PARENTAL MONEY OR TIME? New evidence on the trade-off in child development

Is parental income or time spent with the child more important for fostering child development? New research by Francesco Agostinelli and Giuseppe Sorrenti indicates that both play a crucial role. The study explores the determinants of children”s development between the ages of 4 and 18 by focusing on the effect of family income and maternal labour supply on children”s test scores and behavioural development in the United States. The results show that:

• An increase in family income positively affects cognitive development measured through test scores, while it has no effect on behavioural development.

• In contrast, maternal labour supply negatively shapes both cognitive and behavioural development.

• The entire effect of labour supply is driven by mothers from low socio-economic backgrounds, who are likely to have fewer economic resources to substitute their decreasing time investments in the child, therefore inducing negative consequences for the child”s development.

• There is no negative effect on children from more privileged backgrounds with working mothers. Highly educated mothers can afford high quality (and therefore costly) alternative inputs, in order to prevent any damage to their child”s development.

• The wage paid to mothers is another crucial ingredient of the net impact of family income and maternal labour supply. When a higher wage is paid, mothers can easily substitute their time with productive (for the child) alternative input.

• A wage of approximately $13.50 per hour would be enough to eliminate all the possible negative labour supply effects on child development. Although $13.50 per hour is not an extremely high wage, it is still higher than the majority of wages observed in the study.

Based on these findings, policy-makers can consider designing various policies that simultaneously foster labour supply of mothers and child development. High quality alternatives can become costly for mothers from low socio-economic backgrounds.

As a result, when it comes to fostering maternal labour supply it becomes crucial to ensure that these mothers are offered a sufficient higher net wage and high quality childcare support. This becomes particularly relevant for single mothers, a group that nowadays accounts for around one quarter of mothers in the United States.

Money or Time? A Trade-Off in Child Development

Giuseppe Sorrenti

University of Zurich (UZH) – Department of Economics | +41779776273 | giuseppe.sorrenti@econ.uzh.ch