2077 – Assume that a state government currently provides no child-care subsidies to working single parents, but it now wants to adopt a plan that will encourage labor force participation among single parents. Suppose child-care costs are hourly and that the government adopts a child-care subsidy of $4 per hour if the single parent works 4 or more hours per day. Draw the current daily budget constraint (assume a wage that is net of the hourly child-care costs) for a single mother and then draw in the new constraint. Discuss the likely effects on labor force participation and hours of work.
