Banco de México Documentos de Investigación Banco de México Working Papers N° 2014-07 The Effects of Child Care Provision in Mexico Gabriela Calderón Banco de México April 2014 La serie de Documentos de Investigación del Banco de México divulga resultados preliminares de trabajos de investigación económica realizados en el Banco de México con la finalidad de propiciar el intercambio y debate de ideas. El contenido de los Documentos de Investigación, así como las conclusiones que de ellos se derivan, son responsabilidad exclusiva de los autores y no reflejan necesariamente las del Banco de México. The Working Papers series of Banco de México disseminates preliminary results of economic research conducted at Banco de México in order to promote the exchange and debate of ideas. The views and conclusions presented in the Working Papers are exclusively the responsibility of the authors and do not necessarily reflect those of Banco de México. Documento de Investigación Working Paper 2014-07 2014-07 The Effects of Child Care Provision in Mexico* Gabriela Calderóny Banco de México Abstract: In 2007, seeking to increase female labor force participation and more generally ease burdens on working women, the Mexican government introduced an enormous expansion of a child care program: Estancias Infantiles para Apoyar a Madres Trabajadoras (EI). EI covers 90 percent approximately of the cost of enrolling a child under age four at a formal child care center and is intended to benefit women who are looking for work, in school, or working -with the exception of those who already have access to child care because their job is covered by Mexico's social security system (IMSS). The roll-out of EI was so fast and intense that, by mid-2010, it had approximately 357,000 child care spaces. In order to identify the effects of the program I use a combination of triple differences and synthetic control methods, and find that EI increased women's probability of working and reduced the time they devoted to child rearing. EI also caused women to obtain more stable jobs and it increased their labor incomes. Affected husbands spent less time on child rearing and housework, and they were more likely to switch to a better-paid job. Keywords: Time allocation, female labor supply, child care, intrahousehold allocations, synthetic control method. JEL Classification: J22, J13, J32, D10, C26, O12. Resumen: En 2007, en busca de aumentar la participación laboral de las mujeres, y en general, disminuir la carga sobre las mujeres que trabajan, el gobierno mexicano implementó una gran expansión de guarderías: Estancias Infantiles para Apoyar a Madres Trabajadoras (EI). EI cubre el 90 % del costo de utilizar una guardería formal para un niño menor de cuatro años y su objetivo es beneficiar a las mujeres que se encuentran buscando trabajo, estudiando o trabajando - con la excepción de aquellas que ya tienen acceso a cuidado infantil porque su trabajo está cubierto por el Instituto Mexicano del Seguro Social (IMSS). La expansión de EI fue tan rápida e intensiva que para la mitad del 2010 había aproximadamente 357,000 espacios de guarderías de EI. Para identificar los efectos de este programa, utilizo una combinación de triples diferencias y grupos de controles sintéticos y encuentro que el programa EI incrementó la probabilidad de trabajar y redujo el tiempo asignado al cuidado de los niños para las mujeres. EI también causó que las mujeres afectadas obtuvieran trabajos más estables e incrementos en su ingreso laboral. Los esposos afectados dedicaron menos tiempo al cuidado de los hijos y al hogar, y tuvieron mayor propensión a cambiar a trabajos mejor remunerados. Palabras Clave: Asignación de tiempo, oferta laboral de la mujer, guarderías, asignaciones intrafamiliares, método sintético de control. *I am really grateful to Caroline Hoxby, Giacomo De Giorgi, and Luigi Pistaferri, and participants in seminars for their helpful comments and suggestions. y Dirección General de Investigación Económica. Email: [email protected]. 1 Introduction Reductions in the cost of child care are thought to be an important reason why female labor force participation has risen so much in developed countries (Attanasio, Low and Sanchez-Marcos, 2008). In 2007, the Mexican government began to subsidize child care centers greatly, expecting to achieve similar increases in females’ probability of working. However, it is not obvious that reducing child care costs in a developing country will produce the same effects that it does in developed ones. Women’s skills are different, labor demand is different, and the allocation of work within the family is often different. In this paper, I examine Mexico’s dramatic expansion of child care subsidies that occurred between 2007 and mid-2010 and investigate whether they are having the intended effects. When implementing this type of policy, policy makers often think