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Are Higher Child Care Wages Affecting the Labor Supply?
FRB of St. Louis
2023.08.07
In our previous post, we examined the labor force participation (LFP) rates for various demographic groups to see whether the availability and cost of child care have had an impact on the labor supply. That examination did not yield clear evidence supporting such a hypothesis.

In this post, we analyze state-level data over time to determine whether higher child care wages are affecting the labor supply. We examine whether states that saw greater increases in child care costs also showed weaker rebounds of LFP rates for individuals with children.

The exposure to pandemic-related factors may vary for different population groups, and the groups may exhibit different trends in the labor supply unrelated to the pandemic. By using state-level data, we can control for group-specific trends in LFP. Moreover, there may be a noncausal comovement of child care wages and labor supply.