• Guyonne Kalb, Wang-Sheng Lee
• Melbourne Institute

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03 April 2007Based on data which are representative of the Australian population in 2002, this paper
first analyses the demand for and cost of formal and informal childcare for couple and
sole parent families, shedding light on factors which affect the demand for childcare.
The predicted demand of formal childcare and the predicted costs of informal childcare
arising from these models are then used to impute total childcare costs at different levels
of labour supply. Finally, the predicted total costs are incorporated in the estimation
procedure of structural labour supply models for couple and sole parent families. By
making several extensions to the methodology adopted in Doiron and Kalb (2005a),
who estimated similar models based on 1996 Australian data and which this paper
largely replicates in terms of methodology, it is found that the average elasticities of
labour supply with regard to the cost of childcare are quite similar to the earlier
estimates. The elasticities remain at the lower end of the range found in the international
literature with the exception of the elasticities for sole parents with preschool children
and/or on relatively low wages.