Colombo Journal of Multi-disciplinary Research (CJMR)

Vol. 1 (1) 2014

Household Collective Labour Supply with Pre-school Children in Urban Sri Lanka: Relationship between Child Caring and Female Labour Supply

S.P.Premaratne1

Abstract

The paper aims on the household collective labour supply with the presence of young children (age from 7 months to 5 years) in urban Sri Lanka. 200 households in Colombo, Sri Lanka, with at least one young child of age less than 5 years were surveyed for this study. Women’s non-market time does not depend on their husband’s wage; but both housework and child care of other adults-particularly female adults- respond positively to an increase in the wife’s labour force participation. The decision to buy formal child care is affected by the age of children, cost of day-care centres, household income, types of occupation and level of education and quality of child care. Quality child care services increase female labour force participation. Moreover, if ‘quality’ child care is available, more mothers would participate in the labour force. This study employs the collective model of household behavior.

Keywords: Female Labour Supply, Collective Model, Child-care, Household Labour Decision, urban households.

Introduction

Studying the determinants of female labour supply with pre-school children in developing countries is a little-touch topic. In this paper, we study the determents of urban female employment with pre-school children. The relationship between child care and female labour employment has not been widely investigated so far particularly in developing countries. Does the cost of child care prevent many mothers from working in paid employment?

The evidence in developed countries indicates that in middle- to high-income families where both parents work, they depend on day-care centres mainly because they prefer that, for their

1 Senior Lecturer, Department of Economics, University of Colombo sppremaratne@yahoo.comThe authors wish to thank annymous reviwers for their valuable comments. The analyses and opinions in this paper are those of the authors and do not necessarily reflect the views of FGS, university of Colombo. The authors are alone responsible for any errors in this paper.

own satisfaction or to maintain their preferred standard of living. Some developed countries consider child caring as a public good where the population growth has become stagnant.

Previous studies have employed unitary model or/and collective model to study time allocation of households members and their well-being. The unitary model that is often used to describe household behavior in terms of time allocation for domestic work including child caring, cooking, etc and paid labor became under serious blow. The model largely relies on the assumption that the household maximizes a unique utility function According to the unitary model, there is no individual preference in the decision making process. With the unitary models, only inter-household income inequalities can be compared. However, intra-familial redistribution of income can also be crucial in determining household choices (Lundberg et al 1996). An alternative, increasingly popular framework for studying household behavior is the ’collective’ approach, whereby individuals with specific preferences make Pareto efficient decisions within the household. This conceptual framework is employed in the current paper.

In many countries, considerably more women with young children wish to participate in the labor market than actually do (Jaumotte 2003, Kawabata 2012). They have to engage in child caring activities plus other domestic responsibilities. Child caring has, therefore, enormous opportunity cost for those households as well as the whole economy. Empirical studies from different countries, developing as well as developed countries, show that there are the large disparities between desired and actual employment patterns, particularly among women with young children (Jaumotte 2003). These disparities indicate substantial potential for the promotion of female labor force participation. Several empirical studies point out that a lack of adequate and quality childcare is a major barrier to attaining preferred employment among women with preschool-aged children (Gordon and Chase-Lansdale 2001, Herbst and Barrow 2008, Premaratne 2012, Presser and Baldwin 1980, Stolzenberg and Waite 1984, Tivers 1988, van Ham and Büchel 2006, Webster and White 1997). Some studies (Kawabata 2012, Premaratne 2012, Presser and Baldwin 1980) indicate that when quality and affordable childcare centers are unavailable, many women with young children do not work or work lesser number of hours.

Household labour supply for a young couple with children aged 0-5 is not quite researched in a country like Sri Lanka. Nevertheless, it is well-known in micro econometric literature that the labour supply of young couples with young children differs surprisingly from the rest of the labour force (Chiuri 1999). The presence of very young children is highly significant for

household labour supply decisions (Bloemen and Stancanelli 2008, Rammohan and Whelan 2005).

With dramatic changes in socio economic situation, and as a result of urbanization, the traditional extended family culture in Sri Lanka has been converted to a nuclear family culture. With the change in socio economic life style of the society, household environment has changed and both parents tend to work. Thus, child caring has become a real concern. Over the last decade, the cost of child caring has increased.

