Maternal employment and child care decision

When estimating the determinants of child care participation, the simultaneity in mothers decision to work and in the decision to use child care is a major challenge. We provide first evidence on the determinants of institutional child care use addressing the endogeneity of mothers labor supply by applying an instrumental variables approach. This endogeneity has often been neglected in studies on child care choice, even though the decision to use child care outside the home is strongly connected to mothers decision to work after childbirth and vice versa. Based on the German Socio-economic Panel (SOEP) from 1989 to 2006 we show that children living in West Germany have a higher probability to attend institutional care if their mothers increase their actual weekly working time. Estimating the determining factors of child care participation without addressing the simultaneity issue substantially underestimates the influence of maternal working time.