Childcarepolicy.net

September 6, 2024September 6, 2024

Affordable Child Care Services vs Money for Parents

Those who oppose the $10 a day program often argue that there is a simple and better program to replace it – give money directly to parents instead. The logic is, at first glance, persuasive. If you give parents money, it seems like they should be able to purchase exactly the child care they need. And competition among different providers should, you might think, keep fees down. Programs that directly fund child care services, like the $10 a day program, are said to be bureaucratic and inflexible and to create huge shortages and long waiting lists.

There is some truth here, but much falsehood, and much deliberate ignoring of the evidence on the impact of a “family allowance” approach. I have just written a report for The Prosperity Project that examines the likely impacts of giving parents money instead of funding and providing child care services that parents can use. I unearth a lot of new data about families that are using child care in Canada and the number of parents who want access to affordable, accessible, high quality child care.

The evidence shows that this type of “family allowance” fails as public policy because it:

(a) isn’t what most families want

(b) doesn’t address families’ needs for child care

(d) would have negative effects on women’s employment and the economy, and would increase the gender-based child penalty that mothers pay with reduced earnings

(e) has been tried before and hasn’t solved child care issues, and

(f) ignores the very large child benefit programs that already provide money to parents.

You should read the report in full (19 pages), or at least its Executive Summary (3 pages). Below, I provide a few tidbits to encourage you to dig deeper.

As of 2023, when Statistics Canada collected large amounts of data from parents about child care and employment, there are 938,000 Canadian children using licensed or accredited child care services – the kind of services supported by the federal government program. In fact, over three-quarters of children using any kind of child care are in licensed care. In 8 of Canada’s 13 jurisdictions, average fees for this child care is down to $10 a day or less. Other jurisdictions have lowered fees by at least half relative to fee levels in 2019-20. In other words, although the press scarcely covers it, a very large number of Canadian children and families are already benefiting from licensed child care that is subsidized to be affordable and more accessible.

Licensed child care is not the only part of the set of services and benefits that will make up a fully developed early learning and child care system. Many children benefit from full-day or part-day kindergarten at ages 4 and 5 years. Many children and families benefit from paid maternity and parental leave for up to 12 or even 18 months. If we put these all together, it is already true that in 2023 over 1.5 million children currently benefit from Canada’s early learning and child care and leave arrangements. That is about 2/3rds of all children 0-5 years of age.

Some people think that the reason some parents don’t currently use child care is because they don’t want to. But, outside Quebec, most families (58%) that currently do not use any child care would like to use some type of non-parental child care if they can find what they need and want. And, of these, the lion’s share – 62% – would like to use licensed child care, largely as a means to join or rejoin the workforce.
Some people argue that it is mostly affluent parents that benefit from universal child care programs and that marginalized families and those from diverse backgrounds are left behind. That is certainly true of market-based child care systems when fees are not controlled; high parent fees are only affordable by affluent families and many vulnerable families do not qualify for income-based subsidies. However in fixed-fee systems like the $10 a day program, families from all backgrounds gain access. I show a series of charts from Quebec making this point.
A family allowance program would have to give parents an amount of money that was equivalent, on average, to what they gain by having $10 a day child care. This family allowance program would cost the federal government just over $28.5 billion annually and its net cost would be three times as much as the cost of providing child care services.
Women who have children suffer substantial losses in earnings after the birth of a child. Economists have found that mothers’ earnings decrease by 49% in the year of a child’s birth. Even ten years later, women suffer from an average earnings loss of 34% relative to their earnings before childbirth. Universal child care has been found to substantially reduce these “child penalties”. In other words, accessible child care services make an important contribution to increasing gender equity.

Please read the full report and executive summary.

August 5, 2024

Ontario Is Violating the Early Learning and Child Care Agreement

Most child care in Ontario is provided by non-profit or public operators. This has been true for years. A full 70% of the licensed/regulated child care spaces for children 0-5 were non-profit or public back in 2022, when Ontario signed the Canada-Wide Agreement with Ottawa.

So, two things are not in doubt. First, it is obviously possible for non-profit and public child care services in Ontario to grow and expand, given the right conditions. They have done it successfully in the past, more successfully than the for-profit child care operators. Second, the Ontario government, with the support of municipal governments and school boards, knows exactly how to facilitate and co-ordinate the expansion of non-profit and public child care, because it has done this in the past.

So, if non-profit and public child care are not expanding rapidly in Ontario, it must have to do with the failures of Ontario government policy (as described in my recent blog post).

Ontario has failed to fix shortages of early childhood educators. Starting wages in Ontario are $5.00 an hour less than in P.E.I.!
It has failed to provide or enable sources of capital funding for expansion of community non-profit child care.
It has starved child care providers of revenue in the $10 a day program and has failed to provide any certainty about future revenue streams for operators.
Ontario has failed so comprehensively that you have to wonder if the failings are deliberate.

