Association for Public Policy Analysis & Management

Childcare subsidies are generally thought to increase a parent’s work incentive by lowering the cost of employment. They have long been utilized in the United States as a policy mechanism to increase maternal employment, and to help low-income families reduce their reliance on welfare and improve their children’s education outcomes. Currently, all of the 2016 Democratic presidential candidate have universal Pre-K on their platforms. Universal childcare is at the heart of ongoing policy discussions in other industrialized nations as well. There has been a heated public discussion in Europe on providing universal, highly subsidized pre-school like Scandinavian countries offer.

Despite the importance of the subject in the policy sphere, the impacts and implications of universal childcare subsidy on maternal labor supply still remain largely unknown. Researchers agree that the costs, availability, and quality of a childcare facility are related to a mother’s decision to leave her child in another person’s care, but the causal link between childcare subsidies and women’s labor force participation has been investigated much less frequently. Only a handful of studies have examined the topic using quasi-experiments and found mixed results. More research is called for to improve our understanding of the maternal employment effect.

This study, therefore, aims to explore the impact of highly subsidized childcare on maternal labor supply and childcare utilization by taking advantage of a series of recent reforms that has taken place in South Korea. The country offers a unique case study suited to examine the research question put forward; in response to the growing concern over women’s low labor market attachment, compounded by low total fertility rates, the Korean government has introduced reforms between 2010 and 2013 that expanded the childcare subsidy across all income groups.

This study may inform current policy debates in thinking about effectiveness of subsidy that is no longer means-tested; the central and local governments currently altogether spend about 1% of the total GDP on childcare subsidy and the funding scheme places a heavy burden on local governments. Moreover, my research design addresses an identification problem that arises from the endogeneity between parental investment in childcare and mothers’ decisions to work in the labor market. In this light, the present study aims to make a both practical and methodological contribution.