Poster #67 - The Effect of Gradual Expansion of Childcare Subsidy on Maternal Employment: Evidence in South Korea

• In Event: Friday Poster Reception

Abstract

The Korean government has expanded a range of work-family policies in response to persistently low fertility rates. One of the most notable policy changes is the expansion of childcare subsidies. The childcare subsidy program in South Korea expanded gradually over multiple years. In 2008, the government provided subsidies to households with incomes below 100 percent of the average monthly income of urban wage workers, dividing eligible households into five tiers to differentiate subsidy levels. The target population expanded continuously, and by 2011, households below the 70th percentile of assessed household income were fully subsidized. In 2012, all households with children aged 0-2 and 5 were fully subsidized regardless of income level. Finally, in 2013, households with children aged 3-4 also received full subsidies across all income levels, making the transition to a universal scheme. 
While both the target population and subsidy amounts expanded gradually over time according to household income and age of children, this gradual expansion remains largely unexplored in the literature. A large body of literature has assessed policy impacts using a binary treatment indicator representing the eligibility for the subsidy. This study therefore identifies the policy change as a variation in the intensity of treatment over multiple years and estimates its phased effects.
This study uses data from 2007-2018 the Korean Longitudinal Survey of Women and Families (KLoWF), a nationally representative panel dataset in Korea. The sample consists of women who live with their children aged 0-4. This study employs an event-study design that exploits variations in eligibility and subsidy amounts over time. Specifically, the identification strategy relies on the interaction between treatment intensity and year indicators that span periods of gradual subsidy expansion and post-expansion. Treatment intensity is defined as an indicator for eligibility multiplied by the amount of the subsidy, taking a value of 0 for individuals who are not eligible. This measure treats subsidy as having greater intensity for individuals who are eligible for and receive larger amounts of subsidy. Lagged income is employed in constructing treatment intensity. 
The findings show that there is no statistically significant change in overall employment status across all years. However, when distinguishing employment outcomes into employment entry and retention, childcare subsidy expansion has negative impacts on employment entry among unemployed mothers. In contrast, the same increase in subsidies results in higher employment retention among employed mothers, particularly those with younger children.
One possible explanation is that increased demand for childcare services following subsidy expansion, combined with insufficient supply of services, made access to childcare centers more competitive. Furthermore, when waiting lists exist, children from dual-earner households are prioritized for enrollment based on the law, which makes access to childcare more difficult for unemployed mothers. As a result, unemployed mothers may face greater barriers to labor market participation compared to earlier periods when childcare subsidies were means-tested and access to childcare services was less competitive. The findings suggest that policy design should ensure the sufficiency of childcare services, not merely the purchasing power of households.

Author

• Eunha Kim, Columbia University
  Presenting Author