To cap it all off, we now find that Ontario is deliberately violating the terms of the Canada-Wide Agreement that it signed with the federal government back in March 2022. Ontario promised to increase child care capacity by at least 86,000 spaces, and it promised that a maximum of 30% of these new spaces would be operated by commercial for-profit operators. The balance would be community-based or school-based non-profit and public child care. It also promised that it would prioritize development of child care in underserved areas and amongst families with greater needs.

Instead, about 75% of the expansion that has occurred has been in for-profit spaces. And at least half of the new spaces are in areas of greater profitability rather than areas of greater need. Half of the new spaces can charge whatever fees they want, rather than being affordable spaces.

We know some details about Ontario’s expansion because of good journalism by Allison Jones of Canadian Press. She has recently written:

“Ontario’s deal committed the province to 86,000 new child–care spaces since 2019, though the deal was signed in 2022. But so far while there have been about 51,000 new spaces since 2019 for the kids five and under, the age group covered by the national program, only 25,500 of those are within the $10-a-day system.”

So, let’s do the math:

Pretty well all of the new spaces that are outside the $10 a day system (without any controls on fees) are for-profit, so that is already half of the 51,000 spaces.
Much of the growth inside the $10 a day system is also for-profit. When Ontario published its Action Plan in 2022 it told us that 15,000 spaces had opened since 2019 and 45% of this was for-profit.
A further 21,200 spaces were said to be “in the pipeline” and 66% of this was for-profit.
I estimate therefore that about half of the growth since 2019 that is inside the $10 a day system is for-profit (the Ministry of Education has these figures and is shy about releasing them, which tells you that they know they have something to hide).
In other words, about 75% of the total of 51,000 new spaces in Ontario since 2019 are in the for-profit sector.

This is a clear violation of the Canada-Wide Agreement Ontario signed in 2022. In that agreement it promised that “at the end of this Agreement, the proportion of not-for-profit licensed child care spaces for children age 0 to 5 compared to the total number of licensed child care spaces for children age 0 to 5 will be 70% or higher.” (emphasis added). The agreement clarifies the purpose of this clause: “to ensure that the existing proportion of not-for-profit licensed child care spaces for children age 0 to 5 will be maintained or increased by the end of this Agreement.”

In case there was any doubt, the “definitions” section of the agreement refers to the Child Care and Early Years Act, 2014 in defining licensed child care. In other words, it refers to all licensed child care governed by that act.

So, Ontario is taking federal money intended to build a publicly-managed, affordable and accessible high quality child care system and it is not doing what is necessary to provide spaces for children and families.

Of course, parents who are desperate for child care spaces right now don’t care if the spaces are for-profit, non-profit or public. They just want a space for their child and they want it now. The negative effects of relying on for-profit child care without sufficient controls won’t show up for a while.

That’s what happened in the early 2000s when the Government of Quebec, under Jean Charest, tried the same trick – relying on for-profit child care for expansion. The results were disastrous for the quality of child care services, with nearly half of the new for-profit centres failing quality assessments sponsored by the Quebec Government. Similar quality problems are what led Mathieu Lacombe, the Quebec Minister of Families from 2018 to 2022 to say that allowing for the expansion of private daycare, was the ‘biggest mistake the Quebec government committed in the last 25 years.”

As I wrote in that recent blog:

I am not trying to say that all for-profit operators provide poor quality child care or that all of them skimp on child care staffing. Some small for-profit operators provide good quality care and devote themselves to quality improvements. You can have a certain percentage of for-profit providers in a publicly-funded child care system, but there need to be strong measures of public management that limit the ability of for-profit enterprises to extract profit at the expense of quality.

That was the spirit of the Agreement that Ontario signed up to in 2022. If Ontario were to implement this agreement in good faith, it would adopt a generous funding formula to cover actual costs, it would make expansion of child care into an all-of-government priority with a range of provisions for capital financing, it would develop a wage grid for child care educators that is at least as generous as the one in PEI and it would implement the agreement it signed on the balance of non-profit and for-profit expansion. Ontario’s parents and children need the $10 a day child care system they were promised.

July 25, 2024July 25, 2024

Who’s To Blame For Child Care Shortages In Ontario?

Todd Smith is Ontario’s new Minister of Education and he has already decided who he wants to blame for Ontario’s child care shortages – it’s the federal government. So, Todd Smith wants federal minister Jenna Sudds to release Ontario from the agreement it signed back in 2022 that limits expansion by for-profit enterprises to a maximum of 30% of the total expansion. Ontario never wanted to limit for-profit expansion; apparently they only signed the agreement under duress.

The problem of child care shortages is a real one. We need a lot more child care expansion in Ontario and we need it now. We will need even more child care when Ontario drops the parent fee down to $10 a day.

