Author: Gordon Cleveland

I'm a economist and Associate Professor Emeritus at the Department of Management, University of Toronto Scarborough, Toronto, Canada. My research field is the economics of early childhood education, and I have a special interest in policy design. As you can see on this site, I have written widely on early childhood education over the last 30 years. Most of my winters recently have been spent as an Honorary Senior Fellow, Graduate School of Education, University of Melbourne, Melbourne, Australia.
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The Fraser Institute’s Evaluation of the $10 a Day Child Care Reforms

This is not his best work.  Phillip Cross has had a notable career at Statistics Canada.  He’s an expert in macroeconomic trends.  But, one thing that he knows very little about is child care.    Unfortunately, he has written a short paper for the Fraser Institute evaluating the success or failure of the Canada-Wide Early Learning and Child Care reforms so far. 

It’s bad. Almost everything in the paper is either wrong or misleading.

So what does Phillip Cross say?

  • He says that the Canada-Wide early learning and child care program had 3 goals:

(1) providing more jobs in the child care industry,

(2) enabling mothers to join the labour force, and

(3) providing better care for young children. 

His paper will look at the first two.

  • He looks at some evidence and concludes that there has been no change in the employment trends in child care staff.
  • Then, he looks at evidence about women’s labour force participation and concludes that it has hardly changed since 2015.
  • Having concluded that the Canada-Wide child care reforms are a failure, he goes on to take pot shots at Quebec’s child care system concluding that its universal child care system doesn’t really help low-income families, wasn’t really responsible for the boost in its labour force participation, has long waiting lists due to inadequate supply, and isn’t really universal.

Phillip Cross is wrong on all counts, contributing yet more false information to child care discussions in Canada.  There are many problems with the rollout of the Canada-Wide program across the provinces and territories – particularly slow rates of growth in child care capacity.  However, the Fraser Institute paper does not grapple with real issues and propose real solutions.

Phillip Cross, believe it or not, ignores improving the affordability of licensed child care in his list of goals of the Canada-Wide program.  This, of course, is the greatest success of the program so far.  Hundreds of thousands of children and families have benefited from less expensive child care.  Their very high child care costs have been cut by half or more.  These parents are very happy with the marvellous success of the program.


Employment in the Child Care Industry

There has been substantial growth in employment in the day care industry (NAICS Code 6244) since April 2021 when the Canada-Wide program was announced.  By my reckoning, the number of persons employed in Canada outside Quebec has risen by 36.9%, a total of 32,885 additional persons employed.  Phillip Cross hides this growth in two ways.  First, he looks at Canada including Quebec, which is inappropriate.  Quebec has a mature child care system and its employment of child care staff is not growing quickly.  The focus of growth in the Canada-Wide program is on the provinces and territories outside Quebec.

Second, Phillip Cross ignores the collapse of child care employment during the pandemic and assumes that child care employment should have grown as if the pandemic did not happen.  In fact, child care employment in Canada outside Quebec collapsed from over 100,000 at the beginning of 2020 to less than half of that a few months later.  Employment did not climb above 100,000 until March of 2022.  So, the Canada-Wide program has helped the revival of employment in the child care industry and gone well beyond.  We should celebrate this, rather than hiding it.  This evidence can be found in Statistics Canada CANSIM Table 14100201.


Mothers in the Labour Force

Phillip Cross concludes that the Canada-Wide program has also shown no progress in supporting mothers to enter the labour market.  According to him, labour force participation hit its peak in 2015 and even after all this money spent on child care, it has only just about reached the same level.  As he notes, the participation rate was 61.7% in 2015 and now it is just 61.5%.

But, Cross is not looking at the right statistics.  He is looking at the labour force participation of all women 25-54 years of age.  However, most women do not currently have a child 0-5 years of age.  Women without young children would not have their labour force participation affected by the Canada-Wide child care program.

The Fraser Institute report should instead be looking at labour force participation of mothers with children 0-5 who are the target of the program.  Here, participation rates are up by several percentage points from April 2021 to now (from 76.9% to 79.9%) even though expansion of child care has been slower than it should be.  And compared to 2015, which the Fraser Institute cites as the high water mark, the labour force participation of mothers with children 0-5 is over 6 percentage points higher now than it was then.  So this evidence of “failure” is false news and should not be left to become conventional wisdom.  This data can be found in Statistics Canada CANSIM Table 14100397.


