The Economics of Babysitting

It seems the government gave an economics test to high school students:

Mr. Damasio cited a question that asked students to identify the most likely effect of an increase in the hourly wage of babysitters. Eighty percent of students answered correctly that the time spent by teenagers on babysitting would likely go up while the time they spent on other activities would decrease, he said.

If you want evidence that I'm not a real liberal, look no further than the fact that I would have said the reverse -- raise wages for babysitters and parents will purchase fewer person-hours of babysitting and more Baby Einstein DVDs. Teenagers, meanwhile, will spend more time in the Taco Bell parking lot wishing they had fake IDs.

UPDATE: The more I think about it, the more ridiculous this becomes. How do we know teenagers won't cut down on babysitting because of the income effect? I feel like it's plausible that teenagers are lazy and just want to earn a certain baseline income and then will want to spend more time in the Taco Bell parking lot wishing they had fake IDs (this is my impression of suburban adolescence, we didn't have Taco Bell parking lots in Manhattan). They've gone and asked a complicated question that should be researched properly.

Comments

So you're suggesting that a "real liberal" is ignorant of, or chooses to ignore, basic economics? Well, congratulations for not being a real liberal then!

[I'm aware of the Card/Krueger paper, but I think that particular finding is an outlier in the literature.]

Posted by nbt | August 8, 2007 11:40 AM

I think what this proves is that you're not a parent. The point of hiring a babysitter is to allow you to get out of the house without having a child along. If you leave Junior at home while you head out for a nice quiet dinner with your spouse, Child Protective Services will be on your case even if you left the child watching a Baby Einstein DVD. The marginal value of having some grown-up time alone is greater than the cost of increasing the babysitter minimum wage by a few bucks.

Posted by monkey.dave | August 8, 2007 11:45 AM

Teenagers will babysit less, but it is because they reach their income goal with fewer hours and will then go hang out at the Taco Bell (actually the mall). Having two teenagers and their friends around is more educational than an economics degree.

Posted by Th | August 8, 2007 11:46 AM

raise wages for babysitters and parents will purchase fewer person-hours of babysitting

Wha? I suppose if wages rose to some exorbinantly high level that might be the case, but for most parents babysitting is an inelastic good - you NEED TO HAVE IT at least some portion of the time. I'm not just talking daycare here either - sometimes you need to get out of the house for some kind of event and you can't take your kids. And sometimes you need to recharge your sanity and relationship batteries with a night out with the spouse. If you don't have family in the area you WILL pay for the babysitter that you think isn't going to kill your kids or burn down your house.

OTOH - Given how the question is phrased, I don't see why the answer given is actually correct. Why would an increase in the wages for babysitters lead to an increase in the DEMAND for babysitters? If the wages went up because there was a larger demand then sure, it's likely that more teens would spend more time babysitting to earn extra money. But if wages went up due to some external factor (like, say, a law that required you to pay your babysitters according to minimum wage laws) then why would they spend more time babysitting? It might cause them to WANT to spend more time babysitting to earn more money, but that doesn't lead to an actual increase in the number of babysitting jobs.

Posted by NonyNony | August 8, 2007 11:55 AM

Teenagers will babysit less, but it is because they reach their income goal with fewer hours and will then go hang out at the Taco Bell (actually the mall). Having two teenagers and their friends around is more educational than an economics degree.

Um...no. As the parent of 3 young daughters I can tell you this is wrong on so many levels.

First of all, the average teenager has no sense of budgeting much less an income goal. Whatever cash they happen to have will magically vanish. Double their income or quadruple it and they will still be constantly broke and have no idea where their money went. INCOME GOAL? Heh.

The bigger constraint is probably time. As parents of young children who uses babysitters I can tell you that about the only rational time to hire a babysitter is on Friday or Saturday evening. Weekday evenings don't make much sense to go out late because no matter how good the sitter is, your kids will still be up too late and will be wiped out the next day at school. If you want to take your wife out to dinner and some event, Friday and Saturday nights are the only time that really makes sense. Of course, those are the two nights that are hardest to find teenagers who are free. You are not only competing with their social lives, you are competing with other parents for their time. It is, for example, here in Texas, a major sacrifice to ask a teenage girl to give up a Friday night in the fall to babysit.

