Will childcare subsidies increase the labour supply of mothers in Ireland?

Abstract

We study the effect of the largest childcare subsidy scheme in Ireland, a country where, historically, mothers provided childcare and did not participate on the labour market. In 2019, the cost of full-time centre-based childcare was among the most expensive in the OECD. At the end of 2019, a means-tested childcare subsidy was introduced to improve childcare affordability, but nothing is known of the maternal labour supply effects. We model the joint decision of labour supply and childcare for lone and coupled mothers of children under six. Mothers are likely to respond to the introduction of childcare subsidies in 2019 by switching from informal childcare to formal childcare (12 percentage points), and by slightly increasing their participation in the labour market (0.5 percentage points). We simulate that recent (2023) reforms of the National Childcare Scheme, which increase the generosity and the scope of the subsidy, will increase mothers' participation by one further percentage point, but also substantially decrease the demand for informal childcare. Extending childcare subsidies to informal care (such as childminders and nannies) would decrease the demand for formal childcare and further increase maternal labour supply.