Quebec’s Universal Child Care System

Phillip Cross would presumably be very surprised to hear that Quebec’s child care system is very popular with parents and with the Quebec government.  He believes that low-income families have been squeezed out of access to child care.  In fact, there is good evidence that a much higher percentage of low-income families in Quebec have been able to access child care than was true for low-income families in the rest of Canada in the period before the Canada-wide system[1]. The universal system of child care in Quebec encouraged many more low income mothers into the labour force and into using child care.  It is true, and a problem, that on average low-income families are more likely to have their children in the lower-quality for-profit child care services.  The Quebec government is expanding not-for-profit centres as a partial remedy.

Cross claims that Quebec’s child care system is not universal.  His evidence for this seems to be that there are 51,000 families on a waiting list for child care services.  Here his lack of child care knowledge is really showing.  This is a waiting list to get into one part of their child care system – the preferred part with a fixed fee and many better quality services. 

There is no overall shortage of child care spaces in Quebec; in fact there are many empty spaces in the for-profit child care services funded by a tax credit.  But parents don’t prefer these for-profit spaces where there is no guaranteed parent fee.  These services have been shown to be much poorer quality than the not-for-profit spaces in CPEs (early childhood centres).  So, yes, there are 51,000 children on a waiting list to get out of these tax-credit-funded spaces and into the fixed-fee services that they prefer.

Finally, Phillip Cross tries to deny that the universal child care system in Quebec has been responsible for dramatic increases in labour force participation of mothers.  He writes that “proponents attribute the increase in female participation in Quebec to its childcare program” and “Clearly, some determinants of female labour force participation are not understood by researchers, who nevertheless loudly endorse Quebec’s initiative.”  This is a bit strange, because if there is one thing that all economic studies of the Quebec child care program are agreed upon, it is that there was a substantial boost to mothers’ labour force participation and hours of work as a result of universal child care.

A summary of the results of one of the many studies goes like this:  “Lefebvre and Merrigan[2] (2008) use Statistics Canada’s Survey of Labour and Income Dynamics (SLID) annual data from 1993 to 2002. Using the sample of all Canadian mothers with at least one child aged 1 to 5, they find that the policy had substantial effects on a diversity of labour supply indicators (participation, labour earnings, annual weeks and hours worked). In 2002, the effects on participation, earnings, annual hours and weeks worked of the childcare policy are respectively between 8.1 and 12 percentage points, $5,000 to $6,000 (2001 dollars), 231 to 270 annual hours at work, and 5 to 6 annual weeks of work.“   

The Fraser Institute is not noted for the complete accuracy of its studies, but this is a bit ridiculous.  As an evaluation of the success or failure of the Canada-Wide Early Learning and Child Care program, the Fraser Institute study is worse than useless. It is, perhaps deliberately, misleading. 

Instead, we should conclude that:

  • Hundreds of thousands of children and families have benefited from more affordable licensed child care
  • There are now nearly 33,000 more persons working in the day care industry than there were when the program was announced in April 2021 – an increase of nearly 37%.  Many more qualified educators are needed, but this is a good start.
  • Even though the growth in the number of child care spaces has been too slow, there has still been a rise of 3 percentage points in the labour force participation rate of mothers with children 0-5 since April 2021.  Again, only a start, but definitely a start.
  • Quebec does have a universal child care program and many families access child care for less than $10 a day.  It is a very popular program with families.  There is no overall shortage of child care spaces in Quebec, but many families want to get into the fixed-fee part of the child care system, especially the better-quality not-for-profit CPEs.  Many of these families are on a waiting list.  A large number of low-income families have benefited from the universal child care program in Quebec, a much larger percentage than benefited from Canada’s targeted child care assistance.  There is still important work to do to ensure that low-income families also benefit equally from better quality in child care services.

[1] Cleveland, G. (2017) “What is the Role of Early Childhood Education and Care in an Equality Agenda?” pp. 75-98 in Robert J. Brym ed. Income Inequality and the Future of Canadian Society ISBN-13:978-1-77244-044-7 Oakville, ON: Rock’s Mills Press. Proceedings of the inaugural S.D.Clark memorial symposium.  That study found that:” In Quebec, 61.8 percent of children 1-5 years with an employed or studying mother with a high school education or less use licensed child care. Including children with a mother who is not employed, 43.1 percent of Quebec children whose mother has a high school education or less are using licensed child care — about 30 percentage points higher than the comparable figure in the rest of Canada.“

[2] Lefebvre, P., Merrigan, P. (2008). Childcare policy and the labor supply of mothers with young children: a natural experiment from Canada. Journal of Labor Economics 23, 519–548.

