The labor supply effects of child care costs and wages in the presence of subsidies and the earned income tax credit
- 515 Downloads
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.
- Anderson, P., & Levine, P. (2000). Child care and mothers’ employment decisions. In R. M. Blank & D. Card (Eds.), Finding jobs: Work and welfare reform. New York, NY: Russell Sage Foundation.Google Scholar
- Besharov, D., & Higney, C. (2006). Federal and state child care expenditures (1997-2003): Rapid growth followed by steady spending. Report prepared for administration on children, youth, and families; administration for children and families; U.S. Department of Health and Human Services. College Park, MD: Welfare Reform Academy, University of Maryland School of Public Policy.Google Scholar
- Besharov, D., Morrow, J., & Shi, A. (2006). Child care data in the survey of income and program participation: Inaccuracies and corrections. College Park, MD: Welfare Reform Academy, University of Maryland School of Public Policy.Google Scholar
- Blau, D. (2000). Child care subsidy programs. Working Paper 7806. Cambridge, MA: National Bureau of Economic Research.Google Scholar
- Blau, D. (2002). The effect of input regulations in input use, price, and quality: The case of child care. Working Paper. Chapel Hill, NC: Department of Economics, University of North Carolina.Google Scholar
- Burnam, L., Maag, E., & Rohaly, J. (2005). Tax credits to help low-income families pay for child care. Brief #14. Washington, DC: Urban Institute and Brookings Institution.Google Scholar
- Cancian, M., & Levinson, A. (2006). Labor supply effects of the earned income tax credit: Evidence from Wisconsin supplemental benefit for families with three children. National Tax Journal, 59, 781–800.Google Scholar
- Cappellari, L., & Jenkins, S. (2003). Multivariate probit regression using simulated maximum likelihood. The Stata Journal, 3, 278–294.Google Scholar
- Child Care Bureau. (2005). 2005 CCDF State Expenditure Data. Washington, DC: U.S. Department of Health and Human Services, Administration for Children and Families, Child Care Bureau. Accessed from http://www.acf.hhs.gov/programs/ccb/data/index.htm on March 1, 2008.
- Dickert-Conlin, S., Houser, S., & Scholz, J. (1995). The earned income tax credit and transfer programs: A study of labor market and program participation. In J. Poterba (Ed.), Tax policy and the economy (Vol. 9). Cambridge, MA: MIT Press.Google Scholar
- Ellwood, D. (2000). The impact of the earned income tax credit and social policy reforms on work, marriage, and living arrangements. National Tax Journal, 53(4), 1063–1105.Google Scholar
- Grogger, J., & Karoly, L. (2005). Welfare reform: Effects of a decade of change. Cambridge, MA: Harvard University Press.Google Scholar
- Heeb, R., & Kilburn, R. (2004). The effects of state regulations on childcare prices and choices. Working Paper. Labor and Population Program. Santa Monica, CA: RAND.Google Scholar
- Helburn, S. (1995). Cost, quality, and child outcomes in child care centers: Technical report. Denver, CO: Department of Economics, University of Colorado.Google Scholar
- Hoffman, S., & Seidman, L. (1990). The earned income tax credit: Antipoverty effectiveness and labor market effects. Kalamazoo, MI: Upjohn Institute for Employment Research.Google Scholar
- Hotz, J., & Kilburn, R. (1995). Regulating child care: The effects of state regulations on child care demand and its cost. Working Paper No. 93-03. Labor and Population Program. Santa Monica, CA: RAND.Google Scholar
- Hotz, J., Mullin, C., & Scholz, J. (2005). The earned income tax credit and labor market participation of families on welfare. Working Paper. Joint Center for Poverty Research. Evanston, IL: Northwestern University.Google Scholar
- Hotz, J., & Scholz, J. (2001). The earned income tax credit. Working Paper 8078. Cambridge, MA: National Bureau of Economic Research.Google Scholar
- Hotz, J., & Xiao, M. (2005). The impact of minimum quality standards on firm entry, exit, and product quality: The case of the child care market. Working Paper 11873. Cambridge, MA: National Bureau of Economic Research.Google Scholar