That is why I always overpay my sitters. Because I want them to be motivated to drop everything for me when I need one on short notice. That's not going to happen for $5/hr but it might for $15/hr.

Posted by Kent | August 8, 2007 11:58 AM

MY: In your update, you mean "income effect", not "substitution effect".

Posted by nbt | August 8, 2007 11:59 AM

Matt,

I was a suburban adolescent and, in my experience, only the trashy kids hung out in Taco Bell parking lots. Suburban loitering options are quite varied, you know.

Posted by lawtalkingguy | August 8, 2007 12:00 PM

Babysitting is actually a great example of where the importance of embeddedness really matters, and why it's a mistake to just look to simply supply-and-demand curves. Would the same parents who hire a neighborhood kid for X$/hr agree to babysit the next door neighbor's kids for the same price, if their own kids are away for some reason? Probably not-- and they might well be insulted by the offer. Babysitting generally isn't simply an economic transaction, it's a social one as well; and mandating a minimum wage may have much more complicated effects on the social aspect of the transaction than the straightforward demand-side effects.

Also, you know, there's nothing in the question that demands interpretation as "wages raised by government fiat." A more natural interpretation would be that it's asking about an exogenous upward demand shock--a baby boom or whatever. So actually, I'd say the fact that you immediately assumed a statist interpretation shows you *are* a "real liberal". =]

Posted by X. Trapnel | August 8, 2007 12:03 PM

This proves you have no kids. monkey.dave is right on the spot. This is all about getting some quality time, sans kid, with the spouse. I paid 20% above the going wages everywhere I lived and could get a babysitter at anytime on about 30 minutes notice. I tried to have a stable of 4-6 names and this was one of the high-priority items when moving. Cost of going to dinner and a play - say 6 hours - $200. Add $60 bucks for the baby-sitter (3 kids). So if I need to pay more it goes to say $75. So what. Even if we just spent an afternoon walking the mall in DC (and seeing the museums) that would be money well-spent just to have some adult time.

Now that the oldest can babysit that cost has went away...

Posted by buffpilot | August 8, 2007 12:03 PM

Yeah, uh, "income goal" for teenagers? No.

I worked a couple of menial jobs as a teenager (Burger King employee, gas station clerk) at or around the minimum wage. Marginal increases in my wage (I had a couple) had absolutely nothing to do with the amount of hours I wanted to work--the money was just too little for me to have said "well, I'm set for the week on this many hours." I suppose if my wage had doubled I might have begun to think about cutting back on hours, but probably not. As the poster above said, teenagers blow 100% of their money, regardless of how much it is. I was a kid--I just worked the hours I was able to work that my bosses scheduled for me.

It's similarly hard to imagine 17-year-old Tricia telling the neighbors across the street she doesn't want to babysit tonight because she raked in so much scratch babysitting next door last night.

Posted by Jake H. | August 8, 2007 12:05 PM

Historically teenage employment is positively correlated with the minimum wage -- a rising minimum wage is associated with an increase in teenage participation rates and rising teen employmment.

So the historic data agrees with your first conclusion.

Posted by spencer | August 8, 2007 12:06 PM

Ok I'm confused.

The article says the hourly wage increases, not that the government institutes a higher baby sitter pay minimum wage. (In my experience babysitter wages are double and even triple minimum wage anyway)

So wouldn't the wage increase reflect a new balance in supply and demand? If so what reason is there to think less babysitters will be hired?

Posted by ChristopherColaninno | August 8, 2007 12:11 PM

And one more point. No one pays minimum wage for babysitters. You just won't find them for that price. Your talking about trusting your kids for hours with someone. They must be able to save a choking infant or child (i.e. preferably passed a Red Cross certified babysitting course), be able to round up sleeping kids from seperate rooms and get them out of the house in case of a fire or emergency, and call police/fire/you for help when needed. They also must be willing and able to change a diaper correctly (so it won't leak the next time - this is a big one BTW).

