The cost of fair pay: How child-care work wages affect formal child-care, informal child-care, and employment hours

Author – Verena Löffler.

Abstract :

The debate on the effects of child-care policies on household and individualbehavior is substantial but misses the discussion of unintended side effects of much-needed wage increases in the child-care work sector. Rising pay translates to rising prices for formal paid child-care work, which affect household consumption<of formal child care, as well as individual provision of informal childcare, and employment hours. To address this gap, the proposed relation is analyzed empirically with a country case study on Early Childhood Education and Care in Germany between 2012 and 2019, using combined data from the GermanSocioeconomic Panel and the German Sample of Integrated Labour Marketiographies. The evidence demonstrates that only high-income households are wage elastic considering formal child-care hours, while lower-income individuals adapt informal child-care and employment hours when child-care wages are higher. Particularly, in high-wage districts in eastern Germany, men supply more employment hours, suggesting larger gender employment and care gaps. In western Germany, where formal child care is subsidized more intensively, a moral hazard problem might explain decreases in employment hours considering men with low labor income. Overall, if wage levels increase, ambiguous effects on the household level hint at paid formal child care being a necessary service for most German households, which is why low and middle-income men adapt employment hours and informal child care.