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.