Decomposing the effects of children's health on mother's labor supply: is it time or money?

In this paper, I explore how children's health influences the wages and work hours of their mother. Some children have illnesses that require expensive medicine or treatment, but demand little parental time. Others require extraordinary amounts of time; and still others require care at unpredictable times of the day. I construct a theoretical model of mother's labor supply that explicitly incorporates the financial and time costs associated with the presence of unhealthy children. The model predicts that children with time‐intensive illnesses and those with unpredictable illnesses negatively influence mother's labor supply, whereas children with illnesses with a strong financial component have a positive effect on mother's labor supply. In order to empirically test this, I organize a focus group of doctors to categorize illnesses and disabilities by the type of resources they require. Using the 1997 PSID Child Development Supplement, I estimate the effects of these requirements on mother's decision to work and work hours. After controlling for the financial burden of the illness, single mothers work fewer hours if their child has a time‐intensive illness and married mothers are less likely to work and work fewer hours if their child has a severe condition with an unpredictable time component. These findings are consistent with the theoretical model and highlight the need to decompose the effects of child health on mother's work status. Model specifications that aggregate across illnesses are incapable of disentangling these effects and may therefore underestimate the welfare costs of having a sick child in the family. Copyright © 2004 John Wiley & Sons, Ltd.