Yea I'm going to leave my three kids with someone for $5 an hour. Your nuts.

Posted by buffpilot | August 8, 2007 12:12 PM

I'm only 30 and I already hate these damn kids with their damn loud music!!!!!

Posted by r4d20 | August 8, 2007 12:15 PM

This is the main problem with writing for the numerically/mathematically illiterate. The whole argument can be encapsulated in a couple of graphs. No need for words dripping with irony or snark.

Posted by gregor | August 8, 2007 12:15 PM

ChristopherColaninno -

That's my point - the question is stupid because it doesn't say WHY the hourly wage increases. Assuming that it increases because of demand increase is just as silly as assuming it increases because of a government mandate - the reason why the increase occurs is fundamental to figuring out what the effect of an increase in wages would be.

However, I will argue against this idea that teenagers have no "income goals". I was one of those suburban teenagers at one point - my income goals included saving up enough to buy a car, then, after getting the car, saving up enough to buy gas for the car and saving up enough to pay for insurance on the car. That's probably part of why I'm such a big proponent of public transport today...

Posted by NonyNony | August 8, 2007 12:15 PM

The correct answer is babysitters will make more money per hour. Anything else is supposition based on assumptions that may or may not be correct and require empirical validation.

Posted by Ron | August 8, 2007 12:18 PM

OK, I live in a fairly wealthy urban area and babysitting rates can vary from $6 or $7 per hour to $50 for showing up. The hourly people are quickly weeded out and the kids work much less for the same money. When you have enough for dinner and a movie, why work another night when you can go to dinner and a movie with your friends? At least that is what I hear. Happy to hear there are kids like Kent's. I grew up like Jake and worked two jobs if I couldn't get enough hours from one.

Posted by Th | August 8, 2007 12:23 PM

Your impression of suburban adolescence is surprisingly accurate.

Posted by Michael | August 8, 2007 12:27 PM

What's interesting is that teen babysitting is something of a uniquely American phenomenon.

My wife is Chilean and we spend a few weeks each year down in Chile visiting friends and family. Teen babysitters are pretty much unheard of in Chile. The wealthy in Chile all have full-time maids. In many instances they'll have multiple maids, one doing the cooking and one watching the kids. When a rich couple wants to go out at night they just ask the maid to stay late.

Chile also has a lot of professional babysitting services. You look them up in the phone book and order up a babysitter and some older woman shows up who babysits full time for a living. They will spend the night or do whatever you ask for the money and they are not cheap. Because the only people who ever actually hire professional babysitters are the very wealthy.

The poor and middle class? If they go out they just bring the kids or leave them with grandma who probably lives next door or a few blocks away.

My wife was quite puzzled and intrigued at the idea of hiring neighbor kids to babysit when we first moved to the US. It just wasn't even within her frame of reference.

Posted by Kent | August 8, 2007 12:29 PM

I don't agree that the demand is totally inelestic. There would certainly be a significant reduction in demand for babysitting were the price to go up significantly- expect perhaps in the most affluent communities.

We lived in a number of different places, including other countries, while our kids were growing up. Where reliable babysitting was cheap, we definitely went out a lot more than where it was expensive.

Posted by Virginia | August 8, 2007 12:32 PM

Not nearly enough discussion of taco bell parking lots.

Taco Bell parking lot was for the rednecks who admitted they were rednecks. Those of us rednecks who had aspirations of not being rednecks loitered at the truck stop.

Logic defied!

Posted by Garrett | August 8, 2007 12:35 PM

It is a poorly worded question, but I think the assumption is that the increase in babysitting wages are due to increases in demand, not a government-imposed babysitting wage. If the demand curve has shifted upwards, then you will get more babysitting assuming that the supply curve is increasing (which it probably is).

Posted by Pithlord | August 8, 2007 12:36 PM

this is my impression of suburban adolescence, we didn't have Taco Bell parking lots in Manhattan

Man! You must have been awesome! How wonderful for you to have this blog to show everybody what a hip cat you were back in high school. Sure sucks to be those suburban losers, huh?

