A Longitudinal Study of the Effect of Subsidized Child Care on Maternal Earnings
The effect of subsidized child care on maternal employment has been widely studied. Although the focus has been primarily on the extensive margin response, the subsidy can also have an important effect on the intensive margin, i.e., on the earnings of mothers who do return to work after giving birth. To reconcile work with child care, a mother can reduce working hours or choose “mother-friendly” work in response to high child care costs. This adjustment can decrease maternal earnings directly in the short term and indirectly in the long term by reducing the accumulation of human capital and labor market experience. Using a unique panel database on subsidy recipients in Israel, this paper adopts a difference-in-differences strategy and estimates that subsidized care for working mothers with children up to age 3 increases their earnings in the short run (during subsidy receipt), but has no significant effect on their earnings in the long run. The results suggest that, at least for the margin studied, reducing hours worked or choosing “mother-friendly” work in the treatment years does not impede the accumulation of human capital to such an extent that it affects later earnings.
Keywords: Child-Care Subsidies, Maternal Employment, Difference-in-Differences