Subsidized childcare outside the home for pre-school children, it is argued, could be beneficial both directly by improving a child's educa- tion and indirectly, by allowing single parents, especially women, to increase their labour force participation and so earn more. In Discussion Paper No. 279, Research Fellow Siv Gustafsson and Frank Stafford analyse the effects of the price and availability of subsidized childcare on households' decisions to use this service and to participate in the labour market. They use data on Swedish households from a national survey for 1984, together with data on public daycare and spaces available for each of Sweden's 285 communities. These local government areas set the subsidy and the number of childcare spaces, and there are wide variations in both the availability of subsidized childcare and the size of the subsidy.
The authors develop a model of the household choice of labour supply and childcare as a function of variations in its price and quality. Taking the number of children as given, the mother chooses how to divide her time between market work, childcare, other goods and home goods. It is assumed that households who would benefit from generous childcare provision cannot easily move into communities which make such provision, nor vice versa; this is consistent with the low residential mobility observed in Sweden, and simplifies the authors' analysis.
Gustafsson and Stafford's analysis pays closer attention to the number of publicly provided childcare places than to their price: the charge for childcare will only affect mothers' choice of market work and out-of-home childcare when the rationing of places is insignificant, the authors argue. They regress the places available (as a proportion of the number of children below six years of age) onto region or city type, the political complexion of the community government and the proportion of women among key policy-makers in the community. The estimates reveal that the number of places provided is larger in more densely populated communities and is only somewhat greater in communities controlled by Social Democrats. The authors speculate that this occurs because, although the Social Democrats are most strongly in favour of measures that promote childcare, other parties must support these programmes too if they are preferred by the `median voter' in each community. The proportion of women among elected community officials has a much stronger influence on the availability of childcare in a community than does its party-political complexion.
The authors' estimates of their household choice model reveal that the number of places available (per child) has a very large effect on the probability of substantial market work by mothers combined with use of childcare. When the effects of rationing are taken into account the authors find that a lower public price also increases significantly the probability of working in the market and using public daycare.
The authors' estimates also reveal that women achieve a 2% increase in their annual earnings by re-entering the labour market one year earlier. This, combined with higher earnings from on-the-job training, almost offsets the cost of the childcare programme. Gustafsson and Stafford note, however, that the applicability of this result to countries with different family structures may be limited

Daycare Subsidies and Labor Supply in Sweden
Siv Gustafsson and Frank Stafford

Discussion Paper No. 279, October 1988 (HR)