Bridging Disciplinary Boundaries (January 11 - 14, 2007)

Purpose: Under Temporary Assistance to Needy Families (TANF) provisions, states have considerable flexibilities in setting childcare subsidy program rules including eligibility requirements, subsidy payment methods, and co-payment rates. This paper intends to analyze the effects of variations in childcare subsidy on low-income mothers' hours of work. It hypothesizes that variations in the availability (guaranteed transitional childcare subsidy) and in the generosity (eligibility levels and co-payment requirement) of childcare subsidy have significant impacts on low-income mothers' hours of work.

Methods: Using the Current Population Survey (CPS) of 2005, the study selected 601 mothers who received subsidized childcare in 2004 and were employed as the condition of subsidy receipt. Based on the information provided by the State Policy Demonstration Project (2005) about state TANF policies, each state where a sample mother resided was classified by three criteria of its childcare subsidy program—(1) availability of guaranteed transitional subsidy, (2) eligibility levels, and (3) presence of a co-payment requirement. Each of those three criteria was the major independent variable. The first dependent variable, hours of work, was defined as the actual number of hours for which the sample mothers reported to have worked annually. The second dependent variable measured whether or not a mother worked full-time (at least 2,000 hours annually). While controlling for the human capital and socio-demographic characteristics of the sample mothers, this study ran both an Ordinary Least Squared (OLS) and a logistic regression models. Because literature hints a problem with sample selection bias for this type of government program for which the participation rate is usually very low, this study also used Heckman's two stage models to correct for potential sample selection bias.

Results: The analyses found that the eligibility levels of subsidy program did have an impact on annual hours of work. When mothers who resided in stringent states were compared, those living in states with moderate and generous eligibility levels worked 186.2 hours and 174.31 hours more annually, respectively. The study also found that the odds of the mothers who lived in generous states working full-time are 1.65 times higher than the odds of those who lived in stringent states working full-time. These results found that the presence of child care subsidy, especially generous programs, is a significant factor that enable mothers to work more hours in the labor market.

Implications: Findings of this study indicate that states must be careful in deciding who is eligible to participate in the childcare subsidy program since it can promote recipient mothers to work longer hours by providing a more generous assistance. If a state sets very strict eligibility standards, recipient mothers are less likely to increase their hours of work for fear of losing the assistance due to increased earnings. Furthermore, if strict eligibility levels make fewer mothers deemed to be needy in the eyes of the childcare policy, even fewer mothers would actually obtain childcare assistances. As a result, low-income mothers would face a great challenge in working and achieving financial independence.