Outsourcing Household Production: Foreign Domestic Workers and Native Labor Supply in Hong Kong

Abstract

We explore how the availability of affordable live-in help provided by foreign domestic workers (FDWs) in Hong Kong affected native women’s labor supply and welfare. First, we exploit differences in the FDW program between Hong Kong and Taiwan. Second, we use cross-sectional variation in the cost of a FDW to estimate a model of labor force participation and FDW hire. FDWs increased the participation of mothers with a young child (relative to older children) by 10–14 percentage points and have generated a monthly consumer surplus of US$130–US$200. By reducing child care costs through immigration, this is a market-based alternative to child care subsidies.