- Keane, M. (1995). A new idea for welfare reform. Federal Reserve Bank of Minneapolis Quarterly Review, 19, 2–28.Google Scholar
- Kimmel, J. (1995). The effectiveness of child-care subsidies in encouraging the welfare-to-work transition of low-income single mothers. American Economic Review, 85, 271–275.Google Scholar
- Kimmel, J., & Connelly, R. (2007). Mothers’ time choices: Caregiving, leisure, home production, and paid work. Journal of Human Resources, 42, 643–681.Google Scholar
- Liebman, J. (1999). Who are the ineligible EITC recipients? Working Paper. J.F.K. School of Government. Cambridge, MA: Harvard University.Google Scholar
- Looney, A. (2005). The effects of welfare reform and related policies on single mothers’ welfare use and employment in the 1990s. Finance and Economics Discussion Series. Washington, DC: Division of Research, Statistics, and Monetary Affairs, Federal Reserve Board.Google Scholar
- Meyer, B., & Rosenbaum, D. (1999). Welfare, the earned income tax credit, and the labor supply of single mothers. Working Paper 7363. Cambridge, MA: National Bureau of Economic Research.Google Scholar
- Meyer, B., & Rosenbaum, D. (2000). Making single mothers work: recent tax and welfare policy and its effects. National Tax Journal, 53, 1027–1061.Google Scholar
- Nagle, A., & Johnson, N. (2006). A hand up: How state earned income tax credits help working families escape poverty in 2006. Washington, DC: Center on Budget and Policy Priorities.Google Scholar
- Neumark, D., & Wascher, W. (2000). Using the EITC to help poor families: New evidence and a comparison with the minimum wage. Working Paper 7599. Cambridge, MA: National Bureau of Economic Research.Google Scholar
- Rusev, E. (2006). The relative effectiveness of welfare programs, earnings subsidies, and child care subsidies as work incentives for single mothers. Working Paper. Department of Economics, University of North Carolina, Chapel Hill.Google Scholar
- Scholz, J. (1994). The earned income tax credit: Participation, compliance, and anti-poverty effectiveness. National Tax Journal, 47, 63–87.Google Scholar
- Tax Policy Center. (2008). Spending on the EITC, child tax credit, and AFDC/TANF, 1976–2010. Washington, DC: Urban Institute and Brookings Institution. Accessed from http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=266 on September 1, 2008.
- Tekin, E. (2007a). Child care subsidies, wages, and the employment of single mothers. Journal of Human Resources, 42, 453–487.Google Scholar
- Tunali, I. (1986). A general structure for models of double-selection and an application to a joint migration/earnings process with remigration. Research in Labour Economics, 8, 235–282.Google Scholar
- U.S. Department of Health and Human Services (U.S. DHHS). (2006). U.S. welfare caseloads information: Total number of families and recipients. Retrieved September 1, 2006, from http://www.acf.hhs.gov/news/stats/newstat2.shtml.
- U.S. Department of Health and Human Services, Administration for Children and Families. (1999). Access to child care for low-income working families. Retrieved September 2003, from: www.acf.dhhs.gov/programs/ccb/research/ccreport/ccreport.
- U.S. Department of Health and Human Services, Administration for Children and Families. (2005). Child care and development fund: Report of state plans, FY2004-2005. Retrieved January 2005, from: http://www.nccic.org/pubs/stateplan/.
- U.S. General Accounting Office. (1994). Child care: Child care subsidies increase likelihood that low-income mothers will work. (Report No. HEHS-95-20). Washington, DC: U.S. General Accounting Office.Google Scholar
- U.S. General Accounting Office. (1999). Education and care: Early childhood programs and services for low-income families. Report No. HEHS-00-11. Washington, DC: U.S. General Accounting Office.Google Scholar
- U.S. House of Representatives, Committee on Ways and Means. (2004). Green book, background on material and data on programs within the jurisdiction of the committee on ways and means. Washington, D.C.: Government Printing Office.Google Scholar