Posted by Freddie | August 8, 2007 12:38 PM

Interestingly, as a parent I have had a really difficult time finding out what the actual going rate is for babysitters. If you ask the girls or their parents you rarely get a straight answer, it pretty much just depends on who they are sitting for. I've never had a girl bargain with me or negotiate (it's always been girls). I don't hang with other parents enough to really discuss what the local going rate is. We used to have a teen living right next door and we'd pay her about $7/hr to sit two kids and that was safe and convenient because her mom was next door if there were any problems.

Lately I've been paying a local college girl to come sit as there are no nearby teens who want the job. She is one of the part-time staff at my daughter's elementary school's after school program so she is there at school looking after my daughter from 3:30 to 5:30 every evening anyway. We also have a new baby which greatly complicates the sitting so I've been paying her $15/hour ($5 per kid) to come sit on those occasions when we want to go out. This is probably higher than the local rates but she has to drive her own car about 15 miles out to our house in the country and I want her to be motivated to keep coming out on short notice when I call. So far she always has.

This is for suburban central Texas (greater Waco area)

What do the rest of you pay?

Posted by Kent | August 8, 2007 12:40 PM

Taco Bell? More like 7-11. You can't buy butts and rolling papers at a Taco Bell, but you can buy burritos at a 7-11.

Also, Freddie, your boundless capacity to take offense at everything MY says astounds me. Seriously, lighten up.

Posted by Philly | August 8, 2007 12:55 PM

Who's taking offense? I just think implying how cool you were in high school on your blog is just really funny. It's like, the sort of thing that reaches self-parody, or whatever. I was just joshin. Come on.

Anyway if you look I think you'll find I maintain a pretty consistent 5:1 ratio of civil to douche baggy comments.

Posted by Freddie | August 8, 2007 1:01 PM

The Taco Bells of my youth (New Mexico, early 1980s) were tiny--pretty much a kitchen with a drive-through window attached, and maybe one or two tables inside. Seldom was a Taco Bell parking lot large enough to actually hang out in. This may have changed.

In regard to the main point of the original post, I concur with everyone who has pointed out that ambiguities inherent in the test question make it impossible to give a simple answer.

Posted by James Gary | August 8, 2007 1:01 PM

You don't know what you're talking about. First of all, it was Hardees, and second, we had fake ID's.

Posted by ed | August 8, 2007 1:14 PM

I hung out in a Taco Bell parking lot but I wore an "I heart NY" t-shirt and dreamed of living in the statue of liberty's crown and having a job at radio city music hall.

Posted by Mark | August 8, 2007 1:15 PM

Freddie, the cool kids were at Taco Bell (or Taco Cabana in my case). If not there, check the woods behind the newest development, where it was easy to hide and drink warm beer while listening to depeche mode very loudly. good times.

Posted by MP | August 8, 2007 1:16 PM

Out here in Texas it looks like the local teens hang out more at the local Dairy Queen than Taco Bell. But what do I know. I'm 42.

Back in my day the food court at the local mall (suburban Oregon) seemed to be the favorite hangout if you were just going to hang out. If you wanted to drink or smoke then the local state parks were favored. Oregon was in a massive recession in the early 80s and budget cuts meant that there was no one to patrol the state park picnic areas on a Friday night. Usually some kid with an older brother would show up with some cases of beer or a keg in the back of a pickup truck and mysteriously 50 more kids would show up within an hour. How the word about these impromptu parties spread like wildfire in the days before cell phones and text messaging is still a mystery to me.

Posted by Kent | August 8, 2007 1:19 PM

huh...well this did turn out to be a more complicated question if you look at in real life, you're looking at motivations, wondering what socioeconomic class these people belong to, etc.. But really, it's just an example of some mathematical formula for a test, isn't it?