But Todd Smith doesn’t seem to understand why Ontario is facing such a shortage of child care spaces, so he’s coming up with solutions that are antithetical to the high quality universal child care we have been promised. He’s new in his job, so let’s give him a primer:

Ontario knew very well that there would be a huge shortage of child care spaces. The Financial Accountability Office of Ontario told them this in November 2022;
The solutions are well known. Ontario’s officials and politicians were told by many people – including me and the Financial Accountability Office – what steps they needed to take to make child care expansion happen;
Instead of implementing these solutions, Ontario has fumbled and delayed and prevaricated and done nothing, or very little, to facilitate the child care expansion that is needed;

Now, Ontario wants to blame the federal government for Ontario’s failures to provide new child care facilities for parents and children that need it. Some blame is due to the federal government, but Ontario is the one with the responsibility and capacity to fix the shortages;

It is true that for-profit child care providers are quicker to assemble capital funding than non-profits, but there are serious long-term costs. Ontario knows well how to facilitate non-profit and public child care expansion; its current child care system has been built primarily this way.

Quebec’s experience makes it clear that relying on for-profit child care can come at a substantial cost in child care quality, which Todd Smith is ignoring.

Ontario knew there would be a substantial shortage of spaces

In November 2022, the Financial Accountability Office of Ontario (FAO) reported to the Legislative Assembly that at $10 a day, Ontario parents would need 300,000 additional child care spaces. Demand would increase by that much. They compared that to the 71,000 additional spaces that Ontario was planning to add between 2022 and 2026. The FAO’s conclusion was that when parent fees reach $10 a day “…the families of 227,146 children under age six (25 per cent of the projected under age six population of 919,866 children in 2026) would be left wanting but unable to access $10-a-day child care.”

I had published similar estimates in May 2021.

Ontario has promised an additional 86,000 new child-care spaces compared to 2019. As Allison Jones article for Canadian Press tells us, so far there have been about 51,000 new spaces created in Ontario, with only half inside the $10-a-day system.

Ontario knew what to do to expand child care

The FAO, in its understated way, had already identified one key barrier to expansion that Ontario should deal with. Its November 2022 report stated that “…uncertainties over some aspects of the $10-a-day child care program, such as the extent of ministry reimbursement of future cost increases to child care providers, could reduce incentives for child care providers to create spaces.” In other words, if child care providers do not know whether revenues will be enough to cover their legitimate costs, they won’t decide to expand.

Working with Building Blocks for Child Care (B2C2), I wrote and circulated widely a paper and a blog post laying out the steps needed to facilitate the expansion of non-profit and public child care:

A system of capital grants and loan guarantees for not-for-profit and public operators
Creating public planning mechanisms with provincial, municipal, school board and community members
An inventory of publicly-owned lands and buildings suitable for child care expansion
Mandate where possible the co-location of licensed child care services whenever business and housing developments happen
Explore the use of Land Trusts to preserve the preservation of child care assets in public hands for future generations
Use provincial legislation and regulations to control transfers of child care assets and ensure they are not controlled by big-box corporate child care chains
Early guarantees of operational funding and licensing of not-for-profit and public operators that plan expansion following public plans.
Development and implementation of a province-wide salary and benefits grid and much more funding to increase compensation of educators and other staff. Recruitment and retention of qualified educators is Job #1.
Transparent and effective future funding guidelines to support expansion. Assistance to municipalities to implement financial accountability measures in a long-term funding model.
Public funding of organizations such as B2C2 that support not-for-profit operators to negotiate hurdles associated with expansion of child care services

Ontario has done very little to facilitate expansion

Ontario thought that child care expansion would be a natural process, not requiring much government support. Based on what Ministry of Education officials told the FAO “The ministry plans to create 71,000 net new spaces through what it terms natural growth (48,459 spaces) and induced demand (22,406 spaces)” (FAO Report, 2022). Except the “natural growth” has not happened. Here’s why.

In Ontario:

Operators do not know what their future revenues will be or what factors will generate more or less revenue. Their future revenues will be governed by the new funding system which Ontario promised in 2023 and again in 2024 and now will come in 2025. Ontario still has the funding arrangement it invented on-the-fly on day one of the new child care system. Which was to just replace the exact amount of the fee that child care centres charged on March 27, 2022. But as anyone who has lived through the last few years would tell you, the costs of everything have been changing a lot in the last while. And since, in the child care sector, there are substantial shortages, costs of some things have been rising substantially.

There is very little funding support for expansion of child care centres. There is start-up funding to pay for toys and equipment, but no capital grant program for community child care. There has been capital money for new centres on school board premises, first announced in 2019 (i.e., expansion planned before the $10 a day program), but now even expansion in 56 of these school board centres has been cancelled by the Ontario government.

