Outsourcing Household Production: Demand for Foreign Domestic Helpers and Native Labor Supply in Hong Kong

Migration of women as domestic workers from developing to developed countries is a growing phenomenon. In Hong Kong, foreign domestic workers (FDWs) account for 6 percent of the labor force and among households with young children, more than one in three hires at least one. This paper investigates the e¤ects of the availability of foreign domestic workers on Hong Kong women’s welfare and decisions regarding labor supply. As predicted by a simple time-use model, and exploiting variation at the individual level, we …nd that consumer surplus from hiring a FDW is largest for highly educated women, women with high unearned income, and mothers of young children. However, the largest treatment e¤ect on labor force participation is found for low and medium skilled women, who before the introduction of the program could not a¤ord to work outside the home. Cross-country time-series evidence comparing Hong Kong and Taiwan suggest that the foreign worker program in Hong Kong increased labor force participation rates by 10 percentage points among mothers of young children relative to mothers of older children. The macro estimate is close to 25 percent higher than the implied by the micro estimates suggesting perhaps the presence of positive social interactions in female labor force participation decisions. We are grateful to David Autor, Marianne Bertrand, Chris Hansen, Kevin Lang, Divya Mathur, Jesse Shapiro, and seminar participants at the University of Hong Kong, Booth School of Business, SOLE, Atlanta Fed, Tulane University, LSU and at the NBER Summer Institute for numerous helpful comments and suggestions. We are also grateful to the Hong Kong Census and Statistics Department for providing the data and their invaluable assistance.