Female employment and pre-kindergarten: On the unintended effects of an Italian reform

We theoretically show that when mothers need to buy childcare services not only if they work but also if they want to search actively for a job, a reduction in the price of childcare will increase their likelihood of searching but may decrease their willingness to accept a job offer and therefore lower employment. We test these predictions empirically by means of a Regression Discontinuity design and find that the introduction in Italy of pre-kindergarten, a much cheaper alternative to day care for 2-year-old children, increased both participation in the labour market and employment of mothers of eligible children. This effect was driven largely by a significant decrease in the stated reservation wage. For a full evaluation of the policy we finally provide evidence that pre-kindergarten did not affect children’s cognitive development as measured at second grade.