Childcare Subsidies and Household Labor Supply

• BSE Working Paper: 110223 | September 15
• Keywords: childcare , household labor supply
• JEL codes: E62, H24, H31
• childcare
• household labor supply

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 long-run 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%.