In the midst of a huge shortage of early childhood educators – estimated by the Ministry of Education as a shortage of 8,500 new educators by 2026 – the support by the Ontario Government for staff wages is stingy at best. In Ontario the base wage rate for an early childhood educator is $23.86 per hour, while the average hourly wage of all Ontario employees is $36.14 per hour. In PEI, the base wage rate for an early childhood educator is $28.36 per hour, and the average hourly wage of all PEI employees is the same – $28.36 per hour. There are huge child care staff shortages in Ontario, but not in PEI.

We know that Ontario is able to expand capacity quickly if it were to be a priority. In 2010-2014, Ontario provided expanded classroom space for about 280,000 children who moved from half-day kindergarten to full-day kindergarten. All of that expansion in only 5 years. Because it was a priority. The financial and personnel resources were mobilized to make it happen. But, the expansion of child care for the tens of thousands of Ontario children who want access is clearly not a priority for this government.

Having committed itself to building an affordable, accessible child care system largely with federal money, the Ontario government decided to sit on its hands and let the system fall apart. They did the easy part. They lowered parent fees, initially by 25% and then approximately by another 25%, so that parent fees are much lower than they were. So, demand for child care has skyrocketed.

But the Ontario government has not done the hard parts – reducing workforce shortages by raising compensation, providing substantial capital and management supports for child care expansion, and implementing a funding system to provide guaranteed operating revenues for providers.

So, now there are shortages. And the Ford government has been sitting on its hands, waiting for the crisis to get worse.

Ontario wants to blame the federal government

This was a sweet deal for Ontario, because the federal government committed to turning over a huge whack of money to Ontario to make this happen. In the first year (which was virtually over by the time Ontario had signed the agreement), the federal government provided $1.1 billion for Ontario child care. In every year after that the federal contribution to child care in Ontario has risen and will reach just less than $3 billion in 2025-26. By this time, the federal government will be paying about $3 for every $2 spent by Ontario to support providing child care for Ontario’s children and families.

There are elements of blame that the federal government should wear. The reforms should have been phased in more slowly, so that demand did not ramp up so fast. And, the federal government will need to provide more money – there is not enough to support child care for an additional 300,000 children that the FAO predicts will want child care.

But the federal government has now put over $1 billion on the table in reduced-interest loans and another $625 million distributed to provinces for capital grants to support child care expansion. Ontario will get the largest share of those amounts.

If Ontario does not do the hard work of…

reducing workforce shortages,
providing supports for child care expansion by nonprofits and public agencies, and
providing operating revenues with an equitable and sufficient funding system,
then sufficient child care expansion will not happen in either the for-profit or the non-profit and public sectors.

For-profit expansion is easier but more dangerous

When it comes to growth, for-profit child care providers have structural advantages over not-for-profits. Not-for-profits are frequently unwilling to go into debt, so there needs to be a program of capital grants and encouragement to access low-interest loans to pay for the costs of building new facilities or repurposing existing buildings.

The mission of for-profit businesses is to make a profit, so expansion is a natural fit, particularly when the government is paying 80%-90% of the operating costs and providing a guaranteed demand for services. Shareholders or banks are always willing to ante up when the government is willing to provide guaranteed funding for profit-making businesses. They are not used to providing similar supports for non-profits in the child care sector.

But there are ways around these structural barriers faced by not-for-profits. Not-for-profits need two main things if they are to build new capacity quickly. First, is access to capital. Some of this should come in the form of capital grants to not-for-profits or municipalities or school boards who are willing to move quickly. Some of this can be in the form of low-interest loans, like those that will soon be available from CMHC. Governments should guarantee the loans, but most importantly, the Ontario government needs to ensure that there will be ample operating funding for child care centres to pay back the loans over time.

The second thing that not-for-profits need is a development champion – a development agency that specializes in handling all the details involved in building new capacity or renovating existing capacity. This is familiar territory for co-operative housing or not-for-profit housing developments. There are specialized agencies that handle the housing development and then turn the housing over to co-ops or not-for-profit housing agencies to manage and operate. This should be the case for child care as well.

Neither of these barriers is particularly insurmountable, but they do require governments to facilitate surmounting them. In many cases, public agencies such as municipalities, school boards, and community colleges can help a great deal in supporting not-for-profit and public developments. And the provincial and federal governments should be open to expansions of kindergarten integrated with before-and-after school care.

Ontario shows that rapid expansion of not-for-profit child care services is very possible. Over the 10 years up until 2019-2020, centre spaces increased in Ontario by 198,600. Fully 85% of the increase (168,900 spaces) was in not-for-profit child care.

