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NazJPoPE2004

NazJPoPE2004

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Abstract.This paper evaluates the impact of a recent Norwegian family-

policy reform. The reform provides bene\ufb01ts of up to NOK 3,000 (approxi- matelye 400) per month to families with one- to three-year-old children, who do not utilize state-subsidized day-care centres. We investigate the reform\u2019s effect on parents\u2019 labour force participation. We \ufb01nd that, on average, the reform reduced women\u2019s labour force participation and increased the spe- cialization of work between couples. We \ufb01nd that the effect of the reform depends on women\u2019s schooling. Speci\ufb01cally, the labour force participation of highly educated mothers fell by more than that of mothers with less education.

JEL classi\ufb01cation:I38, J16, J22
Key words:Public policy, cash bene\ufb01ts, specialization
1. Introduction
Many empirical studies support the notion that the presence of young
children typically increases the value of women\u2019s time at home (see Gronau
J Popul Econ (2004) 17:369\u2013383
DOI 10.1007/s00148-003-0157-y

I am grateful to Associate Professor Espen Bratberg and Professor Alf Erling for their valuable comments. My special thanks to Kjell Vaage, Arild Aakvik and Afsane Bjorvatn for helpful suggestions. This paper was presented in a seminar at the Department of Economics, University of Bergen, Norway. I am thankful to the participants of the seminar for their positive feedback. The paper has also bene\ufb01ted from the reports given by three anonymous referees. I am also thankful to Professor Heather Joshi for helpful remarks on the paper.Responsible editor: Christoph M. Schmidt.

The impact of cash-bene\ufb01t reform on parents\u2019 labour
force participation
Ghazala Naz
Department of Economics, University of Bergen, 5007 Bergen, Norway
(Fax: +47-55-959439; e-mail:ghazala.naz@snf.no)
Received: 6 May 2002/Accepted: 21 February 2003

1973; Leibowitz and Klerman 1995; Nakamura and Nakamura 1994), which reduces their labour-market activity. Female labour force participation rates in Scandinavia are the highest among the developed nations (see Table A in the Appendix). In Norway, in 1997, the labour force participation rate of married and cohabiting mothers was 75% if the youngest child was less than three years old, and 83% if the child was from three to six years old (Statistics Norway 1998). Empirical studies in Scandinavia and in other Western countries suggest that high-quality public child care encourages labour-market activity by women with pre-school children (see, for instance, Anderson and Levine 2000; Gustafsson and Sta\ufb00ord 1992; Ho\ufb00erth 1999; Ho\ufb00erth and Collins 2000; Jenkins and Symons 2001; Kreyenfeld and Hank 2000; Lundholm and Ohlsson 1998; Kravdal 1996; Van and Siegers 1996).

Blomquist and Christiansen (1995) and Bergstrom and Blomquist (1996) argue that owing to the income-tax wedge between home production and market work, too little market work is provided. They claim that public provision of day care that stimulates female labour force participation may improve the performance of the economy as a whole. Duncan and Giles (1996) also discuss several e\ufb03ciency-based arguments for subsidizing care. However, they assert that the strongest arguments are based on distributional concerns. They argue that child-care subsidies may minimize employment gaps for those with child-care responsibilities relative to those without, and could substantially improve women\u2019s relative economic status by providing them with income that is not dependent on their spouse.

In the spring of 1998, the Norwegian government decided to introduce cash bene\ufb01ts of up to NOK 3,000 (approximatelye 400) per month to those parents with one- to three-year-old children who did not utilize state-sub- sidized day-care facilities. This amount is roughly equivalent to the state subsidy per child given to day-care centres. Parents who utilize some, but not all, day-care facilities are entitled to receive a proportionally lower cash bene\ufb01t (see Table B in the Appendix). The cash bene\ufb01ts are neither taxable nor tested against the parents\u2019 labour-market participation or income. It is therefore quite possible for both parents to work while receiving bene\ufb01ts. Nonetheless, these bene\ufb01ts increase the costs of child-care centres for parents. The empirical literature suggests that high child-care costs have a negative e\ufb00ect on married women\u2019s labour force participation (see for instance, Blau and Robins 1988; Chiuri 2000; Klerman and Leibowitz 1990; Leibowitz et al. 1992; Powell 1997; Ribar 1992). Thus, the cash bene\ufb01t reform may reduce parents\u2019 \u2013 especially mothers\u2019 \u2013 labour force participation in Norway. Eval- uating the e\ufb00ect of the reform on parents\u2019 working behaviour is the main objective of this paper. Two dimensions of parents\u2019 working behaviour are evaluated: specialization and total market intensity. Lundberg and Rose (1999) de\ufb01ne market intensity as the sum of the working hours of a couple, and de\ufb01ne specialization as the husband\u2019s working hours minus the wife\u2019s working hours. We use these de\ufb01nitions in this paper.