Studies in intra-household allocation of time for domestic activities and labour supply choices are significant for policy makers because some of the government programmes as well as other community development and income generation projects implemented by non-governmental organizations in the recent past have created extra burden for women. The study of household labour supply not only helps in understanding the decision making pattern of household , but also allows a better evaluation of social welfare programmes.

Female Employment and Child Caring

The conventional labour supply model or utility analysis becomes rather complicated for females, once the gender triple2 burden issue is explicitly brought in. It is assumed that a person has a perfect flexibility3 in his/her preferences between income or labour force participation and leisure. If females with young children desire to enter the labour force, they have to forgo the utility obtained from child caring and personal leisure. If Uf

l represents utilities (U) that female gain from spending their time on personal leisure (l) and Uf

cc for utilities that obtain female from spending their time on child-care (cc). If they hire child care services, their income from participating in labour force would be: Uf

income > price of child care service - Ufcc + Uf

l . Rearranging the above equation, we can obtain: Uf

income + Ufcc - Uf

l > price of child care service. Accordingly, costs related to child care discourage females to participate in the labour market. To keep females in the labour force after child birth, Uf

income should be greater than costs of child care service and forgone leisure from child care plus forgone personal leisure. It concludes that high wages are needed to encourage female labour participation after child birth.

2 The triple burden includes income earning, leisure and domestic/reproductive responsibility. 3 One of the key assumptions in this analysis is the perfect flexibility of the labour market: the assumption of free entry to the labour market and free exit from the labour market.

Wage rates offered to women with children and the costs of child care services affect women’s labour force participation and labour supply decisions of women with young children. In reality, the relationship between child care cost and female labour supply is complex, and research findings suggest mix results. Empirical studies (Kawabata 2012, Premaratne 2012, Presser and Baldwin 1980) indicate that when quality and affordable childcare centers are unavailable, many women with young children do not work or work lesser number of hours. It is also found that barriers for women participation in the labour market due to children are stronger for younger than older children (Leibowitz et al., 1992; Stolzenberg and Waite, 1984). Stolzenberg and Waite (1984) find that constraints on women’s employment due to children are stronger for younger than older children. Many empirical studies (Gordon and Chase-Lansdale 2001, Herbst and Barrow 2008, Stolzenberg and Waite 1984, van Ham and Büchel 2006, Webster and White, 1997) find that greater availability of childcare increases female participation in the labor market. But they tend to work closer to home or in the local labor market (Kawabata 2012) As Fong and Lokshin (2000) pointed out, when the cost of formal child care services is high, households rely on informal care and mothers tend to take responsibility of childcare and tend to withdraw themselves from the labour force. Meanwhile, Kimmel (1992) states that increases in the market wage significantly increase the probability of labour force participation by women with young children, while increases in the fee of day-cares reduce the probability of labour force participation by them. Quality of day-care centers is equally matter for female labour supply (Currie and Hotz 2001, Premaratne 2012). For many families with young children, access to childcare is a prerequisite for access to labour market (Kwan 1999, van Ham and Büchel 2006). Kawabata (2012) further points out that as the distance to childcare increases, the job search cost is likely to be higher and job opportunities are likely to become fewer.

Currie and Hotz4 (2001) found that the effects of maternal employment are also mediated by the quality of alternative child care arrangements available including child care providers and centres. However, McDonald et al (2006) argue that the employment of a mother does not simply depend on her internal commitment to paid work versus her devotion to child care and domestic responsibilities. Some other important reasons are identified: job characteristics, organizational policies, and domestic division of labour.

Theoretical Framework: Collective Model

4 using a National Longitudinal Survey of Young in the USA,

This section describes collective models5. In the current study, the collective model is proposed over unitary model6 mainly because with the unitary models, only inter-household income inequalities can be compared and intra-familial redistribution of income can also be crucial in determining household choices (Lundberg et al 1996). Individual preferences are not considered in the unitary model. Though in microeconomics, the household as a whole is usually considered the elementary decision unit, it is clear that a household comprising several adult members does not necessarily behave as a single agent. The second reason is that the growing employment rates of women since the 1977, resulted in more two-earner households particularly in urban areas and less male breadwinner arrangements in Sri Lankan societies, and the unitary predictions were often not consistent with the observed time allocations of two earner households. Finally, the compensated substitution effects between female and male leisure are found not to be symmetric .

