Do child care subsidies influence single mothers’ decision to invest in human capital?

A child care subsidy is one of the most effective policy instruments to facilitate low-income individuals’ transition from welfare to work. Although previous studies consistently find that subsidy receipt is associated with increased employment among single mothers, there is currently no evidence on the influence of these benefits on the decision to invest in human capital. Using data from the Kindergarten cohort of the Early Childhood Longitudinal Study, this paper examines the impact of child care subsidy receipt on the likelihood of engaging in education and job training activities. We identify the impact of subsidy receipt by exploiting plausibly exogenous geographic variation in the distance that parents must travel from home in order to reach the nearest social service agency that administers the subsidy application process. Results suggest that child care subsidies encourage single mothers to engage in human capital investment. In particular, our instrumental variables estimates imply that subsidy receipt increases the likelihood that a single mother enrolls in courses at a school or university by 13 percentage points and participates in a job training program by 8 percentage points.

► We examine the impact of child care subsidy receipt on the likelihood of engaging in education and job training activities.
► The geographic variation in the distance that parents must travel from home in order to reach the nearest social service agency that administers the subsidy application process is used for identification.
► Results suggest that child care subsidies strongly encourage single mothers to engage in human capital investment.