(ht Tyler Cowen)The increasing trend of the female labor force participation rate in the United States stopped and turned to a decline in the late 1990s. This paper shows that structural changes in the child care market play a substantial role in influencing female labor force participation. I first provide new estimates of long-term measures of prices and hours of child care using the Survey of Income and Program Participation. Hourly expenditure on child care rose by 40% and hours of daycare used declined by 20%. Next, I build a life-cycle model of married couples that features a menu of child care options that captures important features of reality. The calibrated model predicts that the rise in child care costs leads to a 5% decline in total employment of females, holding all else constant. Finally, this paper provides two hypotheses and their supporting evidence about the causes of rising child care costs: (i) restrictive licensing to home-based child care providers, and (ii) the negative effect of expanded child care subsidies to lower income households on the incentives for those individuals to operate the home-based daycare.
In the EPJ Dail Alert I suggest that one of the consequences if Donald Trump attempts to drive illegals out of the country, will be that the cost of nannies will climb.
It will drive upper middle class families from using nannies to resorting to child care centers. With the road blocks to new child care centers via licensing issues, as indicated by Kubota, child care costs are likely to climb even more rapidly, thus pushing the female labor participation rate even further downward.