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Some Thoughts About Australian Child Care Policy

The Labor federal (i.e., Commonwealth) government of Australia has declared its intention to move towards universal child care. There is a lot of interest in the Quebec model. The Commonwealth government asked the Productivity Commission to investigate and to provide a roadmap towards universal early childhood education and care throughout Australia.

The post below is my submission in response to the draft report of the Productivity Commission which you can find here. As you can see, my advice and comments are strongly informed by Canada and Quebec’s experiences.

Response to the Productivity Commission Draft Report

Main Messages

  • The final report of the Productivity Commission should lay out a 10-20 year vision of recommended steps to achieve universal affordable, accessible, high quality child care.  The recommendations in the draft report go only\ part way to universal child care.  The recommendations should include ways in which there can be guaranteed fee levels for parents, much greater financial accountability of operators, and substantial introduction of supply-side operational  funding. 
  • There should be a much stronger gender equity lens by which recommendations are judged and through which recommendations are presented.  This would affect recommendations that imply that 3 days a week is the norm for child care attendance and mothers’ participation in the labour force.
  • The commercialization of child care provision should be an issue of concern.  Child care growth has been very unbalanced; nearly all new centre-based child care for at least 10 years, and probably 20 years, has been commercial.  There are not adequate supports needed for expansion of not-for-profit services.
  • In the draft report, the description and lessons learned from the experience of child care reforms in Quebec is one-sided.

There are some good things about the lengthy and detailed Productivity Commission Draft Report. 

If there is not enough money to do everything right away, it is often sensible to prioritize providing child care services to children in lower-income families.  Moving to 100% subsidy and getting rid of the activity requirement for 3 days a week of child care services will address some important barriers to participation by children in lower-income families while directing over half of the additional assistance to families in the lowest 20% of the income distribution.  Even here, there are potential issues with the proposals[1].

Getting rid of the activity requirement for 3 days a week will also help some middle-income families where parents have irregular work activity and will tend to normalize regular child care attendance for children.

And the Productivity Commission dips its toe in the water of supply-side funding in remote communities where the profit motive clearly does not adequately encourage needed supply.  This is an important start, even if a minor one.

However, as a guide to the pathway to universal child care in Australia,  the Productivity Commission’s draft report is disappointing.

  1. The government asked for a plan to move towards universally accessible, affordable and high-quality child care.  This draft report does not deliver this.  Instead it chooses to primarily fill one hole in the current state of accessibility – access by lower-income families.  Unless the Productivity Commission believes that all other families already had affordable access to child care (which is unlikely since the average out-of-pocket amount that parents pay for centre-based child care is $44.42 a day per child), remedying this one (important) problem will certainly not deliver universal child care. As long as there is no legislative or regulatory limitation on parent fees and no limitation on centres charging full fees for unused hours above 50 in a week, child care in Australia will be unaffordable and inaccessible for some families, perhaps many families, who have middle and higher incomes, as well as families with lower incomes.   As long as there are either financial or supply barriers that prevent access, early childhood education and care is not universal.  Frankly, despite the Productivity Commission’s mandate to study how universal child care can be achieved, there is evidence in the draft report of some bias against universal child care, reflected in the cautious nature of the recommendations and in the one-sided evaluation of Quebec’s system of universal early childhood services.

2. The Productivity Commission’s draft report appears to reflect a view that child care markets work well in Australia, and that strong competitive pressures already compel commercial operators of early childhood services to keep costs low, expand to serve new needs and continually enhance quality.  In other words, the Productivity Commission believes that current funding and regulatory arrangements provide the appropriate incentives and controls to make child care providers serve the public interest.  Apparently, only a few tweaks are necessary to make these services more accessible.

This optimistic view is less true than the Productivity Commission believes; the problems are larger and the need for reform is greater.  First, we know that competition in child care markets is very localised, largely because few parents want to regularly transport their children more than a couple of kilometres to a child care service.  So, each centre only really competes – on price, services and quality – with other centres close by.  Generally, that means that competitive pressures are not that strong. 

Fees have not been kept down by competition; they have been continually rising for many years. The current average daily fee for centre-based child care is $133.96 per child. Over 20% of child care centres charge more than the hourly rate cap (currently $13.73 per hour for centre-based day care for children younger than school age), particularly for-profit centres.  There is little evidence that costs and fees are controlled by strong competitive pressures.

One of the hallmarks of competitive markets is that prices charged are forced down close to actual costs. If the price of one product or service is much higher than its per-unit costs, we would expect profit-seeking producers in a competitive market to offer this product or service at a lower price and take a large number of customers away from existing providers. In centre-based child care, given the required staff-child ratios, the labour costs for infant care must be close to 3 times the labour costs of child care for three- and four-year-old children.  And labour costs are the large majority of total costs.  Yet, competition does not drive centres to charge much lower fees for older children than they do for infants. There is a large variation in per-child costs and there is virtually no difference in fees.  And there are long waiting lists for child care for children less than two years of age, mostly because infant care is less profitable. These facts are a strong signal suggesting that child care markets in Australia are only weakly competitive. 

