Saturday, Jan. 7, 2023 2:30 PM - 4:30 PM (CST)
- Chair: Lance Lochner, University of Western Ontario
Designing Cash Transfers in the Presence of Children's Human Capital Formation
AbstractThis paper studies the design of antipoverty programs in the United States and their impact on child development. I introduce a model in which mothers work, participate in cash assistance programs, and invest time and money in their children. A technology of skill formation maps these investments to child development outcomes. The model is estimated by combining exogenous variation in policies, model-based orthogonality restrictions, and a classification routine that sorts mothers into types based on a set of revealed preference inequalities. This approach relaxes typical assumptions regarding the distribution of latent variables in dynamic models. My estimates indicate that fluctuations in income and labor supply have non-negligible impacts on child human capital, and that mothers exhibit significant heterogeneity in their preferences for labor supply, program participation, and investment. A counterfactual study, that fixes the policy environment just prior to welfare reform in 1996, implies that major changes to cash assistance in the United States resulted in a significant redistribution of maternal welfare across latent types, for approximately the same fiscal cost to the government. The optimal policy is a Negative Income Tax, which mothers value on average as equivalent to an additional $82 per week in consumption over the 17 year investment period, and raises skills to the order of 1.3 percentage points in the probability of high school graduation. These gains are unevenly distributed across types.
Early Childhood Care and Cognitive Development
AbstractThis paper combines multiple sources of information on early childhood development in a unified model for analysis of a wide range of early childhood policy interventions. We develop a model of child care in which households decide both the quantities and qualities of maternal and nonmaternal care along with maternal labor supply. The model introduces a novel parenting-effort channel, whereby child care subsidies that permit less parenting may enable better parenting. To estimate the model, we combine observational data with experimental data from the Infant Health and Development Program (IHDP) which randomly assigned free child care when the child was 1 and 2 years old. We estimate a cognitive skill production function and household preferences, giving insight into mechanisms driving the ex post heterogeneous effects of the IHDP intervention, accounting for alternative care substitutes available to the control group and spillovers of the child care offer across the household's decisions. We also estimate ex ante effects of counterfactual policies such as an offer of lower-quality care, requiring a co-pay for subsidized care, raising the maternal wage offer, or a cash transfer. Finally, we use the model to rationalize existing evidence from outside the US on the effects of universal child care programs.
The Effect of Maternal Labor Supply on Children: Evidence from Bunching
AbstractWe study the effect of maternal labor supply in the first three years of life on early childhood cognitive skills. We pay particular attention to heterogeneous effects by the skill of the mother, by the intensity of her labor supply, and by her pre-birth wages. We correct for selection using a control function approach which uses the fact that many mothers are bunched at zero working hours – skill variation in the children of these bunched mothers is informative about the effect of unobservables on skills. We find that maternal labor supply typically has a significant, negative effect on children’s early cognitive skills, with more negative effects for higher-skill mothers. By contrast, we do not find significant heterogeneity depending on the pre-birth wage rate of the mother. These findings suggest that there may be more scope to avoid short-term, unintended consequences of maternal labor supply through policies that promote more flexible work arrangements rather than through policies that increase the financial rewards to working.
- D1 - Household Behavior and Family Economics
- J24 - Human Capital; Skills; Occupational Choice; Labor Productivity