The effect of a change in the cost of domestic helpers on female labor force participation- an instrumental variable approach

This paper explores the causal effect of the rise in the cost of foreign domestic helpers on the Kuwaiti female labor force participation using microdata from the Kuwait Labor Force Survey linked to governorate-level administrative records from the Public Authority for Civil Information. The effect is explored on both the extensive and intensive margins using an instrumental variable approach. To address potential endogeneity in costs of domestic helpers, an instrumental variable for the cost of domestic helpers is constructed at the regional level using return migration motives and historical distribution of domestic helpers across governorates in Kuwait. Variations among households are represented in several ways: a binary low-income category, the logarithm of equivalized income, by dividing household income into quintiles, and including females’ education levels as an indicator of the opportunity cost of their time. The results show that an increase in the costs of domestic helpers decreases the probability of joining the labor force for females from low-income families relative to females from high-income families in the same governorate. On the other hand, no significant effect was found on the intensive margin for females from both low- and high-income families. This may be driven by non-flexible working hours in Kuwait. J16, J21, J61.