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The economics of childcare

By Tarja K. Viitanen

Abstract

This thesis examines aspects of the market for childcare that affect female labour force participation and the use of childcare. The literature review indicates that previous research on the topic has not come to any clear conclusion on the impact of the price of childcare on the labour force participation and the use of childcare of mothers of pre-school age children.\ud I examine the market for childcare in the UK in particular. In the UK, the common complaints made about childcare include the lack of availability and its high price. I study these two topics separately in Chapter 2 and Chapter 3 respectively. The lack of childcare availability is confirmed in Chapter 2 with its finding that there is a large excess demand for childcare in the UK.\ud A topic intertwined with the availability of childcare is the impact of the price of childcare. I estimate the price elasticities with respect to labour force participation and the use of formal childcare in Chapter 3. I find that a lower price for formal childcare would have a significant effect on the labour force participation and the use of childcare of mothers of pre-school age children.\ud The results in Chapter 2 and Chapter 3 may indicate that the market for childcare has failed in the UK. The unsatisfied demand for childcare and the high price for formal childcare that is available are likely to result from a lack of providers in the formal childcare market. Hence it may be necessary to examine whether a subsidy for the producers of childcare can increase the provision of formal childcare and decrease its price to bring the childcare market to an equilibrium.\ud In Chapter 4, I examine whether the methods of childcare financing used in Finland could provide solutions to dealing with the UK childcare problem. In particular I examine the impact of a voucher for privately produced childcare that was adopted in Finland in an experimental setting. I find that, in a market with widely available, low cost public care, the voucher for privately produced childcare has a significant effect on the labour force participation and the use of childcare working through increased availability of private childcare and its lower price

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OAI identifier: oai:wrap.warwick.ac.uk:1226

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