Figure 4 of the interim ACCC report suggests that average occupancy rates of large providers of centre-based day care are about 75%.  We know that occupancy rates are a key driver of per-unit costs.  In a competitive market, we would expect strong pressures on operators to cut fees in order to increase occupancy, lower per-child costs and maintain quality.  This does not appear to be widespread in child care markets.

In short, the main mechanism that makes the Productivity Commission so complacent – competitive pressure – cannot realistically be assumed to deliver publicly beneficial results on its own.  There is a need for more public management – active market stewardship – and financial accountability.

3. There is no realistic plan to keep child care fees from rising faster than the CPI (which they have been doing for many years)[2].  Draft recommendation 6.2 suggests a new hourly rate cap for Child Care Subsidy based on the “average efficient costs of providing early childhood education and care services”.   Unfortunately, there is no unique average efficient cost.  As mentioned above, just think of infant care with required child-staff ratios of 4 to 1 vs. care for children over 36 months of age with required child-staff ratios of 11 to 1 in many states and territories.  How could there possibly be a unique average efficient cost per unit across these different age groups?  And look at cost variations that are recognized in supply-side-funded jurisdictions.  In Quebec and New Zealand[3], for instance, child care operating payments vary across a number of important factors that drive key cost variations – staff experience levels and qualifications and pay rates, legitimate variations in arms-length occupancy costs, higher per-unit costs in thinner markets, etc.  Unless the Productivity Commission can propose a realistic set of rate caps tailored to different circumstances and a means of regularly updating them and enforcing them, this recommendation may not work.

4. The recommendations in the report would establish 3 days a week as a norm for the number of days a mother should work.  This is negative for gender equity, which is already dramatically impacted by the almost universal assumption that women are primarily or solely responsible for the day-time care of children before school.  The draft Productivity Commission report shows that the average size of the motherhood penalty in Australia – the amount of previous earnings that is lost when mothers bear children – is 55% (!), higher than in many other countries.  The motherhood penalty is explained by lower rates of employment, lower hours per week of employment, and lower hourly pay of mothers. The Productivity Commission is doing a good thing by reducing the impact of the activity test on access to child care.  That will lower barriers to employment for mothers. However, they should recommend its elimination entirely for 5 days a week.  To me, the recommendation as it stands suggests that children only need child care for 3 days a week, and that child care for more than 3 days a week may be negative for children and is done only for the mothers who insist on working too long weekly hours (to whom the activity test is applied).   There is increasingly strong evidence[4] that universal child care in Quebec and elsewhere has reduced motherhood penalties substantially.

5. The Productivity Commission appears to believe that the widespread use of only three days a week of child care is due to maternal preference rather than to the unaffordability of 5 day a week child care.  They show self-reported numbers that allegedly prove that very few mothers would work longer hours each week (and use 5 days of child care) under any circumstances.  In other words, the motherhood penalty in Australia is the result of mothers’ deliberate and free choices.  I doubt it.  In contrast, the ACCC believes that “the price of childcare significantly impacts how much childcare households use.” (p. 22).

 It is true that lower labour force participation and part-time work for mothers are strong norms in Australia, compared to many other countries.  However, there are reasons to believe that if child care was universally affordable and accessible in Australia, those norms would change.  As evidence, look at the very substantial changes in labour force participation of mothers with children 0-4 in Australia over the 12 years from 2009-2021.  In 2009, 48% of mothers with young children stayed outside the labour force.  By 2021, that number had fallen by one-third (16 percentage points!) to 32%.   That would seem to indicate that mothers’ employment decisions may be quite sensitive to changes in policy, rather than fixed by historical norms.  This matters for the motherhood penalty, but it also matters a lot for the funding of child care programs; in Quebec, a large portion of the fiscal costs of child care programs is funded by increased incomes and taxes due to changed employment.