Those of you without children have no idea, but even those of you with children have only an idea of your own situation and that of your social strata, I think. So let's not overgeneralize. No, you don't leave your kid home with baby Einstein, and most middle class people pay considerably above minimum wage to even a neighborhood teenager. However, since we're not talking about daycare that is necessary in order for someone to work, it's really an optional expense (no matter how much it feels like a necessity), and the standards are a little more fluid. In our case, we either find a 20-something otherwise employed sitter on Craig's List (surprisingly easy to do), or we strong-arm grandma and my husband's niece to make the 2 1/2 hour drive down to our house and stay overnight. We don't pay "by the child" (what's that about?), but it still works out to $30-$40 per evening to hire someone. If you don't have that kind of extra money, you find a friend or relative who will do it for free or cheap, or you just suffer.

On the flip side, I've never been much of a babysitter (OK, I babysat for money exactly once), but my recollection of how this worked when I was a teenager was that if you got a "raise" for doing work, it would motivate you to do more of it up to the point where it interfered with other parts of your life. Since this money is (for middle class teenagers) more for "stuff you want" than "stuff you need", wanting a certain amount of free time instead of working does make some sense.

Posted by JMS | August 8, 2007 1:39 PM

Getting away from who is cooler; I think Matt is correct on some account.

(a) Most suburban kids will baby-sit less than they do now, but I think in some ways, you would see the rise of babysitting services which employ recent college grads. Except for the occasional poor teen-ager committed to getting to College, most suburban teenagers want enough money to go to the mall, the movies and dinner with their friends. They are not trying to save for college or for the future. They rely on their parents for that, or assume they will just borrow money or receive scholarships.

(b) Matt I think was hinting at it, but never got around to it, but Matt's point can be applied as a counter-argument for anytime some Grover Norquist wanna-be claims that to raise the income tax rate will reduce the incentive for people to work. The problem with any of these assumptions is that they rely on the idea that there is a linear relationship between an extra hour of effort to the increased or decrease in dollar of reward.

My point being, that if they were to reduce taxes to $0.00, I would not all of sudden work even more than I do now. In fact, I would likely work less, since my money could go farther, I could afford an increase in leisure time. Likewise, if tax rates were to jump 10%, I likely would not work more either. Most of us do not have jobs where there is such a correlation between effort and compensation.

Finally, most of us have a sub-conscious level of leisure that we each require or at least strive for, and no amount of increase in reward is going to cause us to break from our leisure requirements (except in the most ludicrous hypothetical situation such as if you could earn $10,000,000 dollars, but would work 90 hours a week for an entire year.....). And even in that example, the reason we would give up leisure for the current year is because the vast amount of compensation earned would result in significant increases in leisure in future years, as I could essentially never work again.

Now, while there is not a linear relationship between tax rates and effort, there is a “cliff” or a rate at which point, working at all does not seem worth it. So obviously, if my tax rate was 80% and I could not obtain any loopholes to get out of it (as the wealthy did when tax rates were in the 70 to 90 % brackets prior to Kennedy) I would not have the incentive to work at all.

And, keep in mind, that this “Cliff” rate rises as you make more money. In other words, someone working for minimum-wage may not find it worth it if even 30% of his/her earnings were taxed by the Feds, while for me, it still leaves enough purchasing power that I would not be hampered by this. Likewise, someone earning millions a year would most likely still work at a tax rat of 80%, since technically, they will still earn enough net of taxes to afford them a very wealthy life-style. This to me is even more of an argument for why progressive taxes make sense.

Posted by Brad | August 8, 2007 1:50 PM

Philly is entirely correct in his assertion of 7-11 versus Taco Bell. The mall was for the girls, and for when guys wanted to hit on girls (plus, the mall is diminishing as the teen hang nowadays). You need the 7-11 SuperBigGulps for maximal hangage out in people's cars. For actually eatable burritos, you went to Green Burrito not Taco Bell.

Though, in the SF Bay Area now, it seems like the boba shops became the teen hangouts, though that might be passe already.

Posted by burritoboy | August 8, 2007 1:57 PM

Teenagers may not consciously realize they have an income goal, but that doesn't mean they haven't got one.

There's a balance as a teenager. You work to get money, and then you go blow it on something you didn't really need. There is a break even point where working more hours would stop you from having sufficient free time to blow all your money on things you don't need. This is the point where you stop looking for more hours to work.

