Family policies Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

What are we talking about? For parents labor supply, leisure and child care decision are interdependent Family policies: –Parental leave facilities –Childcare arrangements Tradeoff: female labor force supply & fertility Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

Overlaps with other institutions Regulation of working hours Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

Outline 1.Measures and cross-country comparison 2.Theory 3.Empirical evidence 4.Policy issues 5.Why do family policies exist? 6.Review questions Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

Measures Formal childcare arrangements: government supported or market based Duration of maternity leave Maternity benefits Total duration of maternity and childcare leave Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Cross-country comparisons

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

Cross-country comparison Large differences in the use of formal childcare arrangements for young children ( 50% Many European countries: child care use age  3 close to 100% Large differences in parental leave –Duration: 1 year (Finland, Sweden), no leave (Australia, New Zealand, US) –Benefits: <50% (UK), 100% (many countries) Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Cross-country comparisons

Cross-country comparison II Different combinations of paid leave enabling parental childcare & subsidies supporting non-parental childcare: –Germany: emphasis on paid parental leave –US: more generous support for childcare –Scandinavian countries: support for both & choice to the parents Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Cross-country comparisons

Theory childcare facilities Static labor supply framework – mother maximizing utility Childcare provision: –Fixed costs: shifts income curve –Variable costs: rotates income curve Childcare subsidies: –Stimulate participation –Increase working hours Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Theory

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Theory Childcare provision: fixed costs

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Theory Childcare provision: variable costs

Theory parental leave Parental leave often equivalent to maternity leave Form of subsidized childcare – subsidy not provided to external services but to the parents who are providing child care themselves Positive effect on labor supply of mothers Negative effect on labor demand (wage costs increase) Female wages go down – employment effects? Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Theory

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Theory L2SL2S L1SL1S L1DL1D L2DL2D L w L2L2 L1L1 w1w1 w2w2

Empirical evidence Employment rate of women strongly affected by presence of children in some but not all countries Lone mothers higher-lower employment rate than mothers who are part of a couple Part-time work among female employees increases with the number of children – except in Denmark and Portugal Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Empirical evidence

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

Box 7.1 Mothers with young children in France Piketty (1998) France 1986 policy to help parents raise children (APE): allowance 40% minimum wage for mother of at least 3 children, one of whom was younger than 3, 1994: also for mothers of at least 2 children. Effect on employment rates of mothers ChildrenChild < 3APE  2yesnoyes5947–12 1yesno –14 3yes –15 2no –13 Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Empirical evidence

Box 7.2 Child care and hours of work in Norway Naz (2004) Norway 1998: cash benefits for parents with 1- to 3-years old children who did not use state-subsidized day-care facilities; effects on number of weekly working hours: Children age 1 to 3Children age 3 to 6 BeforeAfter  BeforeAfter  Mother – –2.7 Father Total – –2.3 Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Empirical evidence

Policy issue 1: Can work and family life be balanced? Issue related to promotion of female employment rates It also touches upon the quality of childcare Should governments subsidize cost of raising children without favoring market costs for childcare over the forgone earnings cost of a parent who stays home to care for a child Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Policy issues

Policy issue 2: Is there a trade-off between fertility and employment? Employment policies interact with cultural and social customs Some countries limited use of external childcare facilities because of social stigma related to sending children to these facilities Economic terms: fixed – psychological – costs related to the use of childcare Cross-country: positive relationship between fertility and employment rates of prime-age women Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Policy issues

Change over time in the correlation work-fertility

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Policy issues

Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Policy issues

Why do family policies exist? Government intervenes – existence of imperfections in the market for childcare: –Imperfect information about the quality –May lead to moral hazard and adverse selection Subsidies targeted at high-quality childcare may induce parents to opt for this care Without subsidies level of childcare may be sub- optimal Externalities: high-quality childcare  lower costs to society because of more educated individuals Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press. Policy issues

Review questions 1.Why could it be welfare improving if governments subsidize child care facilities? 2.How does parental leave affect employment and wages? 3.How could subsidies influence the choice between formal and informal child care? Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.

Practicing with real data Box 7.2: The impact of cash benefit reform on parents’ labor force participation (pag ) A Stata data file with the Naz (2004)dataset, a do file and a log file are available at the website: Source: Tito Boeri and Jan van Ours (2008), The Economics of Imperfect Labor Markets, Princeton University Press.