Can the Quiet Revolution Continue? The Effects of Childcare Subsidies on Female Labor Force Participation in a Life-Cycle Model

Abstract

The uninterrupted rise in U.S. female labor force participation throughout the 1970s and 1980s stalled in the 1990s and has fallen since. Women in other western countries, especially in Scandinavia, where childcare is heavily subsidized, are more likely to participate in the labor market. Even though working mothers in the U.S. face substantially higher childcare costs, they receive less public support. I build a structural, life-cycle model of heterogeneous households, family labor supply, and intra-household bargaining. This allows me to examine whether increasing U.S. public spending on childcare to Scandinavian levels can promote growth in the women’s labor supply. While financing larger public spending with higher payroll taxes has distortionary effects, raising child-related transfers reduces mothers' disincentives to work. I find that the policy increases long-run labor force participation among married women by 3.8 percent. Households with young children benefit substantially from the reform, but overall welfare falls as there are many households that lose marginally.

Publication
Working Paper