6. There is no plan for requiring financial accountability of providers for the vast sums of government money they receive.  The legal fiction is that parents who receive subsidies for the purchase of child care are effective watchdogs of how the money is spent.  This is so obviously not true that it needs little argument to reject it.  But, there is no requirement for providers to show that they have spent money wisely to achieve publicly desirable purposes.  There are some serious red flags that the Productivity Commission does not really address.  They report that there are many hours of ECEC services that are paid for each day (by parents and the government) but are not used. This sounds like evidence of substantial inefficiency in current funding and attendance arrangements.  The Australian Competition and Consumer Commission (ACCC) report concludes that for-profit child care providers pay more for occupancy costs than not-for-profit providers (and that part of this may be due to the use of facilities for which ownership is not at arms-length)[5].    Further, for-profit services are found by the ACCC to be of worse average quality[6] than that provided by not-for-profit providers.  The Productivity Commission should be making recommendations about compulsory and regular financial accountability. I believe that, in Australia as in Canada, child care is fundamentally a public service (with about 80% of costs paid by the public purse) but one that is delivered by private operators. Detailed and regular reporting on how public moneys are spent should be an obvious requirement.

7. The final report of the Productivity Commission should lay out a 10- to 20-year vision for the establishment of universal child care services in Australia.  The recommended National Partnership Agreement would be a part of this plan.  Wrap-around child care for preschools would be a part of this plan.  The expansion of supply-side funding of services with fees controlled would be part of this plan.  The new independent ECEC Commission would monitor and report on progress towards universal access and make ongoing recommendations to move towards it.  The Productivity Commission hints at a long-term vision but is not explicit.  This allows the Productivity Commission to duck a lot of longer-term questions about affordability, commercialization of the system, financial accountability, and generally the evolution towards serving public interests better.

8. Australia has a long-established demand-side (voucher) funding system for child care.  It allows providers to set their own fees, decide on staff compensation conditional on meeting the award levels set by the Fair Work Commission, choose the children and parents they will serve from those who apply and choose the hours of service to provide.  This is not, in my opinion, the best system going forward; I believe that a system of supply-side-funded services with a guaranteed set fee level (plus fees reduced below the set-fee level or to zero for some families) would be better.  However, changing funding systems is not easy and there is often a lot of push-back from those in the system.  Why not think outside the box? Why not establish an alternative supply-side funding system that would exist in parallel with the existing demand-side funding system with incentives for centres to switch? 

Centres that were funded on the supply-side would have a fixed fee, and enhanced regulatory requirements.  In exchange, they would have guaranteed funding to cover costs above parent fees. Set-fees that are known and predictable are very popular with parents at all income levels and, in Quebec, have encouraged high child care participation by children in lower-income families.  There would be strong elements of financial accountability and reporting by centres, requirements to pay above-award wages, reduced ability to rely on part-time and casual staff and other requirements related to quality of care, but some centres and some parents would prefer this.  There would be obvious transition difficulties, but this kind of recommendation would boldly look towards transforming Australia’s system into a universal and affordable one.

9. The Productivity Commission does not address the increasing commercialization of child care services in Australia.  Virtually all of the expansion of centre-based child care services (not preschools) in the last decade – a 50% increase in the number of spaces available – has been in the for-profit sector.  As the ACCC interim report notes: “the child care sector is widely viewed as a safe and strong investment with guaranteed returns, backed by a government safety net.” The Productivity Commission report does not even raise the question of whether this extremely unbalanced growth pattern is desirable. The growth in services that has occurred is disproportionately located where returns are higher, rather than where need is greater, as shown in Figures 3 and 7 of the draft report.  1% of providers now provide 35% of all centre-based child care services. The Productivity Commission should be making recommendations about means of encouraging growth in not-for-profit and public provision of services.  These recommendations would call for planned development and dedicated loan guarantees or other capital funding targeted at not-for-profit providers.  I believe that Australian children and families are unlikely to prefer a universal child care system with unplanned expansion and complete domination of service provision by commercial incentives and ethics.

10. The Productivity Commission draft report provides a one-sided summary of the experience and effects of Quebec’s universal child care system.  Although it is true that economic researchers found short-run negative effects on some children (effects were found to vary substantially across different child groups[7]), the most recent and comprehensive work on Quebec, using a triple-difference estimator similar to other studies (Montpetit et al., 2024[8]) does not find any long-run negative effects on children’s completed education.  Rather, they find that the long-run education levels of Quebec children who had been eligible for $5 a day child care were no different than their peers in other parts of Canada.  In particular they write: “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….

The results suggest a positive but statistically insignificant impact on completion of a university degree, the most comparable outcome across provinces, and no impact at lower levels.”(p. 21).  Further, Montpetit’s study calculates the social cost of increased “youth criminal activity” identified by Baker, Gruber and Milligan (2019[9]) and finds negligible social costs because the identified transgressions were minor. 

