It pays to have a childminder

When Norway's new cash benefits scheme for parents of small children is introduced, many families will be able to increase their household income by using a childminder instead of a day-care facility. A number of people will probably also leave the labour market to stay home with their children. In this respect the scheme will affect the choices parents make regarding child-care and jobs.

Under the cash benefits scheme, families of one-year-olds who do not receive state-subsidized care services will receive the cash benefit or care supplement beginning 1 August this year. According to plan, the scheme will also include two-year-olds beginning 1 January 1999. Statistics Norway recently prepared an analysis of the effects of the scheme.

Although the final draft of the cash benefits scheme is not ready, Statistics Norway has assumed that the size of the cash benefit will equal the subsidies day-care facilities receive from the government. The subsidy is currently NOK 36,140 per year for a place in a day-care facility that is open 41 or more hours per week. The cash benefits are scaled back if the family chooses a part-time day-care place.

300 households

According to figures from the end of 1994 around 25 per cent of households with one- and two-year-old children are users of day-care facilities. Statistics Norway's calculations include households that were included in the 1995 survey of living conditions, in which nearly 300 households had one- and two-year-old children. Labour force participation is high both among parents who use a childminder and those who take care of the their children themselves, even if both parents work. Various forms of part-time and shift work have made this possible.

Because of the low number of observations and non-response in the survey of living conditions, there are considerable uncertainties with regard to the final figures presented here. At the end of 1994, day- care coverage for one- and two-year-olds was 28.6 per cent, while it had risen to 33.8 per cent at the end of 1996.

A question of balance

It is reasonable to assume that parents with one or more children aged 1-2 in day-care facilities make their decisions concerning daycare and work based on a balance between income, leisure time and the quality of the child care. The cash benefits scheme will likely influence the choices parents make concerning both child care and job offers. The selection of child care is influenced because the prices of various types of child care will be affected by the new cash benefits scheme. The scheme will only benefit those who choose not to have their child in a day-care facility. Consequently, it will be more expensive for parents to use a day-care facility than to hire a childminder or take care of their children themselves.

Labour force participation

One of the reasons why working outside the home will probably decrease is because the cash benefits scheme represents unearned income for those who do not use full-time care in a day-care facility. Empirical job offer studies show that on average, families use part of an income increase to reduce their work hours, i.e. they buy more free time. It may therefore be expected that parents who are not users of day-care facilities will reduce their labour force participation after the introduction of the new scheme.

For parents who are users of day-care facilities, the last hour of work entails a loss of cash benefits. The yield from the last hour of work will now be: hourly pay less marginal tax, hourly cost of a day-care place and loss of cash benefit per hour of care. A simplified example can serve as an illustration: A mother worked 30 hours before the cash benefits scheme and had one child in a day-care facility for the same number of hours. Once the scheme begins the yield from the final hour at work will be reduced by NOK 10, which is the average loss of cash benefit when one uses 21-30 hours of child care in a day-care facility. Her total income will nevertheless increase under the new scheme since her earnings will be the same and she will receive NOK 16,010 (the difference between NOK 36,140 and NOK 20,130) in cash benefits because she is not using a full-time place in a day-care facility.

Source

The full article on the cash benefits scheme is published in Economic Analysis, issue no. 2/1998. For more information, contact: Thor Olav Thoresen, tel. +47 21 09 48 19, e-mail: tot@ssb.no.

Weekly Bulletin issue no. 10, 1998