The Korean Journal of Economic Studies
The Effect of Child Care Subsidies on Labor Supply of Married Women
Jong-suk Han (Korea Institute of Public Finance), Youngjae Lee (Seoul National University) and Jay H. Hong (Seoul National University)Year 2017Vol. 65No. 3
We build a life-cycle model with joint labor-supply decisions of married households, and quantitatively analyze the impact of childcare subsidy policy on married women labor supply. We consider two types of childcare subsidy policies: the universal subsidy, subsidizing all married women, and the conditional subsidy, subsidizing only married women at work. The model is calibrated to match the 2011 subsidy policy - subsidizing only low-income households with young children regardless of women’s employment status, and the new policies are evaluated relative to the benchmark economy. Under universal subsidy, the female employment rate and average productivity increase 0.23% and 0.34% respectively, and under conditional subsidy, 0.73% and 0.42%, respectively. Thus, the increase in female labor supply is driven by the quality improvement in universal subsidy, but the female labor supply is enlarged by the quantity change in conditional subsidy.