That is the essence of having, and reaching, an income goal.

Posted by Patrick | August 8, 2007 2:05 PM

Speaking as someone who's done work in the area, don't get me started on the sloppiness of most Economics tests and questions. They're just terrible.

Posted by Kimmitt | August 8, 2007 2:07 PM

MY: In your update, you mean "income effect", not "substitution effect".

Really? I thought the "income" effect was "yay, each incremental hour of work is worth more; let's work more!" and the "leisure" or "substitution" effect was "yay, I can work less and still maintain my standard of living!" Doesn't MY mean the latter? Just curious.

Posted by DJ Ninja | August 8, 2007 2:20 PM

I actually find that college kids make much better babysitters. Because they can go out during the week, they are much more willing to babysit on Friday or Saturday nights (when the working parents can go out themselves without tremendous hardship). High schoolers are (rightfully) unwilling to part with one of the two nights a week that they are allowed to go out.

Posted by Joe | August 8, 2007 2:41 PM

Sort of depends on how high they raise the rate. I would think that befor a significant number of teens babysit more than they already do or teens that didn't babysit decided to get into the game, that the pay would have to increase a lot (especially for those that never babysat).

As for parents opting out, DVD's only work in certain situations , so that is not likely to take the place of babysitters in any significant way. More likely is that parents don't go out as much - assuming they do. Parents going out or not going out is likely to be more determined by availability of babysitter and/or by the the costs that might be incurred while going out other than babysitting fees.

... It occurs to me that we (I mean me) just overthinking this.

Posted by ET | August 8, 2007 2:58 PM

Sounds like a failing grade for the people who wrote the test.

Score one more for the education establishment!

Posted by ed | August 8, 2007 3:47 PM

Isn't that kinda like asking "if I get fat, what effect would that have on my diet and exercise"?

Posted by dan | August 8, 2007 3:54 PM

DJ Ninja,

If I remember my economics correctly, the income effect means that you purchase more of all goods as your income increases, leisure included. The substitution effect means that the opportunity cost of your time goes up as you earn more money, causing you to substitute away from leisure time. Matt has it correct in his post.

Posted by Pat | August 8, 2007 3:57 PM

The substitution effect of a wage increase is the resulting incentive to work more because of the higher relative reward for labor. Essentially, you want to work more because you get paid more. "he income effect of a wage increase is the resulting rise of workers' purchasing power that enables them to afford more leisure. Meaning, because workers earn more money they want to work less (i.e. spend more time on fun stuff becuase they don't have to work as hard). The writed did use "income effect" correctly, for his assertions. One could just as easily argue that to a point (the point at which additionaly money isn't worth the additional time) teenagers will want to work more because they would be earning more. But, if they work every extra hour they have to gain more income, they then have no time/enery to spend the excess income on leisure activities. If the extra time is worth the money it is substitution. If the raise is seen as a way to work the same amount and spend more time on leisure, it is the income effect.

Posted by afeuillet | August 8, 2007 4:13 PM

That's the problem with economic models, way too many assumptions go unstated.

Posted by TW Andrews | August 8, 2007 4:27 PM

Why is this confusing?

Sure, there could be many effects both ways from a rise in the hourly wage for babysitters, but it seems to me that the huge difference in the relative utilities of the change in wages would dominate any other effects, and this is a perfectly valid question that the kids answered correctly.

A few bucks more per hour means a whole lot more as an incentive to the kids who have few other opportunities to make money, than it does as a disincentive to middle class parents. The cash from babysitting looms very large in the income side of the budgets of kids who make money this way, but the cash paid for babysitting is practically impalpable on the debit side of the parents' ledgers. The parents' "budget dust" is the teenagers' gold mine. The teenagers would thus be more sensitive to changes in the wage, and therefore change their behavior more in response to the same amount of money difference. It may be the same amount of money to both sides in the transaction, but small amounts of money have much more value to babysitters than their clients.

Posted by Glen Tomkins | August 10, 2007 12:21 AM