| Decision to enter the labour market for single | | | | and have 12.5 years of education. Only 26% live |
| mothers is linked with the issue of taking care of | | | | in poverty, but two-thirds have income less than |
| their young children. Child care costs will continue | | | | twice the poverty threshold. Approximately |
| to be an important factor determining welfare | | | | one-fourth work part time, and 53% report |
| participation in the welfare reform environment | | | | paying for child care. The oldest single mothers |
| because of the low expected earnings of | | | | are those who are employed and paying for child |
| low-skilled workers and the high percentage of | | | | care, and this subgroup also reports the highest |
| earned income that must be devoted to purchase | | | | education levels, with 12.6 years of education. |
| reliable quality care. In addition to facilitating | | | | Focusing further on the issue of paying for child |
| mothers' employment and thus reducing poverty | | | | care, those single mothers employed and paying |
| and the need for income supplements, quality child | | | | for care are a bit less likely to be nonwhite and |
| care is also an important social concern in and of | | | | less likely to live in poverty or receive welfare |
| itself, given the strong link between quality child | | | | than all employed single mothers. Additionally, they |
| care and positive child outcomes, particularly for | | | | are less likely to work part time, and they earn |
| at-risk children. | | | | higher average hourly wages ($8.96 vs. $8.25 an |
| In this paper, we analyze the effectiveness of | | | | hour). |
| child care assistance policies indirectly by | | | | 4. Employment and Welfare Status |
| considering explicitly the effect of the cost of child | | | | According to Berger and Black (1992), the |
| care on welfare recipiency. We find that, over a | | | | working single mothers not reporting welfare |
| set of alternative specifications, welfare recipiency | | | | recipiency are the oldest and have the most |
| and employment of single mothers are sensitive | | | | education and the lowest poverty rates. Their |
| to the predicted hourly price of child care. | | | | higher nonlabor income may indicate that they are |
| 1. Brief Review of Existing Evidence | | | | more likely to be receiving child support payments. |
| There are three main sources of information | | | | The other group with relatively higher nonlabor |
| related to our research question on the effect of | | | | income is the group not employed and not on |
| the price of child care on employment and | | | | welfare. Some of these women are also receiving |
| welfare recipiency. The first source is econometric | | | | child support, but there is substantial variation |
| works on the effect of child care costs on | | | | among themselves, as the high poverty rate |
| employment. Second is a set of papers focused | | | | indicates. Others may be queued for welfare, |
| on the welfare side of the coin. Finally, there is | | | | waiting for their savings to be depleted. |
| some evidence from evaluations of welfare | | | | The nonwelfare group is far less likely to be |
| -to-work demonstration projects of the | | | | employed part time and receives a considerably |
| importance of child care costs to employment | | | | higher average hourly wage. In addition, while the |
| and welfare recipiency. | | | | welfare recipient group is less likely to pay for |
| In terms of the econometric work on the effect | | | | care (36% vs. 56%), the recipient group pays a |
| of child care costs on employment, that body of | | | | higher hourly price for child care. This may reflect |
| work has been well summarized elsewhere | | | | the higher cost of part-time child care or the |
| (Berger&Black 1992; Blau&Alison 1998). Almost all | | | | receipt of child care subsidies. |
| the studies on employment find a significant | | | | 5. Child Care Mode Choice and Weekly |
| negative effect of child care costs on women's | | | | Expenditures by Mode of Care for Employed |
| employment, although the estimated child care | | | | Single Mothers |
| price elasticity with respect to employment varies | | | | According to Bowen and Neehan (1993), single |
| widely across studies. Most relevant to our | | | | mothers receiving welfare are more likely to rely |
| current topic are three papers—Berger and | | | | on relative care and less likely to rely on |
| Black (1992), Blau and Alison (1998), and Bowen | | | | center-based care. But recall that they are also |
| and Neehan (1993)--each of which uses data to | | | | more likely to work part time, an employment |
| look at differences across marital status. Each of | | | | state more often associated with this pattern of |
| these papers finds evidence that the elasticity of | | | | modal choice. In addition, the welfare recipients |
| single mother's employment with respect to child | | | | are less likely to pay for relative care and less |
| care costs is greater in absolute value than | | | | likely to pay for center-based care. Neither |
| married mother's employment elasticity. | | | | subgroups are very likely to pay for relative care. |
| Blanck (1985, 1989) review the relationships | | | | The welfare recipient subgroup's average weekly |
| between welfare recipiency and childcare costs | | | | payment for center-based care is considerably |
| and suggested that a 50% child care subsidy | | | | higher than for those not receiving welfare. For all |
| would increase the labor force participation of | | | | single mothers, center-based care is the most |
| single parents by 2.9 percentage points and that a | | | | expensive, followed by home-based care and |
| 20% reduction in the AFDC guaranteed payment | | | | relative care. |
| would increase the labor force participation of | | | | Child care costs present a problem for the |
| single parents by 1.6% and reduce their welfare | | | | researchers in that they are often unknown |