For simplicity, the study assumes that households are composed of two members of working age (husband, m and wife, f) and at least one pre-school child.

The theoretical foundation of the model relies on a utility-maximizing framework (Chiappori 1988, 1992, Connelly et al 1996, 2001). In the collective model, each parent has individual preferences. A household welfare function is based on the utility functions of individuals of household and on the earnings of individual household members. Husband (m) and wife (f) interact in a bargaining process within the household. The process is cooperative which leads to Pareto-efficient outcome. Therefore the main assumption underlying the collective model is that the household decision process will yield Pareto efficient outcomes (Chiappori,1988, 1992, Blundell et al, 2001). A household has two types of goods: public goods and private goods. The quality of child care, Qc, is a public good, whereas personal consumption (C) and personal leisure (l) are private goods. We further consider a labor supply model within a two-member household. Let hi denote member i’s labour supply (i = m, f and 0 ≤ hi ≤ 1) and Ci denote ( i = m, f) consumption of a private Hicksian commodity C (so with Cf +Cm = C ).

Assuming an individual utility having Stone-Geary form, the utility maximization problem can be presented as follows; one for the husband and one for the wife:For the husband;

5 Chiuri (1999) has originally developed this model for Italy. 6 In the unitary model, which is the direct application of the neoclassical model for labour supply for individual labour supply behavior to the household as a decision unit, the household is a unit that takes decisions together. There is no individual preference in the decision making process. The model also supposes a pooling of family income and responsibilities.

Max ƒ1log(Cm – γ m(z)) + ƒ2log(lm) + ƒ3logTcc --------- (1)

s.t Cm ≤ øm + wmhm

hm + lm + tm ≤ Tm

ƒi ≥ 0; ∑ ƒi = 1

For the wife;

Max g1log(Cf – γ m(z)) + g2log(lm) + g3log(tf + δr tr + tcc) -------- (2)

s.t Cf ≤ øm + wf hf

hf + lf + tf ≤ Tf

tm + tf + tr + tcc = Tc

gi ≥ 0; ∑ gi = 1

where m and f denotes respectively male and female. C, 1 and Q are respectively for individual consumption, leisure, and the quality of child care. γ j(z) (j = m, f), the function of demographic factors such as education, age and occupation, defines the minimum committed level of consumption, the other three goods having a subsistence level fixed at zero. h denotes daily hours of work for wage. y represents non-labour income. wm and wf are respectively the wage rates of male and female, while pcc and pr are respectively the daily prices for formal child care and for that provided by relatives.

Inputs are tm, tf , tr , tcc . where tm and tf are the times that each parent spends with children. tr is the care provided by relatives7 (δr is a dummy variable for availability taking either 1 or 0). tcc is the time of formal child care purchased by a family. Assume that all these inputs are perfect substitutes and therefore, Qc can only take a constant value. The time that the mother or father spends with the child has an opportunity cost, which is equal to the expected wage rate of each. Though the relatives have opportunity cost, for simplicity, we assume that no payment is given for relatives who spend with the children8, i.e. pr = 0 because relatives providing child care are usually retired (grandparents) in Sri Lanka. One of the outcomes of this theoretical model is that female labour supply decision with young children is influenced by the availability of alternative

7 It is assumed that all teenagers, all adult unemployed women and men are considered as alternative child care providers. 8 However, in many cases when relatives provide child-caring services, some kinds of costs involved though they are not cash-hand transactions.

sources of child care. It is obvious that lf and tf are interrelated because, sometimes, child caring is also considered as a leisure activity. But we propose lf > tf

The current paper also adopted one of the common assumptions in previous works on collective labor supply (Chiappori 1988, 1992, Chiappori et all 2002) that both labor supplies could vary continuously in response to fluctuations in wages and non labor income. hm and hf are twice diffrentiable functions of wages and non labor income.

The constraints are the household budget, and the time endowments for each parent. It is important that all constraints must hold.

