Abstract

Many governments are considering expanding childcare subsidies, but little is known about the impact of such policies on parent’s labour supply. Exploiting free childcare eligibility rules based on date of birth in a difference-in-differences framework, we compare the effects of offering free part-time childcare and of expanding this offer to the whole school day. Free part-time childcare only affects the labour force participation of mothers whose youngest child is eligible. Expanding from part-time to full-time free childcare leads to significant increases in labour force participation and employment of these mothers, which emerge immediately and grow over the months following entitlement.

Highlights

  • Over the last two decades, most OECD countries have introduced policies that make childcare cheaper or more readily available, with the aim of increasing parental labour supply and/or promoting child development

  • Relative to the third term of part-time care, the last term in which all children are entitled to free part-time childcare, we find that increasing the childcare subsidy to cover 6.5 hours a day instead of 3 increases the probability of mothers whose youngest child is eligible being in the labour force in the first term of eligibility by 3.1 percentage points

  • As many countries are considering increasing the number of hours of free or highly subsidised childcare available to families with pre-school children, it is important to understand the impacts that such extensions are likely to have on parental labour supply

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Summary

Introduction

Over the last two decades, most OECD countries have introduced policies that make childcare cheaper or more readily available, with the aim of increasing parental labour supply and/or promoting child development. Despite these efforts, the cost of childcare is still a big concern for many parents, potentially hindering their labour market attachment. The cost of childcare is still a big concern for many parents, potentially hindering their labour market attachment In recent years, these concerns have led several countries to expand the generosity of their childcare subsidies, e.g. by extending childcare subsidies to younger children or by increasing the number of hours of subsidised care available.. Even in contexts where the introduction of childcare subsidies did encourage some parents to work or work longer hours, it is not clear that extending them further would yield any further increase in labour supply

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