Effects of childcare subsidies on employment and earnings of low-income mothers

Abstract

This study examines how childcare subsidies funded by the Child Care and Development Fund (CCDF-the most widespread childcare subsidy program in the United States) affect the employment status and earnings of low-income mothers. Employing a rich database of administrative records, we compute instrumental variables and control function estimates of the program's effects. As an exclusion restriction, we take advantage of differences in efficiency levels across administrative agencies that process subsidy applications and payments. CCDF-funded subsidies have short-term effects that are primarily driven by changes in the extensive margin of labor supply. Mothers who are either unemployed or earning closer to the upper cutoff of eligibility benefit the most from participation in this program.