Production function for child care is as follows:

Qc = (tm + tf + δrtr + tcc ) ---------------------- (3)

Therefore, the final choice of formal child care is determined by the availability of other relatives, opportunity costs, individual preferences on leisure and consumption, the structure of labour market, and the cost of child care. The same factors influence the parents’ (mother and father) decision to take part in the labour market

The income sharing rule is assumed linear, and determined by household total income and in total cost of child care. It is as follows:

øm = d0 + d1wfTf + d2 wmTm + d3y + d4ym + d5pccTc ----------------- (4)

In this collective model, the labour supply system of a household with two working parents (with young children) that solves the maximization problems (1 and 2) can be presented as:

Substituting the income sharing rule (4), the labour supply system can be rewritten as:

hm = (ƒ1 - ƒ2d2)Tm – (ƒ2/wm)[d0 +d1wf Tf + d3y + d4ym – d5pccTc – γm(z)] ----- (5)

hf = (g1 + g2d1)Tf – (g2/wf)[(1- d3)y - d0 -d2wmTm – d4ym - (d5 + 1 – δr)pccTc – γf(z)]

Models 5 are restricted forms because there are cross-equation restrictions. Without imposing cross-equation restrictions, and dividing each factor by Tm for husband’s model and by Tf for the wife’s model, we estimate the following unrestricted labour supply models (6):

--------- (6)

Coefficients of the two models have some similarities. A comparison between these coefficients is presented in Appendix 1.

The probit model for wife’s decision on labour force participation was estimated: 1 = if wife decided to continue her job, 0 = otherwise (if she decided to resign her job). Since it is hard to interpret the probit coefficients, researchers work out marginal effects.

The Probit method is a non-linear probability model that has as a probability function the standard normal cumulative distribution function and gives the probability that a certain event will occur. In the model used in this study, the dependent variable is a dummy corresponding to female labour participation, which assumes value equal to one when wife decided to continue her job and zero otherwise.

x = matrix of the complete group of independent variables (with the first unitary column)

= matrix of the group of s.

In equation (7), G(x) is a cumulative distribution function (CDF) which assumes restricted values between zero and one. In the Probit model used in this study, G is a function of standard normal CDF, as follows:

In which is the standard normal density:

The Probit model is derived from an underlying non-observed variable model, represented by:

Function (10) defines a binary outcome, as it assumes value one if the event in brackets is true, and zero, in case it is not. Therefore:

if y*>0

if

It also assumes that the error term is independent from x in this model, and consequently, the error is symmetrically distributed around mean zero, and 1-G(-z) = G(z) to every real z. Following these assumptions, the response probability for y is:

In order to estimate the effect of the explicative variables on , i.e., the probability of

success, the calculation of the partial derivative of will be done:

, in which

G= CDF of a continuous random variable

g= probability density function

As both functions and are strictly increasing, the partial effect of the independent

variable on depends on x due to , and, consequently, the partial effect will have

the same sign as , as is clear from the partial derivative above. This procedure also shows that

the effect of two continuous variables is independent of x; the ratio of partial effects of and

is given by . The partial derivative shows whether the effect is positive or negative, but to

find the magnitude of the effect it is necessary to estimate how the whole CDF changes when the explanatory variable changes.

Data Description

The data used for the study are the result of a household survey that was conducted by the researcher with a team of university undergraduate students in 2008. Colombo district was chosen because the study deals with urban household s and most of the day-care centres are located in Colombo. The survey's questionnaire covered socio-demographic characteristics of all household members, their education, income, labour supply, agricultural activities, health status, child caring, and time use. 200 households with at least one pre-school child were surveyed. Households with children less than 7 months old were not included into the sample since the government grants maternity leaves for 7 months.

Empirical Results

Mean and standard deviation of the main variables of the sample are summarized in Table 1. 39.23 percent of the sample have only one pre-school child. About 75 percent of families live with other adults. Women earn less than men do. Since day-care centres are not monitored and evaluated, quality as well as fees vary among day-care centres (while mean is Rs. 8,710, standard deviation is Rs. 2,145). Urban families spend a significant portion of their household income for child caring. On average 10.2 percent of total monthly income of a household is spent for child caring9 (Table 1).

Table 1: Sample StatisticsVariable Mean Standard

deviationHusband’s Age (Years)Wife’s Age (Years)Household non-labour income (Rs)Husband’s monthly wage (Rs)Wife’s monthly wage (Rs)Husband’s daily Hours of WorkWife daily Hours of WorkChildren 7 months – 2 years 3 – 5 years 6 – 15 yearsOther Adults

36.2430.6015,43243, 45335,4329.457.45

0.6740.732

5.5345.232234114216543.51.2

9 Child care expenditures as a percentage of household monthly income in Sweden, Germany, UK and USA are 4.1, 9.1., 24.7, and 19.5 in 2005respectively (OECD 2007).