Quebec shows us the terrible cost of expanding mostly in the for-profit sector

Todd Smith should talk to Mathieu Lacombe, Minister of Families in Quebec from October 2018 to October 2022 in the conservative government of François Legault. Andrew-Gee in the Globe and Mail quotes Mathieu Lacombe: “Allowing for the expansion of private daycare, he said, was the ‘biggest mistake the Quebec government committed in the last 25 years.’”

Of course, Todd Smith could also decide to read the Auditor-General’s report for 2023-24 in Quebec. This report looked at measured quality levels in child care centres serving children 3-5 years of age. It also looked at what percent of front-line child care staff are qualified early childhood educators. The Auditor-General investigated the performance of three types of child care centres – the nonprofit CPEs, the for-profit child care centres that charge a fixed fee, and the for-profit child care centres that are funded by a parental tax credit for child care expenses (and do not have fixed fees).

For-profit operators are always looking for a way to save money and increase profits. In child care, saving money generally means cutting back on staffing, because staffing takes up the large majority of the costs of providing care for your children. Before the pandemic, the required ratio in Quebec was that 2/3rds of front-line staff would be qualified staff – early childhood educators with a diploma. This ratio was lowered to 1/3^rd of staff during the pandemic as an emergency measure but raised to ½ in March 2023. It was supposed to return to 2/3rds by March 2024, but the Quebec government had to delay this due to widespread shortages of early childhood educators.

The table below gives the full story for 2023 in Quebec. It tells us what percent of the three types of child care centres were below three benchmark levels of child care staffing. The first benchmark is one-third of staff who are qualified as early childhood educators. The second benchmark is one-half and the third benchmark is two-thirds of staff qualified as early childhood educators.

As you can see, the nonprofit centres score much better on the percent of early childhood educators than either of the for-profit categories. Shockingly, 19% of the for-profit tax-credit-funded centres do not even have one out of every three staff qualified as an early childhood educator. Over half of these centres do not meet the currently required ratio of one-half of staff being early childhood educators. And 86% of these for-profits do not meet the 2/3rds requirement that Quebec has been trying to re-establish.

Percent of Front Line Staff Who are Qualified Early Childhood Educators in Non-Profit, For-Profit Fixed Fee, and For-Profit Variable Fee Centres in Quebec, 2023

	% of nonprofit centres	% of for-profit fixed-fee centres	% of for-profit tax-credit-funded centres	% of all centres
Less than 1/3rd of staff qualified as educators	1%	3%	19%	7%
Less than 1/2 of staff qualified as educators	5%	19%	55%	23%
Less than 2/3rds of staff qualified as educators	18%	53%	86%	46%

Staffing has a big effect on quality, of course. Quebec has had a program of testing quality in 3-5 year-old classrooms in Quebec centres since 2019. The Auditor-General summarized the results. Over the period 2019 to 2023, 36% of “garderies subventionées” – for-profit child care centres that charge a fixed fee – failed the quality examination. In other words, they showed quality levels that had some important problems and were unacceptably low. Worse than that were the “garderies non-subventionées” – the tax-credit-funded child care centres that are able to set their own fee levels and wages. 47% of these – very nearly half of all centres tested – failed the quality examination over the period 2019-2023. In line with their greater reliance on qualified early childhood educators, only 11% of CPEs – the nonprofit child care centres that are the heart of the fixed fee system – failed the quality test.

There is no such thing as a free lunch. Todd Smith should learn that lesson. In the short run, you might save money by relying on for-profit child care expansion, because they will find their own capital money, especially corporate child care with deep pockets and those supported by private equity capital. Pretty soon, however, you will have built a child care system that is offering poor quality services to your province’s children and their parents. And you know that you will end up paying for the for-profit’s capital expansion in the long run, so you might as well do the work now to encourage non-profit and public child care to take up its 70% share.

What we have in Quebec is a demonstration of the pernicious effects of unleashing the profit motive in child care – which is what Quebec did especially from about 2009 onwards. I am not trying to say that all for-profit operators provide poor quality child care or that all of them skimp on child care staffing. Some small for-profit operators provide good quality care and devote themselves to quality improvements. You can have a certain percentage of for-profit providers in a publicly-funded child care system, but there need to be strong measures of public management that limit the ability of for-profit enterprises to extract profit at the expense of quality. The measures of public management are obviously insufficient in parts of Quebec’s child care system. And Todd Smith cannot be trusted to ensure strong public management in Ontario.

Who’s to blame for child care shortages in Ontario? Look in the mirror, Mr Smith.

May 30, 2024

New Support for the Economic Benefits of Universal Child Care

I met Sebastien Montpetit at the Canadian Economics Association meetings in Winnipeg last year. He is a Canadian and Quebecer who has been studying for his PhD in economics at the University of Toulouse. And he, with co-authors, has come up with a really fascinating analysis of the impacts of Quebec’s universal child care program ushered in the late 1990s and the early 2000s.