| transfer program participation by 1.2 percentage | | | | unless the mother is engaged in market work. |
| points. | | | | This situation is similar to the problem of wages |
| Evidence of a positive relationship between child | | | | that are unobserved if the person is not |
| care costs and welfare recipiency can also be | | | | employed. In addition to the problem of limited |
| found in a number of evaluation studies of | | | | observation of the relevant variable, child care is |
| welfare -to-work demonstration projects, though | | | | complicated by the fact that many families do not |
| the results are not uniform. Graham and Beller | | | | pay the "market price" for child care. Nonprofit |
| (1989) reviewed evidence from several major | | | | centers are often subsidized in the form of free |
| welfare -to-work demonstration projects that | | | | rent and require no return on investment capital. |
| included child care components. They wrote, | | | | Relatives and friends may be willing to provide |
| "Although the confluence of services, mandates, | | | | child care at a reduced price or at no charge |
| and incentives in these demonstrations suggests | | | | either because they receive in-kind payments or |
| caution is required in interpreting their results, | | | | because they enjoy caring for the child. |
| based on this evidence it seems reasonable to | | | | How one approaches this problem depends in part |
| conclude that subsidized child care may have a | | | | on the information available and in part on the |
| modest effect, at best, in increasing employment | | | | question one is trying to answer. Because the |
| levels of very low-skilled, single mothers with small | | | | focus here is on the mother's decision, only the |
| children" (Graham and Beller, 1989, p.665). | | | | portion of the cost she pays is relevant. Since we |
| However, as the authors point out, none of these | | | | are interested in the effect of child care costs on |
| demonstrations explicitly examined the importance | | | | welfare recipiency and employment, we analyze |
| of child care costs within an experimental | | | | the cost of child care per hour of employment, |
| framework, so any conclusions relating to the | | | | not the cost per hour of child care used. This is |
| importance of child care costs are tentative at | | | | the relevant decision choice for mothers of young |
| best. | | | | children who are evaluating the costs and benefits |
| The Minnesota Family Investment Program | | | | of entering the labor market, with one alternative |
| (MFIP), which was included in Joesch review | | | | being receiving welfare. |
| (1991), deserves extra scrutiny. This program | | | | As it was previously mentioned, differences |
| was an innovative program based on the dual | | | | among families in their access to low- or no-cost |
| (and often competing) goals of encouraging work | | | | care is a very pertinent issue for our problem. |
| and making work pay. It contained two key work | | | | Using the average local market price of child care |
| incentive provisions, the second of which related | | | | alone ignores substantial differences among |
| to child care. The MFIP paid child care costs | | | | families in access to below-market child care. The |
| directly to providers for all parents working or | | | | problem is that there is not really an exogenously |
| participating in employment-related activities. The | | | | given price of child care that is relevant to all |
| AFDC reimbursement scheme differed because | | | | consumers in the marketplace. Instead, because |
| the parents paid the providers directly and were | | | | of differences in family circumstances and location |
| reimbursed later. The practice of reimbursing the | | | | of residence, each individual faces her own price |
| mother after the expenditure occurred may have | | | | per hour of child care. Nonwhite mothers, mothers |
| hindered the mother's efforts to get and stay | | | | who reside in urban areas, and mothers reporting |
| employed. Also, the AFDC reimbursement rules | | | | poor health are more likely to receive AFDC. The |
| tend to discourage providers from accepting such | | | | state's average AFDC payment per enrollee is |
| subsidized clients because of the uncertainty of | | | | related positively to AFDC recipiency, but the |
| receiving payment. The report finds significant | | | | average Medicaid expenditure per enrollee is |
| impacts in numerous areas, including employment | | | | related negatively (Graham and Beller, 1989, |
| rates and earnings of the MFIP approach. | | | | p.668). |
| Finally, Waldfogel (2001) analyzed Massachusetts | | | | 6. The effect of predicted child care expenditures |
| state data on current and former TANF recipients | | | | on the probability of AFDC recipiency |
| who also receive child care vouchers. He found | | | | According to findings of Berger and Black (1992), |
| that increased funding for child care subsidies and | | | | that effect of predicted child care recipiency is |
| availability of full-day kindergarten are associated | | | | positive and significant. Those with higher nonlabor |
| with increased probabilities that current and | | | | incomes are also less likely to receive welfare, |
| former welfare recipients will work. | | | | while families in which the youngest child has one |
| In sum, a thorough review of the broad literature | | | | or more siblings under the age of six are more |
| relevant for this paper reveals a uniformity in the | | | | likely to receive welfare. |
| direction and significance of the child care price | | | | With child care expenditures reduced to one-half |
| effect but a rather broad range of empirical | | | | for all single mothers, AFDC recipiency would fall |
| estimates concerning the importance of child care | | | | further to 12.5%, while employment is predicted |
| costs on employment probabilities of single | | | | to rise to 74.7% (Blau and Allison, 1998, p.105). |
