Parental labour supply responses to the abolition of daycare fees

While for many years maternal labour force participation increased with the availability of affordable daycare, many mothers with small children still work part-time in many countries. This paper provides evidence that even low private contributions to highly subsidised daycare constrain mothers from working longer hours. We study the effects of a daycare fee abolition reform in Germany on parental labour supply. The reform removed the remaining private contributions to highly subsidised daycare in the year before children enter primary school, at different points in time across federal states. We exploit this variation with a difference-in-differences approach and an event study. Even though the participation in daycare is almost universal already, we provide evidence that the reform increases the use of daycare at the intensive margin, and the share of full-time working mothers by about 10 percent. Single mothers, mothers with no other younger children, mothers in denser local labour markets and highly educated mothers react strongest. We find neither evidence for labour supply responses at the extensive margin, nor can we find any responses in fathers’ labour supply. The effects on mothers’ labour supply fade-away after about four years.

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