Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 82: A Structural Model of Childcare, Welfare, and the Labor Supply of Single Mothers

Thomas Andrén ()
Additional contact information
Thomas Andrén: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG

Abstract: This paper considers the simultaneous relationship of the single mother’s decision to choose paid childcare, welfare participation and labor supply, and estimates a structural model that allows for a free error covariance. We use a discrete approach to the choice of labor supply together with the discrete choices of utilized paid childcare and welfare participation, which allow formulating the model as a multiple-choice problem. The results show that there is an association between social assistance, paid childcare and labor supply, but that the relationship is non-symmetric. An increase in the social assistance norms has a relatively small effect on paid childcare utilization, but a relatively larger effect on the mean labor supply. In contrast, a corresponding reduction in the childcare cost has a relatively large effect on the social assistance utilization but a relatively small effect on the mean labor supply. Our estimates suggest that a decrease in childcare cost increases the labor supply of those working rather than encourages non-workers to start work, which implies that childcare cost is foremost a barrier to fulltime work rather then a barrier to work at all.

Keywords: labor supply; paid childcare; welfare participation; structural model; simulated maximum likelihood; Halton draws

JEL-codes: J13; J22

40 pages, September 30, 2002

Note: Published as "The choice of paid childcare, welfare, and labor supply of single mothers" in Labour Economics

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