidy program in the U.S.? We answer this question in a life-cycle equilibrium model with heterogeneous married and single households with three key features: (i) joint labor-supply of married households along extensive and intensive margins; (ii) heterogeneity in terms of the presence of children across households; (iii) skill losses of females associated to non participation. We find that subsidies have substantial effects on female labor supply and lead to a large reallocation of hours worked from males to females. Fully subsidized childcare available to all households leads to longrun increases in the participation of married females and total hours worked by about 10.1% and 1.0%, respectively, and to a decline of male hours by 1.5%. There are large differences across households in welfare gains, as a small number of households–poorer households with children– gain significantly while others lose. Welfare gains of newborn households amount to 1.9%.