11. The Productivity Commission draft report gives little sense that this fixed-parent-fee child care program is an incredibly popular social program with Quebec parents.  The reader will struggle to understand why the Canadian federal government decided in 2021 to spend $30 billion over 5 years to spread the Quebec child care model of a fixed-fee, supply-side-funded program across the country.  The reader of the draft report will not be told that Quebec’s child care reforms had sufficient impacts on mothers’ employment and economic growth to more than pay for the costs of the program according to the influential opinion of prominent Canadian economists (Fortin, Godbout, St. Cerny, 2013[10]).  Lefebvre and Merrigan (2008[11]) find that Quebec’s policy reforms increased labour force participation of mothers with children 0-4 by 7.6 percentage points from 61.4%  before the policy.  They estimate the labour force elasticity to child care price to be 0.25.  In addition the child care reforms increased the annual hours worked, weeks worked and earnings; these elasticities were 0.26, 0.28, and 0.34, respectively.  With these elasticities, a 10% decrease in the fee would increase annual hours worked by 2.6%, increase weeks worked by 2.8% or increase earnings by 3.4% on average.

Lefebvre, Merrigan and Verstraete (2009[12]) found that the labour force impacts lasted beyond the preschool child care years when mothers no longer had any children 0-5 years of age, and that the positive labour force impacts were particularly strong amongst mothers with lower levels of education. Even if long run labour force effects are ignored, the recent study by Montpetit and colleagues (2024) finds that the overall benefits of universal child care in Quebec are three and a half times the costs.  This includes a careful evaluation of the value of the improvements in the well-being of Quebec mothers from universal child care services.

12. The Quebec model of funding and management of child care services is not a perfect one.  Two factors made its birth particularly difficult.  First, when they initiated the $5 a day program, Quebec only had enough child care supply to provide services to 15% of the child population 0-4 years.  For 20 years, they scrambled to increase supply and have now reached nearly 70%. However, this scramble to increase supply meant relying too heavily on both family child care and for-profit child care with weaker regulation.  These types of care have been the Achilles heel of quality[13] in the Quebec system, a problem that is now being addressed.  Second, this was a program funded exclusively by the provincial government; at that time, the federal government was unwilling to provide any financial support.  The provincial governments in Canada have modest taxing powers, so services were not as generously funded as they should have been.  With the federal government coming to the table in 2021 with billions of dollars of additional funding, child care services in Quebec will now be funded more appropriately.  I have described the problems of the Quebec model of child care here[14], warts and all.   However, these problems are not inherent in a universal program; Australia already has a large child care supply and substantial financial resources available to support good quality programming. It can gain the substantial benefits of Quebec’s universal program without the birth pangs that Quebec has faced.

Commentators have noted that low-income families in Quebec do not have as much access to good quality child care as do middle income families.  That is true and is a problem. As far as I can tell, that is true and is a problem in most countries whether child care systems are universal or not; it is certainly true in Australia[15]. However under Quebec’s universal program it is also true that a much higher percentage of low-income families were able to access licensed child care than was the case with the targeted funding that predominated in the rest of Canada[16].  Children from low-income families also were particularly likely to benefit from their access to early childhood programs[17].

13. The terms of reference of the Productivity Commission enquiry require that it study “the operation and adequacy of the market, including types of care and the roles of for-profit and not-for-profit providers, and the appropriate role for government.” Further, these terms of reference direct that “The Commission should have regard to any findings from the Australian Competition and Consumer Commission’s Price Inquiry into child care prices….”   However, the findings in the ACCC draft report about the child care industry scarcely get any mention, including differences in costs and priorities of for-profit and not-for-profit providers.  The ACCC report provides important insights about costs and performance not available elsewhere.

14. I hope that many of these issues will be addressed directly in the final report of the Productivity Commission.

Gordon Cleveland, Ph.D.,
Associate Professor of Economics Emeritus,
Department of Management,
University of Toronto Scarborough

FOOTNOTES/ENDNOTES

[1] These policy changes -removing activity requirements for 3 day attendance and 100% subsidy up to $80,000 -should mean many more lower-income families wanting access to child care.  Some operators prefer to serve a more exclusive clientele; this is known as creaming.  Under current rules, centres that charge a fee that is above the maximum hourly-fee limit are likely to effectively exclude most of these children.  Perhaps the Productivity Commission should require that centres be compelled to serve these children at the maximum hourly fee if parents apply to attend.

