Estimating Net Child Care Price Elasticity Of Partnered Women With Preschool Children Using Discrete Structural Labour Supply-child Care Model Xiaodong Gong, NATSEM at University of Canberra Robert Breunig, Australian National University

2 Purposes of the paper: ●To construct and estimate a joint discrete structural model of labour supply and child care demand with a quantity constraint; ●Using simulations, to estimate the labour supply and child care demand elasticities with respect to the gross and net child care costs; ●To get an idea whether and how labour supply and child care demand respond differently across demographic groups to the child care prices.

3 Structure of the talk ●A joint discrete structural model of labour supply and child care demand; ●Data; ●Results; - Model estimates; - Elasticities obtained using simulations ●Conclusions.

4 Figure 1. Difference between hours worked by mothers and child care hours of preschool children

5 Specification of the econometric model

6 Specification of the econometric model (2) ● h and c f are assumed to be chosen from the following discret sets: ●An i.i.d. random disturbance μ j (of Type I extreme value) is added to the utility: where 48 is the total number of the alternatives. ●Thus, conditional upon ε, X, and w, the probability that j is chosen is given by

7 Specification of the econometric model (3)

8 Specification of the econometric model (4) ●In addition, a wage equation: ●And an equation for fixed cost of working: are jointly estimated with the model. ●The model is estimated using Simulated Maximum likelihood (with Halton draws).

9 Data ●Married women and their pre-school children drawn from the Waves 2005, 2006, and 2007 of the ‘in- confidence’ HILDA data ●Gross child care price are constructed using detailed information on the type and the usage of child care for each child, and the costs for each type of child care.

10 Construction of gross child care prices ●Child Care benefit (CCB) is estimated from the observed hours and the net costs of each child care type, using the rules and the information on family taxable income, and family structure; ●The gross costs of each type are calculated by adding CCB back to the net costs and allocated to each child according to their usage; ●The gross child care price is calculated as the per hour gross costs of the formal care; ●The median gross child care price for each age group of children is calculated for each Labour Force Survey Region (LFSR) and is used for the analysis.

11 VariablesMean (Std. dev.) Hours worked per week by the working mothers24.79 (13.7) Average hours of formal child care (12.9) Proportion of families using care 0.43 Wage rate of the mother (at June 2005 price)$25.31 (22.5) Unearned private income of the mother (including partners’ earnings, at June 2005 price) $ (1242.0) Mean median child care prices (at June 2005 price)4.67 (0.9) Mean age of preschool children 1.90 (1.4) No. of preschool children 1.35 (0.6) Table 1. Sample statistics of some key variables

12 Estimation results: Table 3. coefficients of b’s of the utility

13 Estimation results: Table 4. fixed costs of working

14 Elasticity estimates Table 5. Estimated elasticities for the whole sample

15 Elasticity estimates (2): Table 6. Gross price elasticities for sub-samples

16 Elasticity estimates (3): Table 7. Net price elasticities for sub-samples

17 Conclusions ●We constructed and estimated a discrete structural model of labour supply and child care demand for partnered women with preschool children; ●Using simulations, we find statistically significant gross and net child care price elasticities of labour supply for partnered women with young children. In particular the net child care price elasticity of hours of work and employment are about and 0.06, respectively. This again confirms that labour supply of married women is responsive to child care costs; ●The extent of the labour supply response to child care prices varies across demographic groups. Labour supply and child care demand responses to child care price changes are highest amongst women with lower education, lower household income, and more children.