Lack of access to affordable and quality child care is one of the impediments to increasing female labour force participation rates in Turkey. With less than one-third of working age women active in the labour market, the Turkish government has been considering options for expanding female labour force participation by providing a demand-side subsidy conditional on employment (or activation). To achieve this, utilization of child care is being considered as a policy option. This paper considers the labour supply impact and cost-effectiveness of such a demand-side subsidy by evaluating the labour supply model of women in Turkey under the current conditions and simulates -- under various targeting scenarios and for different benefit levels of the subsidy - (i) the number of women that would join the labour force or become formally employed; (ii) the budgetary implications and cost-effectiveness of the subsidy; and (iii) the potential benefits accrued by the bottom quintiles of society.
Given the constrained supply of existing services, the paper finds that the immediate employment impact of such a demand-side intervention is likely to be low, and the distribution regressive in the short term. A targeted subsidy based on welfare level and employability of the woman is likely to be most cost-effective in the medium term when supply-side constraints on child care are addressed and concurrent policies to expand the supply of child care have been implemented. In the short term, when the subsidy is provided conditional on child care utilization (and there is no targeting of the poor) the benefits are likely to be highly regressive, with only 3 percent of benefits accruing to the bottom quintile of the population. The formal employment impact of the program is also estimated to below: we find that in the short term the number of women activated through the program would range from 2,800 to 43,000 women (entering formal employment) at a cost varying from 1.4 million TL to 37 million TL per month (not including administrative costs of running the program) if the benefits are fixed at 50 % of the net minimum wage. In the medium term, when the supply of ECEC is assumed to be more flexible and supply of services is not a constraint, the demand side transfer is expected to activate into the formal sector an upper bound estimate of 187,600 women, constituting a less than 1 percentage point change in female labour force participation -- at a cost of about 138 million TL per month.
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