Abstract
State child care subsidy programs are intended to support the employment of low-income parents, particularly for families receiving or likely to receive Temporary Assistance for Needy Families. To study the impact of child care subsidies on employment, this study used detailed data from a survey of low-income parents in Minnesota, linked with administrative data on subsidy receipt, to estimate endogenous switching models of subsidy receipt and parent work status. Parental preferences about the child development-related characteristics of child care settings were the basis for an instrumental variable used to predict subsidy receipt. Receiving a subsidy significantly increased the probability of employment and especially of full-time employment. The findings suggest that expansion of the child care subsidy program could lead to increased employment among low-income parents with young children.
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(Source: Authors’ calculations based on Minnesota Child Care Choices Survey data)
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Notes
Because less than 10% of the respondents in our study were male, and nearly all were the mothers of the focal child, we refer to the respondents as mothers interchangeably with parents.
All dollar values are in US currency.
Blau and Tekin (2007) used a linear probability model, which should be consistent if the linear assumption provides an accurate specification of the binary choice processes.
A fixed effects approach has appeal because it does not require the individual effects to be orthogonal to the observed regressors. However, a fixed effects approach may result in biased estimates due to the incidental parameters problem (Lancaster 2000; Neyman and Scott 1948). While consistent estimators in the presence of the incidental parameters have been developed for binary outcomes (Hamerle and Ronning 1995), as of yet there are no solutions for this problem in the joint endogenous switching model. Therefore, in order to test the validity of our random effects assumption, we computed Hausman tests of random versus fixed effects in separate subsidy and binary employment equations (using the xtlogit command in STATA 14.2, which produces consistent fixed effects estimators for a logit binary outcome). For these tests, we necessarily excluded time-invariant predictors, and we excluded the subsidy variable in the employment equation because we could not control for endogeneity of the subsidy using xtlogit. In both equations, we failed to reject the validity of random effects.
The Minnesota Child Care Choices study was conducted by Child Trends and the University of Minnesota with funding from the Office of Planning, Research and Evaluation, Administration for Children and Families, US Department of Health and Human Services.
We included county fixed effects in the models to account for time-invariant differences across counties in economic, social and other characteristics.
More details about the survey can be found in Tout et al. (2011).
We also compared the characteristics of subsidy recipients in our sample to the characteristics of all subsidy recipients in Minnesota (Davis et al. 2014). The comparison showed similar but not identical characteristics. For instance, the same percentage of single parent households (74%) occurred in both data sources for subsidy recipients in Minnesota. However, the sample included more individuals receiving welfare benefits (65%) than in the administrative data (47%), likely due to the sampling strategy. Use of center-based care was somewhat higher in the administrative data (62 vs. 50%). The generalizability of the results are discussed in the limitations section of the paper.
Some households did not know their annual income, but did give a monthly income, which was multiplied by 12 to approximate annual income. Many households gave annual or monthly ranges of income rather than specific numbers. A few households (N = 8) were unable or unwilling to report their income, even categorically. Income figures from different survey waves were not adjusted for inflation, since many responses were categorical.
Family child care (FCC) was distinguished from family, friend and neighbor (FFN) care based on respondents’ answers to questions about the care setting. All care in the child’s home was classified as FFN. If the out of home provider was identified by the parents as a professional babysitter, the arrangement was classified as FCC. FCCs were also identified as care settings where caregiving was the provider’s primary job and where the provider cared for children not related to the respondent or the provider. Otherwise, the provider was considered FFN care.
The pattern of types of care in the sample was similar to that reported for a representative sample of all Minnesota households in 2009 (Chase and Valorose 2010). For children under age six in regular arrangements, the primary reported type of care was FFN (41%), centers (37%), FCC (20%) and other (2%). Excluding children in parental care only from our sample, the share of each type of care in this study is similar, FFN (44%), centers (43%) and FCC (13%).
In our multivariate models, we only controlled for three or more children because this specification passed the proportional odds test. Results were not substantially different with other parameterizations of number of children of different ages.
Results including all ten variables for the responses instead of the factor were substantively similar.
The ordered probit models passed the proportional odds test.
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Acknowledgements
Funding for this research was provided through Grants #90YE098 and #90YE0132 from the Office of Planning, Research and Evaluation in the Administration for Children and Families, US Department of Health and Human Services. The contents and conclusions are solely the responsibility of the authors and do not necessarily represent the official views of the Office of Planning, Research and Evaluation, the Administration for Children and Families, or the US Department of Health and Human Services. The sponsors had no role in the collection, analysis or interpretation of the data, nor in the decision to submit the article for publication. The survey design and data collection were part of a larger research project led by Kathryn Tout at Child Trends. Davis also acknowledges the support of the USDA National Institute of Food and Agriculture, Hatch Multistate Project NE-1049 and Minnesota Agricultural Experiment Station Project MIN-14-081.
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Appendix: Factor Analysis of Child Development Support as a Parental Priority
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Davis, E.E., Carlin, C., Krafft, C. et al. Do Child Care Subsidies Increase Employment Among Low-Income Parents?. J Fam Econ Iss 39, 662–682 (2018). https://doi.org/10.1007/s10834-018-9582-7
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DOI: https://doi.org/10.1007/s10834-018-9582-7
Keywords
- Child care
- Work support
- Child care subsidies
- Employment
- Endogenous switching model
- Instrumental variables