Amount paid for day-care centres (Monthly)Amount paid for day-care centres + pre-school (Monthly)Amount paid for a domestic nanny to take care of children only (Monthly)Amount paid for a domestic helpers/nanny to take care of children (Monthly)- child caring, cleaning, cookingCost of child caring as a % of household monthly income

0.1340.754

3,1008,7105,290

6,100

10.2

1,1232,145698

1,241

Source: Sample Survey

Sri Lanka is usually a collective society, in which the child care responsibility is mainly handed by parents or their grandparents. However with the working-parents culture and the nuclear family system, particularly urban Sri Lanka, though the story is rather different, only about 21 percent of households in our sample uses day-care centres10 as child care arrangements (Table 1 and 2).

Table 2: Types of Child Care

Pay someone to take care of children (Nanny) (%)

Domestic helper (not to take care of children) (%)

Domestic helper (both for caring of children & other domestic work) (%)

Hired day- care services (%)

YesNo

24.2175.79

30.4369.57

24.6074.40

20.6579.35

Total 100 100 100 100Source: Sample Survey

Majority uses at least a domestic helper. In most cases, while grandparents are taking care of children, domestic helpers are taking care of other domestic activities such as cooking and cleaning and giving supporting hands to grandparents to take care of children (Table 3). Support from other family member such as grandparents is not valued in monetary terms. because usually grandparents11 consider in taking care of grandchildren as their family responsibilities in Sri

10 There is no responsible agency to evaluate and to monitor the quality and standard of day-care centres and pre-schools in Sri Lanka.11 Some grandparents interviewed mentioned that they enjoyed it and even good for their ‘mental’ health.

Lanka. About 55 percent of responses have indicated that the support they received from their grandparents is highly satisfactory. Majority of responses indicated that without grandparents’ support, they could not continue their jobs.

Table 3: Household Child Care Arrangements (percentage)

Working mother Non-working mother Both

Child at home 62.60 16.75 79.35

Child in childcare centers 6.15 14.50 20.65

All 68.75 31.25 100

Source: Sample Survey

At the same time, this study found that women tend to resign their jobs after child-birth and take care of their children12. This trend demonstrates two economic reasons: One is opportunity costs and the other is family income. In addition, they consider quality of child caring as an important factor. Distance, distance from work-place or home to childcare centers, is also matter13. Parents have to take the child to childcare in one place and then travel to another place to work. In some countries, childcare centres are built in work places.

Assuming that there is no adult relative with them, If w f < pcc, women tend to resign from their jobs and take care of their children by themselves. In some cases, they choose home-based self-employment activities. If family income which include wf and non-wage household income is enough to cover family expenses at least for short-run, even if w f > pcc, mothers tend to resign from their jobs and take care of children. However, according to Jayaweera and Sanmugan (1993), about 80 percent of female employees in Sri Lanka leave their jobs due to pregnancy and child birth. Madurawala (2006) found that females with young children quit their jobs mainly because their mothers (grandmothers) could not provide support for child caring. In all cases, they were even reluctant to leave their children with domestic helpers alone. But these mothers look after their children with domestic helpers (Madurawela 2006). Domestic helpers give a supporting hand, cleaning and cooking. Madurawala (2006) also found that with the advent of children and rise in work related costs, it is clearly no longer worth to work. After all, it is

12 Some complaints that when they go to office after child-birth (after the maternity leave period over), they get various job related harassments. 13 Kawabata (2012) has obtained similar results in the case of Tokyo.

opportunity cost, utility value and quality of child care services. Are children a barrier to women’s paid employment?

In Sri Lanka, most significantly, the highest female labour force participation rate of 46.6 is recorded in the age group of 20 – 24, and the lowest rate is maintained in the age group of 25 to 30. Females at this age group (age of 25 to 30) have recorded the highest fertility rate . The mean age at marriage for females in Sri Lanka is 25 years.

There is a positive change in female labour force participation rates in age groups of (30+). This may indicate that females in higher age groups are returning to the labour force when their children are old enough to attend school and take care of themselves. Re-entering to the labour market by females should be encouraged by providing suitable avenues because this would optimize available labour usage and overall productivity.

