Quasi-Structural Estimation of a Model of Child Care Choices and Child Cognitive Ability Production

This paper evaluates the effects of maternal vs. alternative care providers’ time inputs on children’s cognitive development using the sample of single mothers in the National Longitudinal Survey of Youth. To deal with the selection problem created by unobserved heterogeneity of mothers and children, we develop a model of mother’s employment and child-care decisions. Guided by this model, we obtain approximate decisions rules for employment and child care use, and estimate these jointly with the child’s cognitive ability production function – an approach we refer to as “quasi-structural.” This joint estimation implements a selection correction. To help identify our selection model, we take advantage of the substantial and plausibly exogenous variation in employment and child-care choices of single mothers generated by the variation in welfare rules across states and over time – especially, the large changes created by the 1996 welfare reform legislation and earlier State waivers. Welfare rules provide natural exclusion restrictions, as it is plausible they enter decision rules for employment and day care use, while not entering the child cognitive ability production function directly. Our results imply that if a mother works full-time, while placing a child in day care, for one full year, it reduces the child’s cognitive ability test score by roughly 2.7% on average, which is 0.14 standard deviations of the score distribution. However, we find evidence of substantial observed and unobserved heterogeneity in the day care effect. Negative effects of day care on test scores are larger for better-educated mothers and for children with larger skill endowments. 1 Corresponding author: [email protected]