Child Care Costs in Labour Supply Models

Working Papers 133 lmakunnas Seija

The aim of this paper is to clarify the role of child care costs in the analysis of female labour supply. Different labour supply. Different labour supply models with child are costs included are presented. The first approach is to include these costs only in the budget constraint. The way the price for the child care is determined implies different outcomes. The effects of fixed child care costs differ e.g. from the effects of means-tested child care fees. In the second approach child care arrangements have an effect on the utility of the mothter, too. The imperfects substitutability betweem the purchased child care time and mother´s own time is modelled by defining a production function for child care quality. Here different models arise depending on the assumption whether or not there exists a one to one link between mother´s labour supply and the amount of purchased child care. The results of the paper show that both the omission and the erroneous treatment of the child costs can lead to mis-specified labour supply functions.