The paper is complex, has multiple parts, and the latest version of it is available here. It has been selected as one of three finalists for the Canadian Labour Economics Forum prize at the upcoming Canadian Economics Association meetings in Toronto. I’ll give you the main take-home points right away, and then delve into where the results come from.

Sebastien’s main conclusions?

The importance of the supply of child care services has been underrated. Greater supply of child care – availability – is as important as improvements in affordability. In Quebec, the regions that had the largest increases in child care supply had the biggest impacts on mother’s employment and increased child care use. Lowering fees without increasing coverage has modest effects on the benefits to families. The bottom line: increasing local child care supply is key to the effectiveness of child care reforms.
The economic benefits from improved maternal labour supply in Quebec have been well studied and Sebastien confirms them. But, there are very substantial non-monetary benefits for mothers too. Think of this as work-family balance, things like the reduced search time for child care, the shorter distances that have to travelled each day when child care is much more available and affordable.
When all the benefits are summed, benefits total more than 3.5 dollars of benefit per dollar of net government spending – more than twice the benefit that comes from looking only at increased mothers’ earnings.

Earnings gains for mothers impacted by Quebec’s child care reforms are concentrated in the fifth through the eighth decile of income. In other words, many of the fiscal benefits to governments of a universal child care reform come from mothers who can earn moderate to reasonably high incomes. These are mothers who will not be reached by a targeted approach to child care spending. A universal approach may therefore be more fiscally responsible than targeted child care initiatives.

Michael Baker, Kevin Milligan and Johnathan Gruber became renowned for their paper concluding that there were a range of negative effects on children who lived in Quebec during the early years of Quebec’s child care reforms (and may have participated in child care). Sebastien looks at data on those children many years later and assesses whether their educational development was negatively impacted. He finds no evidence of this; educational attainment of students in Quebec and the rest of Canada is very much the same.

Michael Baker, Kevin Milligan and Johnathan Gruber gained some additional notoriety for a follow-on paper that found increased juvenile criminality amongst Quebec children who were exposed to Quebec’s child care reforms. Sebastien Montpetit looks at the evidence on juvenile crimes and finds that most of the increased juvenile crime that may have occurred was very minor and that the societal cost is relatively small.

The main data source for all of his analyses is the National Longitudinal Study on Children and Youth. He also uses data from the Canadian Censuses of 2016 and 2021.

There are four types of analysis that compose this complex paper. First, with new data on regional child care coverage rates, Sebastien uses a difference-in-differences approach to compare mothers in Quebec to those in the rest of Canada. He finds that in regions where child care supply increased the most, employment and child care use increased much more when other factors are controlled.

In particular, in regions where child care supply expanded more, the child care reforms boosted mothers’ labour force participation by 40% more than in other regions

Further, Sebastien finds that mothers with low levels of education also respond more in these regions with high levels of expansion.

Results suggest that for high educated mothers with a post-secondary qualification, the main incentive to take up employment was the fee reduction. For mothers without a post-secondary qualification, access to a space was key.

Sebastien uses a non-linear difference-in-differences model to estimate earnings gains across mothers’ income distribution. Mothers’ earnings gains from the child care reforms are found to amount to $1.42 per $1.00 of net government spending.

Baker, Gruber and Milligan found that eligible children in two-parent families experienced worse developmental outcomes and lower consistency in parenting. Other researchers found substantial heterogeneity in these results. Haeck et al (2015,2018, 2022) found that most negative impacts on children and parental behaviour fade away over time.

In order to look at children’s educational attainment later in life, Sebastien employs a triple-difference model which compares education levels of same age individuals born before or after the reforms in Quebec to similar individuals in the rest of Canada.

The paper concludes: “We find no evidence of negative effects on educational attainment of eligible children in the long-run. This pattern is true for each educational level, namely for university, high school, and college completion….

As a result: “…the negative impacts on child behavior documented by Baker et al. (2008, 2019) do not translate into depressed economic outcomes later in life.” (p. 2) “…this evidence thus suggests the absence of negative fiscal impacts stemming from eligible children’s economic outcomes in the long run.” (pp. 2-3).[1]

Triple-difference estimator compares same-age individuals who vary in eligibility status based on the census year and their province of birth. He finds no evidence of negative effects on educational attainment of eligible children in the long run. This pattern is true for every educational level.

Sebastien Montpetit takes Baker and colleagues’ estimates of increases in youth criminal activity (2019) and estimates what the victimization costs and productivity losses would be. Using recent estimates of the costs of crime, he finds that these social costs are small.

