A sample of labor-market and birth histories is used to estimate the effects of child-care costs on employment and fertility decisions. A reduced-form empirical analysis is performed, which is based on hazard functions for transitions among various fertility-employment states. Higher child-care costs result in a lower birth rate for nonemployed women but not for employed women. Higher child-care costs also lead to an increase in the rate of leaving employment and a reduction in the rate of entering employment. The results suggest that potential behavioral effects of child-care subsidies could be significant and should be taken into account when alternative child-care policies are being debated.
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