of women as though they live alone. In fact, women with children are usually part of a larger household, so they do not make unilateral decisions about supplying labor to the market, housework, and child care. Under most economic models of the household, the partners of women who are also beneficiaries of the subsidies may also change their behavior. I therefore investigate not only women’s outcomes, but also those of their spouses. In particular, the main question that this paper will explore is: What is the effect of a reduction in child care costs on a woman’s and a man’s labor supply decisions in a developing country? The response of both the primary and secondary earner will determine the overall effect on the household’s income. Estancias Infantiles para Apoyar a Madres Trabajadores (EI) was initiated in 2007 in Mexico. It covers about 90% of the costs of child care for women whose children gain access to a subsidized place in an EI-qualified child care center. EI centers accept children who are at least one year and under four years old. (At four, a child is eligible for public pre-school.) EI is intended especially for children whose mothers work in a job that is not covered by the Mexican social security system (IMSS). IMSS-covered jobs have a child care subsidy program of their own. By the second quarter of 2010, EI centers contained approximately 357,000 spaces, enough to enroll 9.2% of children whose mothers were not eligible to use the child care services of the IMSS-covered sector. According to the Operating Rules of EI, the program targeted women who were working, actively looking for a job or studying. Furthermore, their household income was required to be lower than 6 times the minimum wage (Operating Rules, 2007). Because the government relied on self-reported activity and household income, it is likely that nearly all women had access to the program. 1 EI child care places were allocated in a fairly idiosyncratic manner across Mexico’s municipalities during the initial period of its roll-out: 2007 to 2010. Essentially, local offices of the state gov- ernments were given the duty of approving child care centers’ application to be EI-eligible. Some of these offices showed more alacrity than others and they approved more places, more quickly. I exploit the variation in EI space expansion using an empirical approach with a difference-in- difference-in-difference (DDD) identification strategy. That is, I simultaneously exploit variation across time, across locations, and across the families who were eligible and ineligible for EI. Given this strategy, the only threats to identification are other factors that affect the labor market out- comes of EI-eligible families in locations/times where more EI spaces are available relative to EI-ineligible families in the same location and time, relative to EI-eligible families at the same time in locations with lower EI availability, and relative to EI-eligible families at the same location at a time when there was different EI availability. Factors that fit this “threat to identification” scenario are few and far between, but one of them could be idiosyncratic variation in labor demand. For instance, a possible scenario would be a manufacturer who moves into a municipality with timing that happens to coincide with the EI program and who happens to disproportionately demand the skills that women with children under the age of 4 happen to have. To ensure that such scenarios do not affect my results, I do not use a DDD strategy in which all ineligible people are treated as “controls” for the EI-eligible families. Instead, I use synthetic control methods (Abadie and Gardeazabal, 2003; and Abadie, Diamond and Hainmueller, 2010) to ensure that my control group has the same mix of skills and preferences as my EI-eligible group. The principal contributions of this paper are two-fold. First, I evaluate a program that experi- enced a huge expansion in the developing world. Second, I develop a procedure for using Synthetic Control Methods in applications in which the data come in repeated cross-sections and in which people move in and out of eligibility for treatment over time. This procedure is likely to be helpful to many other researchers because we are often not in the conditions for which synthetic con- trol methods were originally designed–fully longitudinal data in which units do not switch from treatment to control or vice versa. I mainly estimate intention-to-treat effects –that is, the effect of living in a municipality with available EI spaces and being eligible for those spaces. However, I also show pseudo treatment- on-the-treated effects where I classify a household as having been treated by EI if that household 2 reports a significant reduction in the hours that an EI-eligible mother spends on child care–without any accompanying change in her number of EI-eligible children.