Mothers’ employment: the impact of triple rationing in childcare in Flanders

1. Mothers’ employment: the impact of triple rationing in childcare in Flanders Dieter Vandelannoote (University of Antwerp) Pieter Vanleenhove (University of Leuven) André Decoster (University of Leuven) Joris Ghysels (University of Maastricht) Gerlinde Verbist (University of Antwerp)

2. Overview • Literature on employment and childcare • Childcare in Flanders: triple rationing • Labour supply model • Results • Conclusions

3. Literature • Childcare touches upon • Budget constraints of parents • Preferences of parents • Modelling preferences for childcare is demanding • Disentangle preferences from rationing • Identify heterogeneity in preferences • Often strong assumptions are made (e.g. Wrohlich, 2011, assumes market supply to cover all excess demand in Germany)

4. Literature • Budget constraint approaches • Cost of working model (vs. simultaneous model) • In other words: it assumes childcare services to cover for parental working time • With individually observed rationing (e.g. Kornstad and Thoresen, 2007): individual choice sets are constructed • Without individually observed rationing (e.g. Del Boca and Vuri, 2005): choice set is limited based on a simulated offer probability of formal childcare

5. Childcare in flanders: triple rationing • Pre-primary education is generalised from age 3 • For children younger than 3: • Formal childcare (↗): • Supervision by Child and Family • Subsidized (59%) vs non subsidized (41%) • Child-minders vs day nurseries • Informal childcare (↘): • Mainly grandparents

6. Childcare in flanders: triple rationing • Although 70% of children younger than 3 is regular user of formal childcare in 2005 • Although 76% of mothers of children younger than 3 were gainfully employed in 2005 • There are strong indications of preference heterogeneity and rationing in Flanders: • When asked what kind of service they would prefer to use, parents often indicate another type of childcare than the one used • A 2007 survey indicated that 10% of the parents was not able to secure a suitable childcare service for their child after 6 months of searching • Supply grows only slowly • In our 2005 survey, 70% of non-employed mothers (unemployed or inactive) indicated they would be willing to work, if suitable childcare were available

7. Childcare in flanders: triple rationing • Costs for parents vary greatly according to the type of service: • Informal childcare: free • Formal subsidized childcare: income dependent price scheme (1,25 – 22 euro per day, before tax deduction, 2005) • Formal non subsidized childcare: suppliers can set prices freely (average of 18 euro per day, before tax deduction, 2005) • We assume parents to act in a stepwise fashion: informal → formal subsidized → formal non subsidized

8. Labour supply model • Random utility model with discrete budget constraint: • Random utility model: • Discrete budget constraints: = {0, 20, 32, 40} • Calculate household budget for every alternative, taking into account: 1. wage (expected) 2. household characteristics Xi 3. tax-benefit rules 4. expected cost of childcare

9. Labour supply model • Relies for estimation on McFadden’s (1974) multinomial logit model: • Requires a specification for the utility function. We use a quadratic form:

10. Labour supply model + rationing in childcare sector (1) • Double-hurdle model (as in Bargain et al, 2006) • assuming the likelihood of an offer (i.e. total rationing ) ) to be equal across various labour market intensities

11. Labour supply model + rationing in childcare sector (2) • In the budget constraints, we incorporate the expected cost of childcare: E[cost hj] = [p(informal care offer) * 0] + [(1- p(informal care offer) * p(subsidized care offer) * cost(subsidized care hj)] + [1- p( subsidized care offer) * p(non subsidized care offer) * cost(non subsidized care hj)]

12. Labour supply model • Effective offer of childcare derives from a bivariate binary process: • Effective offer (0/1) = effective demand (0/1) * effective supply (0/1) • We use a partial observability probit model to estimate three probabilities in sequential order (Poirier, 1980)

13. Labour supply model • Informal care (grandparents): • supply: number, health status, employment status, distance • demand: preference indicator of both mother and father • Formal subsidized childcare: • supply: municipal structure, search skills of the parents • demand: preferences indicators + likelihood of an offer in informal care • Formal non subsidized childcare: • supply: municipal structure, search skills of the parents • demand: preferences indicators + likelihood of an offer in both informal care and subsidized childcare

14. Labour supply model

15. Labour supply model • Estimate budget constraints using Euromod • Use data of the 2005 FFCS (Flanders Families and Care survey). We focus on: • Couple families • With a child between 6 and 35 months • Both partners available for the labour market • No self employed • No handicapped child • Male partner working in a fulltime job (>90%) • 512 couples

16. results • Maximum likelihood estimates of the parameters of the quadratic utility function • Statistically highly significant

17. results • Reflects inclination of indifference curve at (C = 2000 and h = 40) • Different subgroups • “How much income do I want to give up for one hour of additional non-working time?”

18. results

19. conclusions • We extend the discrete labour supply model with: • Overall childcare service rationing • Variation in the cost of childcare services depending on the likelihood of informal, formal subsidized and formal non subsidized childcare • Results indicate that in the current Flemish situation • Prices are not of paramount influence • Childcare rationing withholds a considerable number of mothers from the labour market