Childcare Subsidies, Wages, and Employment of Single Mothers

Abstract

This paper develops and estimates a model for the choice of part-time and full-time employment and the decision to pay for childcare among single mothers. The results indicate that a lower childcare price and a higher full-time wage rate both lead to an increase in overall employment and the use of paid childcare. The part-time wage effects are found to be too small to have significant behavioral implications. An analysis of cost-effectiveness indicates that the additional hours of work generated per dollar of government expenditure is larger for a childcare subsidy than a wage subsidy.