[2] The cost of child care in Australia is pretty high.  Centre-based child care fees per hour (averaged across ages 0-5) were $11.72 in 2022.  The Productivity Commission reports that the average daily fee is $124 per day.   From 2018 to 2022, gross fees in Australia increased by 20.6% in comparison to the OECD average of 9.5%.  The OECD ranks Australia as 26th out of 32 countries on affordability of child care for a typical couple family with two children.  This is despite the Australian Government contribution to fees being significantly higher than most other OECD countries – 16% in Australia compared to the OECD average of 7%.

[3] See https://childcarepolicy.net/cost-controls-and-supply-side-funding-what-does-quebec-do/ for a discussion of details of child care funding in Quebec and see https://childcarepolicy.net/new-zealands-funding-system-for-early-childhood-education-and-care-services/ for a discussion of details of child care funding in New Zealand.

[4] See Connolly, M., Mélanie-Fontaine, M. & Haeck, C. (2023). Child Penalties in Canada.   Canadian Public Policy doi:10.3138/cpp.2023-015.  See also Karademir, S., J.-W. Laliberté, and S. Staubli. (2023). “The Multigenerational Impact of Children and Childcare Policies.” IZA Discussion Papers No. 15894, Institute of Labor Economics (IZA), Bonn, Germany.  As Karademir et al indicate “The disproportionate impact of children on women’s earnings constitutes the primary factor contributing to persistent gender inequality in many countries.”

[5] Land and occupancy costs are about 18% of the total of all costs for large for-profit providers compared to about 10% for large not-for-profit providers. This is not due to what the Aussies call “peppercorn rents” (i.e., below-market rents provided on a goodwill basis).  The average profit margin for large centre based day care providers was about 9% for for-profit providers and about 6% for not-for- profit providers in 2022. 

[6] About 95% of the staff in not-for-profit centres are paid “above-award” compared to 64% in for-profit centres.  Not-for-profit providers are much more likely to hire their staff on a full-time basis, whereas for-profit providers primarily rely on part-time staff.  As the ACCC report suggests: “large not-for-profit centre-based day care providers invest savings from lower land costs into labour costs, to improve the quality of their services and their ability to compete in their relevant markets.”  The ACCC finds that centre-based day care services with a higher proportion of staff paid above award and with lower staff turnover have a higher quality rating under the National Quality Standard. 

[7] Kottelenberg and Lehrer provide evidence of substantial heterogeneity in the impacts of the Quebec child care reforms by the age of the child, the child’s gender and by initial abilities in a series of studies published in 2013, 2014, 2017 and 2018.  Kottelenberg, M. J. and Lehrer, S. F. (2013). New evidence on the impacts of access to and attending universal child-care in Canada. Canadian Public Policy, 39(2):263–286. Kottelenberg, M. J. and Lehrer, S. F. (2014). Do the perils of universal childcare depend on the child’s age? CESifo Economic Studies, 60(2):338–365. Kottelenberg, M. J. and Lehrer, S. F. (2017). Targeted or universal coverage? assessing heterogeneity in the effects of universal child care. Journal of Labor Economics, 35(3):609–653. Kottelenberg, M. J. and Lehrer, S. F. (2018). Does Quebec’s subsidized child care policy give boys and girls an equal start? Canadian Journal of Economics/Revue canadienne d’ ́economique, 51(2):627–659. Kottelenberg and Lehrer (2017) finds that levels and changes in home learning environments by some parents in response to the Quebec reforms were an important explanatory factor of differential effects on children.

[8] 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

[9] Baker M., Gruber J., & Milligan K. (2019). The Long-Run Impacts of a Universal Child Care Program American Economic Journal. Economic Policy, Vol.11 (3), p.1-26; American Economic Association.

[10] Fortin, P., Godbout, L. and St.Cerny, S.. (2013). “Impacts of Quebec’s Universal Low-fee Childcare Program on Female Labour Force Participation, Domestic Income and Government Budgets. University of Toronto. Toronto, ON.  Translated from French https://www.oise.utoronto.ca/home/sites/default/files/2024-02/impact-of-quebec-s-universal-low-fee-childcare-program-on-female-labour-force-participation.pdf  Original reference is Fortin, P., Godbout, L., and St-Cerny, S. (2013). L’impact des services de garde a contribution reduite du quebec sur le taux d’activite feminin, le revenu interieur et les budgets gouvernementaux. Revue Interventions economiques. Papers in Political Economy, 47.

[11] Lefebvre, P., Merrigan, P. (2008). Childcare policy and the labor supply of mothers with young children: a natural experiment from Canada. Journal of Labor Economics 23, 519–548.

[12] Lefebvre, P., Merrigan, P., Verstraete, M. (2009) Dynamic Labour Supply Effects of Childcare Subsidies: Evidence from a Canadian Natural Experiment on Low-fee Universal Child Care.  Labour Economics 16: 490-502.

