The labor supply effects of child care costs and wages in the presence of subsidies and the earned income tax credit
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This paper uses CPS and SIPP data between 1990 and 2004 to examine the effects of child care expenditures and wages on the employment of single mothers. It adds to the literature in this area by incorporating explicit controls for child care subsidies and the EITC into the estimation. Doing so provides an opportunity to examine mothers’ sensitivity to prices and wages net of policies that influence these amounts. Results suggest that lower child care expenditures, higher wages, and more generous subsidy and EITC benefits increase the likelihood of employment. Allowing the impact of child care subsidies and the EITC to vary with expenditures and wages reveals substantial heterogeneity. In particular, the largest labor supply effects of child care subsidies are generated for mothers with higher child care costs, while the largest labor supply effects of the EITC are found for mothers with lower wages.
KeywordsChild care costs Child care subsidies EITC Labor supply
This research was supported by a grant (No. 90YE0083) from the Child Care Bureau, Administration on Children, Youth, and Families, U.S. Department of Health and Human Services (DHHS). The contents are solely the responsibility of the author and do not represent the official views of the funding agency, nor does publication in any way constitute an endorsement by the funding agency. I would like to thank the following individuals for their advice and/or technical assistance: Bill Galston, Mark Lopez, Jonah Gelbach, Burt Barnow, Randi Hjalmarsson, Peter Reuter, Sandra Hofferth, Gil Crouse, Jean Kimmel, and Patricia Anderson. I also thank Joseph Hotz and Rebecca Kilburn for generously providing their child care regulation data. Seminar participants from the University of Maryland, Johns Hopkins University, Arizona State University, American University, and RAND provided useful comments.
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