A structural model of female labour supply in the context of childcare and unobserved heterogeneity

This thesis aims to provide a structural model of female labor supply, tailored to accommodate labor decisions of married and cohabiting mothers with children in the preschool age. The presented model follows tradition of discrete choice time-use models, with the individual agents deciding on allocation of their available time within a set of alternative activities. Our analysis benefitsfrom several novel estimation approaches, with the main innovation being an inclusion of formal childcare into the time-use choice set. This is made possible through the HILDA dataset, a rich micro-level survey of Australian population, which contains detailed information on individual childcare utilization and corresponding prices. Our model also explicitly controls for unobserved heterogeneity, using EM algorithm to identify latent classes of agents within our population sample. The resulting policy simulations show that the womenwith preschool children are highly sensitive to changes in wages and costs of childcare, adjusting their optimal time-use allocations to account for the given policy reform. Further simulations prove that the labor conditions of employed mothers are likely to be improved in a scal system which is based solely on the individual income taxation, in comparison to the current Australian systemwhich combines both individual and joint-income fiscal measures.