Outsourcing Household Production: The Demand for Foreign Domestic Helpers and Native Labor Supply in Hong Kong

Migration of women as domestic workers from developing to developed countries is a growing phenomenon. In Hong Kong, foreign domestic workers (FDWs) account for 6 percent of the labor force and among households with young children, more than one in three hires at least one. This paper investigates the e¤ects of the availability of foreign domestic workers on women’s decisions regarding labor supply and welfare. We develop and estimate a structural model of labor force participation and the decision to hire a FDW. We …nd a strong complementarity between the two choices, particularly for mothers of very young children, suggesting a high degree of substitution between the mother’s and the FDW’s time. From simulation exercises we estimate that the availability of FDWs at current prices generates a monthly average consumer surplus for mothers of children aged 0-5 of US$130-200, and has increased their labor force participation rate by 10 percentage points relative to mothers of older children. Cross-country time-series evidence comparing Hong Kong and Taiwan supports the …ndings of our micro approach. We are grateful to David Autor, Marianne Bertrand, David Card, Matthew Gentzkow, Chris Hansen, Kevin Lang, Divya Mathur, Jesse Shapiro, and seminar participants at the University of Hong Kong, Booth School of Business, SOLE, Atlanta Fed, UC Berkeley, and at the NBER Summer Institute for numerous helpful comments and suggestions. We are also grateful to the Hong Kong Census and Statistics Department for providing the data and their invaluable assistance.