Table 4: Bivariate Probit Estimates for Female Labour Supply: Collective Model

(1 = continue job, 0 = resign and look after children)

Coefficient SE ME†Intercept Wife’s Wage earn at child birth (Ln)Household non-labour income (Ln)Husband’s wage (Ln)Pcc (Ln)Husband’s AgeWife’s AgeWife’s Education: If 1 = Degree+postdegree+Professional qualification, 0 = otherwiseIf 1 = Degree + postdegree, 0 = otherwiseIf 1 = Degree + Professional qualification, 0 = otherwiseIf 1 = Only Degree, 0 = otherwiseIf 1 = Only Professional qualification, 0 = otherwiseHusband’s Education: If 1 = Degree+postdegree+Professional qualification, 0 = otherwiseIf 1 = Degree + postdegree, 0 = otherwise

1.2310.1021.5211.3232.123-1.0240.212

1.1230.6680.898-0.2310.354

2.2540.664

(0.421)*---------(0.056)***(0.434)*(0.521)**(0.522)*(0.978)(0.083)**

(0.348)*(0.427)(0.689)(0.023)*(1..003)

(1.133)**(0.256)*

0.5350.9110.8660.9020.264

0.7380.6680.7050.4430.581

0.9030.655

If 1 = Degree + Professional qualification, 0 = otherwiseIf 1 = Only Degree, 0 = otherwiseIf 1 = Only Professional qualification, 0 = otherwiseHusband’s Occupation: if 1= executive level, 0 = otherwiseWife’s Occupation: if 1= executive level, 0 = otherwiseWife’s Occupation: if 1= private sector, 0 = otherwiseYoung children age: 07 months – 2 years 3 – 5 years Other Adults in household (who can take responsibility for caring of children)

1.544-0.831-0.3651.434-0.654-1.204-2.6000.625

4.244

(0.944(0.859 )(0.977)(0.654)***(0.232)*(0.123)* (0.634)*(0.011)*

(1.243)*

0.8240.3030.4420.8770.7280.2310.5530.695

0.963Log F = - 634.26; * = p ≤ 0.01; ** = p ≤ 0.05; *** = p ≤ 0.10

† ME = Marginal Effects (in dummy variables, ME was calculated for one)

Source: Sample Survey

Table 4 presents probit parameter values, standard errors, and marginal effects for women’s decision on labour force participation after childbirth. The women participation decision depends on factors such as their wage, household income including husband’s wage and household non-labour income, levels of education, types of occupation, availability of adults in the family, and cost of formal day-care. Very significantly, the higher the probability of having adults in the family, the more likely is the wife working (probability of continuing her paid work is 0.963). One of the other interesting findings of the probit model is that women having young children aged from 7 months to 2 years are less likely to continue their jobs (see Table 4).

In Germany, Bick (2011) finds that an important element affecting labor force participation decisions of females with children aged zero to two is the German maternal leave regulation. It permits every mother who worked until the birth of a child to return to her pre-birth employer at her pre-birth wage within three years after birth.

Conclusion

The paper employed collective model to determent female labour supply behavior with the presence of young children age form seven months to five years. The decision to buy formal child care is affected by the age of children, cost of day-care centres, household income, types of occupation, level of education and quality of child care. Quality child care services uphill female

labour-force participation and thereafter economic growth. The findings of the study indicate that more women would work if childcare was affordable, of quality, and more easily available.

Most of the urban women who drop out from the labour force due to childcare responsibility, are well educated. Government and parents spend substantial amount of money for their education. Unfortunately, the country loses their valuable services if they dropped out from the job market after the child-birth. Hence child caring has an economic cost to the economy. Affordable and quality childcare services would enhance economic growth. Quality child caring is also a good investment for a country. Hence, child caring is a responsibility of whole society14. It is a public good that society as a whole benefits from. Government could take necessary actions to evaluate and monitor formal child care centres/services. Meanwhile government could provide supports for capacity building of childcare centres and for improving the quality of staff because the quality of childcare is a joint product of the quality of childcare centres and the quality of their staff. Childcare supports, regulations and supervision contribute to the economy by increasing female labour force participation as well as by improving the quality of the future labour force.

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