Childcare Markets, Parental Labor Supply, and Child Development

Abstract

We develop and estimate a model of supply and demand for childcare. On the demand side, households make consumption, labor supply, and childcare decisions. On the supply side, centers make entry, price, and quality decisions. In addition, both paid and informal caregivers are available. Child development is a function of the time spent with parents and nonparental care providers. We estimate the model using data from the Early Childhood Longitudinal Study, Birth Cohort, and perform policy experiments. Vouchers that can be used only in high-quality centers or by working mothers are particularly effective, since they deliver child development gains while increasing mothers’ labor supply.