New Estimates of the relationship Between Female Labour Supply and the Cost, Availability, and Quality of Child Care

Abstract

This paper summarises new evidence from two Treasury working papers on the responsiveness of female labour supply to child care costs, availability, and quality. In one study, we drew on lessons from the literature and new detailed data to provide new estimates of the labour supply elasticity with respect to child care price for married women with young children. We found that, in contrast with previous Australian estimates, the cost of child care does have a statistically significant and negative effect on the labour supply of married mothers. This finding supports policy that reduces the costs of child care to encourage maternal labour supply. In a second study, we focused on the non-price factors and examined the impacts of subjective measures of the availability, quality, and affordability of child care on mothers' labour supply. We found that, after controlling for other factors, in geographical areas with higher reports of difficulty with availability and quality (and affordability), women with young children work fewer hours and, in particular, are more likely to work part-time instead of full-time.