Center for Studies in Demography and Ecology The Demand for Non-relative Child Care among Preschoolers : A Double-Hurdle Approach

Survey data indicate that many parents do not use non-parental care for their young children, even when both parents work. Previous studies of the demand for child care assumed that all parents respond to financial incentives. Since non-consumption may be the result of social, psychological or ethical considerations and unconnected with price and income levels (Pudney 1991), this assumption may not be appropriate. To assess the sensitivity of child care demand estimates to assumptions about reasons for nonconsumption, we estimate the demand for non-relative care for preschoolers with double-hurdle, tobit and dominance models. The results suggest that both financial and non-financial considerations lead to zero child care consumption, that the decision to use any care differs from the decision of how many hours of care to use and that estimates vary by the child=s age. THE DEMAND FOR NON-RELATIVE CHILD CARE AMONG PRESCHOOLERS: A DOUBLE-HURDLE APPROACH Issues surrounding child care have captured the attention of both academics and policy makers as more women with young children have joined the labor force and as welfare reform discussions have focused on how to enable mothers to become self-sufficient. A variety of federal and state policies seek to assist families with child care by altering factors such as the price of care or family income (Hofferth & Wissoker 1992; Robins 1990). For example, the Child Care Tax Credit, the largest federal child care program in the U.S., indirectly reduces the price of care by lowering a family=s tax liability. In 1991, almost 6 million households took this tax credit, with the associated tax revenue loss estimated at $2.8 billion (Internal Revenue Service 1993). Given the scope and the cost of child care policies, understanding the implications of existing and proposed programs is essential. Survey data indicate that a considerable number of parents do not use child care, even when both parents are employed. For example, almost 50 percent of households with a child under the age of six had not used any non-parental care for their youngest child on a regular basis in the four weeks preceding the interview conducted for the Child Health Supplement to the 1988 National Health Interview Survey. The corresponding figures are 17 percent for households with working mothers and 78 percent for households in which the mother did not work (Joesch 1998). Similar statistics are reported by Hotz and Kilburn (1992) for the same age group. In a sample of families with children under age 13, 37 percent relied exclusively on parental care (if school is not classified as a form of child care) when the mother was employed. When the mother was not employed, 70 percent of the families used only parental care (Willer et al. 1991). While previous studies of the demand for child care provide useful insights, they do not explicitly address why some young children do not receive any non-parental care. This omission may have created an inaccurate picture of child care demand. Child Care Demand 2 This paper presents a microeconomic analysis of the demand for child care. Throughout the paper, child care is defined as regularly scheduled care arrangements where the care provider is not a parent or other relative of the child. Child care demand is measured in hours per week. The study differs from previous studies of the demand for child care in two respects. First, the paper presents results from models that separate the decision to use any child care from the decision of how many hours of care are used. Second, it explores the possibility that some parents do not respond to financial incentives in making their child care decisions. That is, it examines whether it is appropriate to assume that all parents are potential child care consumers. While, for many goods, the assumption that everybody is a potential consumer may be reasonable, it may not be appropriate for all commodities. For example, according to Blaylock and Blisard=s work on the demand for cigarettes, Αrelative prices and/or income can change by large amounts and still not induce cigarette consumption≅ (1992, p. 698). If some parents consider care provided by a non-relative unacceptable for their young children, then current estimates of the demand for child care are inconsistent. Admittedly, large financial incentives such as high wage rates may induce parents who might otherwise stay home and care for their children to participate in the labor force and to use non-relative child care. However, some parents may object so strongly to non-relative child care that they find a way to avoid such care, even if the parents work. They may, for example, arrange shift work or rely on care provided by a relative. According to Presser (1986, 1988), 12% of full-time employed, married mothers and nearly 22% of part-time employed, married mothers worked other than a regular day schedule. The theoretical framework in this study is based on the neoclassical utility maximization approach. It extends the model presented in Hotz and Kilburn (1991) and Ribar (1992) by introducing a discrete random preference regime (Pudney 1991) to distinguish between parents who are potential child care users and those who are not. To determine the sensitivity of child care demand estimates, the theoretical framework is complemented with several econometric models that make different assumptions about reasons for non-consumption. The data for the study come from the 1990 National Child Care Survey (NCCS) and the 1990 Profile of Child Care Settings (PCCS). The NCCS consists of a sample of 4,392 households Child Care Demand 3 representative of U.S. families with children under the age of 13. The nationally representative PCCS provides information on 2,089 center-based early education and care programs. In the NCCS, information about child care arrangements is available in more detail for the youngest child in the family. Our analysis is restricted to the subset of families whose youngest child is six years or younger and not in school. ZERO CHILD CARE CONSUMPTION In demand analyses, non-consumption has been attributed to one or more of the following three explanations: (a) purchase infrequency, (b) rationing, or (c) a corner solution (Blundell & Meghir 1987; Pudney 1991). Purchase infrequency refers to a situation in which consumption is observed to be zero because the commodity of interest is not bought very often and the time period for data collection is too short to record a purchase. This reason is not likely to apply to the data on child care employed here, as the National Child Care Survey inquires about child care arrangements used regularly during the two weeks prior to the