Difference-in-differences estimates seek to use good control groups to help judge the effectiveness of some policy change. So, for instance, children 0-4 years of age in the rest of Canada where there was no major child care reform, might be considered to be a good control group to compare to what happened with children 0-4 or the mothers of those children in Quebec. Why is it called difference-in-differences? Because this statistical technique does not compare the level of a variable (like mothers’ labour force participation) in Quebec to the same level in Canada. Instead, it compares the change in mothers’ labour force participation (called a difference) in Quebec to the change over a few years (another difference) in the mothers’ labour force participation in the rest of Canada. This analysis is done in a regression framework including other variables, so that we can see the impact of those variables on the policy result.

Montpetit then estimates a structural model of maternal labour supply and child care choice in order to make inferences about the size of the non-monetary benefits that mothers receive from Quebec’s universal child care system. The non-monetary benefits are found to be substantial. Using the model to do additional simulations, Sebastien concludes that these non-monetary benefits are particularly closely related to the availability of child care services in the local area. He concludes that universal child care policies for children 0-4 can generate substantial social returns. And he concludes that increased availability of child care is particularly important to these returns.

Sebastien notes that the quality of Quebec child care in this period was very uneven with CPEs having higher quality and other child care centres having lower quality. Sebastien is not able to include quality measures in his analyses.

Altogether a very interesting, carefully crafted and timely paper. Congratulations Sebastien and co-authors!

[1] Montpetit, S., Beauregard, P., & Carrer, L. (2024). A Welfare Analysis of Universal Childcare: Lessons From a Canadian Reformhttps://drive.google.com/file/d/1dDWvj2e08YodXAWd5zdmBKP3j-kxt1Uj/view

March 28, 2024

Supply-Side or Demand-Side – A Contribution to the Australian Discussion

John Cherry, from Goodstart Early Learning, has written an evaluation of child care in Quebec and New South Wales. Apparently his purpose is to determine whether supply-side funded systems (like Quebec’s) are better or worse than demand-side funded systems (like in Australia).

To summarize briefly, John finds that Quebec does better on workforce participation and affordability, NSW does better on child care accessibility and quality. So, John concludes that Australia’s system is pretty good. His conclusion appears to be that Australia shouldn’t flirt with Quebec’s fixed-fee, supply-side-funded system.

It’s a problematic paper for several reasons. First, some of the details about Quebec are wrong. Second and more fundamentally, only part of Quebec’s child care system is supply-side funded and charges parents a fixed fee of approximately $10 a day. The other part (about 20% of the total) is demand-side funded like in Australia. In the demand-side-funded part, child care providers can set whatever parent fees the market will bear and some of this later gets reimbursed to parents. So, some of John’s comparisons, particularly on affordability and quality, are actually comparing a mixed system (Quebec) to a demand-side-funded system (New South Wales). These comparisons don’t tell us much about how a supply-side funded system would perform in Australia. Third, John does not explain how a demand-side funded child care system can deliver what we want from a universal child care system – dependably low fees, financial accountability for public funds, and planned expansion of capacity according to need. Let me explain.

Much of John’s paper is captured in Table 1 – Summary of ECEC Indicators. There’s a column for Quebec and one for New South Wales, comparing results on different indicators of ECEC health. I reprint it below.

Workforce Participation
John agrees that Quebec does a better job than New South Wales in workforce participation. Absolutely true. 85% labour force participation for Quebec mothers with young children vs 71% in Australia. Add on top of that the fact that most Quebec mothers work full-time vs. Australian mothers mostly part-time and it does appear that a fixed low parent fee really does have a very substantial impact on mothers’ employment.

Affordability
John then presents comparisons of affordability, but his numbers are too generous to New South Wales and not generous enough to Quebec. The differences in parent fees between supply-side funding and demand-side funding are much bigger than he admits. On NSW, John calculates that for a family with average income, the parent fee for a first child is $29.50 per day and for a second child it is $10.05 per day. In fact, the Productivity Commission draft report says that the average per child out-of-pocket parent fee across Australia (and therefore likely in NSW) is just shy of $45 per day. That includes the extra charges for centres open more than 10 hours per day, where parents have to pay the full fee for these extra hours even though they don’t use them.

And the Quebec numbers on parent fees are too high. In the supply-side funded centres and family homes, the daily fee for every child in 2024 is CA $9.10 (or about AU $10). The figure John quotes for Quebec of CA $17.20 per day includes the children who pay $9.10 but it also includes the high parent fees paid by demand-side funded parents before the tax credit reimburses them. In a fair comparison, Quebec’s child care is cheaper than in NSW by a considerable amount, not just by a little bit. That helps us understand why mothers’ employment has been so responsive in Quebec.

Accessibility
Then there is accessibility. According to John, NSW scores high on accessibility of child care. But, he chooses a strange way of measuring it. He chooses the growth in the number of centre-based child care spaces in the last 5 years. NSW has added more child care spaces so therefore he concludes that accessibility is better in NSW.