| mothers. | | | | Tying the child care subsidy to a reduction in |
| 2. Single mothers’ choices in welfare | | | | average state benefits reduces the receipency |
| recipiency | | | | rate still further to 15.1% and increases the |
| One of the most important aspects of the | | | | employment rate to 69.5% with further cost |
| market for child care is that individuals face widely | | | | saving in AFDC expenditures (Blau and Allison, |
| different costs for similar services depending on | | | | 1998, p. 104). Subsidizing child care costs for all |
| the availability of low- or no-cost child care | | | | single mothers may be an important policy tool |
| options. We begin with analysis of individual | | | | leading to lower AFDC recipiency rates. These |
| decision making that represents the discrete | | | | subsidies could be packaged with existing federal |
| choices about welfare recipiency and employment | | | | TANF program restrictions on length of total, |
| of mothers with young children. In our case, we | | | | lifetime welfare recipiency, and work requirements |
| assume that mothers of young children seek to | | | | to improve living standards for ex-recipients by |
| maximize their utility over goods and child | | | | helping to "make work pay." |
| services, subject to four constraints: a money | | | | Conclusion |
| budget constraint combining the mother's labor | | | | This paper looks specifically at the effect of child |
| income and nonlabor income, a production function | | | | care costs on the decisions of single mothers |
| for child services, a mother's time constraint, and | | | | concerning employment and AFDC recipiency. In |
| a child's time constraint. Child services are the | | | | doing so, it seeks to answer the questions made |
| commodity parents are consuming from their | | | | so relevant first by the Family Support Act of |
| children; it could be companionship or love or pride | | | | 1988 and more recently by the Personal |
| in one's progeny. They are produced with a | | | | Responsibility and Work Opportunity Reconciliation |
| combination of the mother's time at home, the | | | | Act of 1996: Can subsidizing child care reduce the |
| child's time with other caregivers, and money | | | | welfare dependency of single mothers? The |
| inputs. Total nonlabor income is the sum of family | | | | answer seems to be an unequivocal yes, though |
| income from sources other than the mother's | | | | the size of the estimated effect is found to be |
| labor market participation and means-tied transfer | | | | sensitive to the estimation strategy used. |
| income, such as welfare payments. Mothers have | | | | In the short run, AFDC benefits should be made |
| three uses of their time: work in the labor | | | | more uniform across states, and raised, at a |
| market, time spent with children, and leisure. The | | | | minimum, up to the federal poverty level. If the |
| child has two types of time: time with the mother | | | | policy goal is to expand the labor market options |
| and time with a nonmaternal caregiver. | | | | available to welfare recipients, the most important |
| From these assumptions, we derive that single | | | | consideration should not be welfare reform, but |
| mothers decide whether to be employed or not | | | | rather raising the effective wages of the work |
| taking into account two or four different values | | | | that is available. Such a change, which would |
| corresponding to the different possible work and | | | | affect all single mothers, not merely those |
| welfare outcomes. Increased expenditures on child | | | | collecting public assistance, would begin with the |
| care lower a woman's effective wage in the labor | | | | important first step of raising the minimum wage. |
| market when she is not receiving AFDC. Also | | | | Publicly provided health care and child care |
| included among these factors will be her predicted | | | | programs are needed if women are to support |
| wage, nonlabor family income, dichotomous | | | | themselves and their families through participation |
| factors indicating that the mother is nonwhite or | | | | in the labor market. Child care must also be |
| unhealthy or lives in an urban area or in the South, | | | | available for low-income working women. First |
| factors affecting the value of a woman's time at | | | | steps toward the establishment of a national child |
| home (specifically, two factors indicating whether | | | | care system include the extension of Head Start, |
| the youngest child is age zero to two years and | | | | a federally funded program for economically |
| whether there are two or more preschoolers in | | | | disadvantaged preschool children. |
| the family), the state's average Medicaid | | | | For too long social policy has assumed that single |
| expenditures per enrollee, the state's average | | | | mothers should derive income from either the |
| monthly AFDC payment, and the state's | | | | labor market or the state. Today's |
| unemployment rate. | | | | welfare-to-work programs presume that paid |
| Because of kinks in the budget line caused by | | | | employment will end women's need for |
| AFDC regulations, as well as possible discontinuities | | | | government support. However, the reality for |
| in hours of employment and child care availability, | | | | most single mothers is that neither labor market |
| it is reasonable to suspect that decisions about | | | | income nor public assistance at current levels can |
| AFDC recipiency are made jointly with decisions | | | | adequately support their families. A meaningful |
| to work for pay. | | | | family policy would expand the opportunities and |
| 3. Demographics, Employment, and Child Care | | | | the income available to women with children--both |
| According to Berger and Black (1992), employed | | | | from the labor market and from the state. |
| single mothers are 28.5 years of age, on average, | | | | |