The literature on household economics suggests that a large part of the surplus in a marriage is generated by specialization. If one spouse has a comparative advantage in the provision of home-time to commodity pro- duction, while the other has a comparative advantage in earning the income that is used to purchase market inputs, then family utility will be maximized by specialization in the time allocation of the couple (see Becker 1973, 1985;

370
G. Naz

Weiss 1997). There is ample evidence for specialization within the household. Married men work longer hours in the labour market and have substantially higher wages than single men. Married women have lower wages and work more at home than unmarried women (see Gronau 1986; Daniel 1992; Korenman and Neumark 1992). Owing to both social and biological factors, many women have a comparative advantage in the production and care of children (see Becker 1991; Lundberg and Rose 1999). We therefore suggest that the cash bene\ufb01t reform particularly increases the value of mothers\u2019 time at home. Whether it follows from this that specialization increases in households, is an empirical question that is addressed in this paper. Lundberg and Rose (1999) emphasize that child-care costs also a\ufb00ect parents\u2019 total market intensity. They \ufb01nd that in the United States, specialization increases and the total market intensity of parents decreases following the birth of a child. This motivates us to evaluate the e\ufb00ect of the cash bene\ufb01t reform on Norwegian couples\u2019 total market intensity.

The impact of cash bene\ufb01ts on specialization and market intensity may di\ufb00er between groups of individuals according to their characteristics. Becker describes human capital as an important determinant of specializa- tion in households. Human capital analysis assumes that schooling raises earnings and productivity in the market sector, which establishes a positive association between females\u2019 education and their labour force participation. This in turn leads to a lower level of specialization between couples in which wives have more schooling relative to couples in which wives have less schooling. As mothers\u2019 schooling is one of the important determinants of specialization and of parents\u2019 total market intensity, we investigate whether the e\ufb00ect of the reform depends on mothers\u2019 schooling. Nilsen et al. (2000) \ufb01nd that women with more education, experience, and income are sig- ni\ufb01cantly less likely to quit jobs in Norway. We investigate whether women with a higher level of schooling were less motivated to reduce their hours of paid work relative to those with a lower level of schooling, following the cash bene\ufb01t reform.

A number of empirical studies in Norway have compared women\u2019s labour force participation before and after the cash-bene\ufb01t reform of 1998. Hellevik (2000) and R\u00f8nsen (2001) report that mothers shifted from full-time work to part-time work following the introduction of cash bene\ufb01ts. Langset et al. (2000) estimate that the labour supply of working women was reduced most in the health sector. These studies use cross-section data for women before and after the reform. Langset et al. (2000) and Hellevik (2000) use only descriptive-statistic techniques, while R\u00f8nsen (2001) runs multinomial regressions on the following \ufb01ve alternatives: full-time work/subsidized care; full-time work/non-subsidized care; part-time work/subsidized care; part-time work/non-subsidized care; not working. A shortcoming of these studies is that they discuss the labour force participation of the women who receive the cash bene\ufb01ts without considering the problem of sample selection bias. In the econometric literature, a wide range of non-experimental estimators has been proposed to evaluate the unbiased e\ufb00ects of social programs (see Heckman and Robb 1985; Mo\ufb03tt 1991; Heckman et al. 1999). This paper addresses the selection-bias problem and evaluates the reform using adifference in differ-

enceestimator.
The rest of the paper is organized as follows. Section 2 brie\ufb02y reviews
Norwegian public policies directed towards families with children. Section 3
The impact of cash-bene\ufb01t reform on parents\u2019 labour force participation
371

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