Family policiesFamily policies

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

What are we talking about?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 institutionsOverlaps with other institutions

• Regulation of working hours

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

OutlineOutline

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.

MeasuresMeasures

• 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 comparisonCross-country comparison

• Large differences in the use of formal childcare arrangements for young children (< age 3): Austria <5%, Denmark: >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 IICross-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 facilitiesTheory 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.

TheoryChildcare provision: fixed costsChildcare provision: fixed costs

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

TheoryChildcare provision: variable costsChildcare provision: variable costs

Theory parental leaveTheory 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

L2S

L1S

L1D

L2D

L

w

L2L1

w1

w2

Empirical evidenceEmpirical 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 Box 7.1 Mothers with young children in FranceFrance

Piketty (1998)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

Children Child < 3 APE 1994 1997

2 yes no yes 59 47 –12

1 yes no no 62 64 +2 –14

3 yes yes yes 31 34 +3 –15

2 no no no 68 69 +1 –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 NorwayBox 7.2 Child care and hours of work in NorwayNaz (2004)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 3 Children age 3 to 6

Before After Before After

Mother 24.4 23.7 –0.7 24.5 26.5 2.0 –2.7

Father 40.9 41.3 +0.4 40.8 40.8 0.0 +0.4

Total 65.3 65.0 –0.3 65.3 67.3 2.0 –2.3

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

Empirical evidence

Policy issue 1: Policy issue 1: Can work and family life be Can work and family life be balanced?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: Policy issue 2: Is there a trade-off between fertility and Is there a trade-off between fertility and employment?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?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 questionsReview 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 dataPracticing with real data

• Box 7.2: The impact of cash benefit reform on

parents’ labor force participation (pag. 147-148)

• A Stata data file with the Naz (2004)dataset, a do file and a log file are available at the website:

http://www.frdb.org/images/customer/naz.zip

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