The effect of children on labor supply and wage elasticities in the household
Having children causes a radical change in the household's need for home pro duction. It alters the degree of substitutability between home and market hours - and the substitutability between spouses' hours at home and in the market. We find that, conditional on being employed, the level of both men and women's weekly working hours is reduced after having children; women's by 12% and men's by 1.5%. Women's labor force participation is reduced by 10% while men's participation increases with 0.5%. We also find that having children increases the substitutability of market and home hours, as reflected in a more positive own wage elasticity, and the substitutability between spouse's market work, as reflected in a more negative cross wage elasticity. The change in the own wage elasticity is more marked for women than for men, in line with the assumption that home and market hours are more of a substitute for women. The marked change in both men and women's cross wage elasticity shows, however, that spouses' hours are substitutes to a larger extent after having children.