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Anderson VIL

"How to Incorporate Children into Labor Supply Equations ? A General Framework"
joint with Olivier Donni

Abstract :
We provide a novel method for modeling and estimating the impact of children on labor supply decisions. We rely on the literature on equivalence scales and collective models. Our approach considers both the time and monetary costs of raising children. Using semiparametric restrictions on individual preferences, we identify the cost of children from the curvature of the labor supply equations. We apply the model to PSID data from the USA and investigate the women’s labor supply elasticity, the cost of children, and the women’s price of time. We find that women’s labor supply is sensitive to wage variations. In addition, we show that mothers allocate on average 33% of their net total expenditures to children, and we find that the price of time of working mothers is higher than that of non-working mothers.