A Study on the Effectiveness of Childcare Policies

Abstract

Childcare policies in Korea has expanded rapidly in both the number of beneficiaries and the size of government expenditure. Childcare budget has increased from 300 million won in 2003 to 1,700 million won in 2009. The beneficiaires of childcare cost subsidy has expanded from the low income household to the middle income household. However, the childcare policy in Korea failed to provide with clear policy objectives and directions. The increases in the public expenditure do not guarantee the effectiveness of childcare policy. This study aims at analyzing the effectiveness of childcare policy in terms of female labor supply and the fertility rate. The analysis shows that childcare policy has negative impact on the labor supply of the married women, in terms of both the labor force participation and the labor hours. This implies that the current childcare subsidy system has disincentive for labor supply. The benefit level is not continuous by means-tested income level, resulting income bracket creep. Labor participation of married women raises household income and this may lead to loose the childcare benefit. The analysis also shows that break in career path from childbirth affects fertility rate in negative way. Comparing the public sector employees and private sector employees, married women in public sector that face less risks in loosing jobs show higher fertility rate than those in private sector. This implies that childcare policy should ease the risk of the break in career path that married women face. Childcare policy that alleviate the burden of childcare of working women may achieve two different goals of childcare policy, which is increasing female labor supply and fertility rate. This may require restructuring of current childcare policy in Korea toward the third childcare policy model. It may include the reinforcement of incentive system for working women, and more active utilization of private sector by enhancing the competitiveness of childcare services market and less regulation on the market. In addition, the regional inequalities in childcare facilities need to be solved.