A much better measure of accessibility would have been the coverage rate – what percent of the child population could be accommodated in approved services (licenced services in Canada). John provides these numbers on page 6 of his paper, but not in Table1 and not in his conclusions about accessibility. In fact, as he records, about 75% of children 0-5 in Quebec are in early childhood services. This compares to about 60% in New South Wales. John makes a big deal about services growing in New South Wales and not growing in Quebec. Of course, that’s what you would expect if accessibility was already better in Quebec; it wouldn’t need to grow its services as fast. The current rate of growth of services is not a good measure of current accessibility.

And if you compare the number of days of child care attended in Quebec and NSW, the accessibility in Quebec is even stronger. Over 90% of the children in Quebec who attend ECEC do so on a full-time basis, compared to about 30% in Australia (with another 25% in Australia attending 4 days a week).

Quality
Finally, we get to a part of the comparison between Quebec and NSW on which John and I agree. The quality of child care in Quebec is lower than it should be, and probably is lower than it is in NSW. The most obvious indicators of this are the child-staff ratios. 5 children to 1 staff member for very young infants in Quebec vs. 4 to 1 in NSW. Personally, I think both of these ratios are too high for the very young, but I agree that a 5 to 1 ratio is shocking. As is a ratio of 8 to 1 in Quebec after children turn 19 months of age.

Quebec is an outlier here in Canada too. In Ontario, the required ratios are 10 children to 3 staff members for children 0-17 months, 5:1 for children 18 months to 35 months, and 8:1 for children 3 years to 6 years (except for before-and-after school care for kindergarten children). NSW’s ratios are comparable to Ontario’s.

Similarly, the wage rates paid to educators in Quebec are worse than in New South Wales. John is right on this.

John overstates the differences in percent of educators required to be qualified. He says it is 50% in Quebec and 100% in New South Wales. The regulated percent in Quebec is really 66.6% or 2/3rds. It was temporarily lower due to staff shortages during the pandemic. And the requirement in NSW is for 100% of front-line staff to be certified. But this is a bit misleading because only 50% of the front-line staff in NSW must have an ECE Diploma or above. The other 50% can have a Certificate III which is a qualification well below what is needed to provide good quality care for children on one’s own.

However, the inadequate quality of Quebec’s child care system is not really evidence that supply-side funding does not work. Instead it is evidence that Quebec services have not been adequately funded. The history of Quebec’s system explains this. Back in the 1990s, Quebec struck out on its own to build a universal child care system, without any funding from Canada’s federal government. Relying only on its own funding, Quebec ended up cutting corners on quality. If New South Wales were operating either a demand-side funded or a supply-side funded system with no Commonwealth funding – relying only on state funds – I am sure that quality would suffer too. But Quebec’s history is not New South Wales’ inevitable destiny. With strong Commonwealth commitment to spending on universal child care, New South Wales can have both supply-side funding and good quality care. As you can see in John Cherry’s Table 1, public funding of child care in New South Wales is already 50% higher than in Quebec – AU $5.7 bn vs. AU $3.7 bn annually.

What Conclusions Should We Draw From This Comparison?
I understand John Cherry and Goodstart’s hesitation about a switch to supply-side funding. It would be a big transformation of funding arrangements and would constrain the power of child care operators to set their own fee levels. If it was done badly, it could have negative effects.

However, I think John and Goodstart need to explain how they will build a publicly-accountable universal low-fee high-quality child care system on Australia’s existing demand-side funding base. In my opinion, they need to answer (at least) three questions. How would they guarantee that the system will have low child care fees in the future? How can they build financial accountability for public funds into the existing system? And, what mechanisms of public planning for location of new services can ensure an equitable and efficient growth of new services in Australia?

Australia has seen parent fees rise consistently as public funding has increased over the years. The average parent fee per child is now about AU $135.00 per day. Every time the Commonwealth government pours more money into the system, out-of-pocket child care fees fall temporarily. After a short while, these out-of-pocket costs gradually rise back to previous levels. Nothing has worked to keep fees down in the long term. Supply-side funded systems guarantee low dependable out-of-pocket fees. Until Australia’s demand-side-funded child care system can provide the same guarantee, it cannot be considered a good basis for a universal system.

In a universal child care system, the vast majority of operator revenues come from governments. It is unacceptable to continue to have no public accountability for these substantial amounts of public funds. Currently, child care operators do not have to justify the fees they charge or show that public moneys are spent on legitimate costs of service provision. Goodstart should explain how this will be remedied in their plans for a universal child care system built on the existing demand-side foundations.

Finally, an equitable universal system of child care services needs to plan where new child care services will be located. It cannot leave this to the whims of private investors who all want to crowd their new services into higher income areas. How will this be accomplished within Australia’s demand-side funded system? These are the tough questions that need to be answered by the champions of a continuation of demand-side funding for Australian child care.