Family policy and couples’ labour supply: an empirical assessment

Abstract

This paper empirically examines the effect on couples’ labour supply of a universal at-birth cash benefit and a government subsidy equal to 50% of child care expenditure for working parents. The method is first to simulate the effects on labour supply over the adult lifecycle using a calibrated dynamic utility maximisation model of a representative couple, using data drawn from waves of a longitudinal survey for Australia. Then using the same data, the effect of family benefits and the child care subsidy on couples’ hours worked is econometrically estimated. The 50% child care subsidy was found to increase the average couple’s labour supply by the equivalent of 0.75 to 1 h per week whilst children are of pre-school age, and less on average over the couple’s working lifetime. The cash benefit changes were found to have a negligible effect on labour supply.