5. Conclusions


In this paper, we construct and estimate a model of labour supply and child care demand for partnered women with pre-school children. The model extends the standard discrete structural labour supply model by explicitly including child care as a separate argument of the utility function. This model enables us to analyse labour supply and child care demand simultaneously. We expect this approach to correspond more closely to how households actually make decisions about work and child care. We introduce an important methodological innovation in this paper in that we impose a quantity constraint that the number of total child care hours (formal, informal and paternal) is required to be at least as large as the number of hours worked by the mother. However, unlike previous papers, we allow formal child care to exceed mother's work hours to account for other possible uses of child care such as child development. Unobserved heterogeneity in time allocation preferences is included and is allowed to be correlated with unobservable factors which influence wages. The model is estimated using Simulated Maximum Likelihood with data drawn from the fifth to seventh waves (covering the period 2005 — 2007) of the 'in-confidence' version of the Household, Income, and Labour Dynamics in Australia (HILDA) Survey.

Utility function, child care demand, and wage equation estimates are used to simulate estimates of the gross and net child care price elasticities for partnered women with children. This framework can also be used to estimate the effects on labour supply, child care demand, income distributions, and public expenditure of possible future policy changes.

We find statistically significant gross and net child care price elasticities of labour supply for partnered women with young children. In particular the net child care price elasticities of hours of work and employment are about -0.10 and -0.06, respectively. These estimates are not statistically significantly different than those in Gong et al. (2010) and they re-confirm that the labour supply behaviour of partnered women with young children does respond to the price of child care.

We explore how different demographic groups may respond differently to child care price changes. Labour supply and child care demand responses to child care price changes are highest amongst women with lower wages, lower household income, and lower education.

Here we focus only on partnered mothers with pre-school children and we treat fathers' work decisions as fixed. This provides two future extensions which could be considered: the analysis could be extended to households with only school-aged children (and without pre-school children) and to single-parent households; and the behaviour of fathers in couple-headed households could be included in the model. Both extensions involve additional model complexity but could potentially enrich the results of this paper.