Association for Public Policy Analysis & Management

This project uses a previously unexplored dimension of government-provided childcare subsidy policy to study the impact of providing grandchild care on the economic and health outcomes of grandmothers. Grandparents, particularly grandmothers, provide a significant amount of childcare in the United States, but little is known about how this informal time transfer impacts the economic and health outcomes of older Americans. The implications of such a transfer and the scope of the consequences are theoretically ambiguous and empirically important. Given that labor market and caregiving decisions are interrelated, causal effects are challenging to identify.

Federally funded childcare assistance, provided by states to families with young children at up to 85% of state median income, can be used to compensate grandparent-provided childcare or to substitute market care for grandparent care. These childcare subsidies allow low-income families with young children to participate in the labor market or in educational or training programs. However, the structure of state subsidies may also incentivize families to shift the burden of childcare to grandparents via informal care arrangements, by subsidizing informal care at market rates. The direction of the impact will depend on the individual grandmother’s opportunity costs, market labor force attachment, and family preferences for childcare mode.

State funding for means-tested childcare assistance is provided primarily via the Child Care and Development Fund (CCDF), a federal block grant that replaced a group of smaller federal grants in 1996. Within broadly defined parameters, states have great flexibility in administering these funds. As a result, there is significant heterogeneity in many dimensions of childcare subsidy policy, including eligibility requirements, co-pays and maximum reimbursement amounts for different types of care, and administrative procedures for providers. The resulting state level and temporal heterogeneity allows me to address two related empirical questions. First, how does the availability and generosity of subsidies shape the decision of older women to provide grandchild care? Second, what are the causal impacts of providing grandchild care on the market labor supply, living arrangements, retirement security, and health outcomes of low-income grandmothers?  

To study this impact, I create a unique dataset that matches respondents from the Health and Retirement Study (HRS) with the relevant childcare subsidy policy in their respective state. This allows me to instrument for grandparent behavior with plausibly exogenous policy variation that affects the likelihood that grandparents provide informal childcare. State-level information about childcare subsidy regimes comes from the CCDF database, a comprehensive and detailed source of state-level childcare policy information that documents cross-state and cross-year variation in many dimensions of policy. I model the impact of subsidies on outcomes using a two-stage least squares approach.  The first stage identifies how the availability of childcare subsidies impacts the likelihood that grandmothers will provide childcare and how that behavioral response differs by important characteristics such as opportunity cost of time. The second stage uses this predicted likelihood of providing care to identify the causal impact of grandparent-provided care on grandparent labor supply and co-residence patterns, and longer-term outcomes such as health and retirement security.