[13] Couillard, K. (2018) Early Childhood: The Quality of Educational Childcare Services in Quebec. Observatoire des tout-petits. Montreal, Quebec, Fondation Lucie et André Chagnon.  Page 25 of this document charts the measured quality differences between CPEs (not-for-profit centres) and the for-profit non-subsidized daycares.  In the CPEs that are the heart of the supply-side funded system, in two age categories, 4% or fewer of centre rooms are of poor quality.  In the for-profit child care centres funded by demand-side tax credits to quickly boost supply, 36%-41% are of poor quality.

[14] Cleveland, G., Mathieu, S., and Japel, C. (2021) What is “the Quebec Model” of Early Learning and Child Care? Policy Options, Institute for Research on Public Policy, Montreal QC. https://policyoptions.irpp.org/magazines/february-2021/what-is-the-quebec-model-of-early-learning-and-child-care/#:~:text=The%20plan%20in%20Quebec%20was,educational%20child%20care%20after%20that.

[15] See Cloney, D., Cleveland, G., Hattie, J., and Tayler, C. (2016) Variations in the Availability and Quality of Early Childhood Education and Care by Socioeconomic Status of Neighborhoods Early Education and Development Vol. 27(3 ):384 – 401, and also see : Australian Children’s Education and Care Quality Authority (ACECQA) (2020) Quality ratings by socio-economic status of areas, ACECQA, Sydney

[16] Cleveland, G. (2017) “What is the Role of Early Childhood Education and Care in an Equality Agenda?” pp. 75-98 in Robert J. Brym ed. Income Inequality and the Future of Canadian Society ISBN-13:978-1-77244-044-7 Oakville, ON: Rock’s Mills Press. Proceedings of the inaugural S.D.Clark memorial symposium.

[17] Kottelenberg and Lehrer (2017) op. cit.

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The story coming from the CSELCC survey – I don’t think we’re going to make it…not even close!

We know that child care affordability is improving dramatically because of the $10-a-day program (otherwise known as CWELCC or the Canada-Wide Early Learning and Child Care Program).  But what about access and availability?  It’s difficult to know.  There is some activity, and lots of announcements, but are there actually more children using licensed child care?  A really important question, because most of the social and economic benefits of the $10-a-day program come from improving access to children and families that haven’t used child care before.

Finally we have some solid answers.  Statistics Canada just completed a massive survey of parents across the country that tells us how many children have access to centre-based child care (the overwhelming bulk of licensed child care in the CWELCC program is in centres).  We can compare this to the situation before the pandemic in 2019.  Unfortunately, the picture is not positive.

Looking only at the provinces and territories that are part of the CWELCC program (i.e., leaving out Quebec), there are 521,800 children 0-5 using centre-based child care in 2023.  There were 483,200 children 0-5 using centre-based child care in 2019.  That’s an increase of centre-based spaces in the provinces and territories participating in CWELCC of 38,600 spaces over the course of the last 4 years, an increase of about 8%. 

However, the agreements signed between the federal government and the provinces and territories promised that there will be 250,000 additional child care spaces available by March 31st, 2026.  That would be an increase of over 50% compared to the spaces that were available in 2019.  That’s just over two years away.  I don’t think we’re going to make it.  Not even close!

The CSELCC survey indicates that 49% of parents using child care reported difficulty finding it.  Up from 36% in 2019. 

In 2023, 26% of parents with children 0-5 who are not using child care reported that their child is on a waitlist for child care, up from 19% in 2019.  Almost half (47%) of infants younger than one year who are not using child care are on a waitlist!!!  That’s up from 38% in 2022.

Yes, the affordability problem has improved.  But availability or access is either worse or not much better depending on your point of view.  And accessibility is improving at a snail’s pace compared to the promised additional 250,000 spaces.  Hurray for Statistics Canada giving us a clear picture of this problem.  Now federal and provincial/territorial governments have to seriously address the problems of how to grow our wonderful child care system in the not-for-profit and public sectors that are the priority.

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Turnover and Labour Supply in the Early Care and Education Sector

If we raise wages in the licensed child care sector in Canada, will it make much difference?  How much difference would it make? 

There’s not much research around that can help us answer these questions.  And yet, they are really important to policy makers, to advocates and to parents who are trying to find scarce child care spots.

Now, some really capable economists in the U.S. have published a paper (Cunha and Lee, 2023) in the National Bureau of Economic Research Working Paper series that can help us.  There’s a lot in this paper, but our focus is more narrow.  Let me summarize some key results of interest. 

Turnover is defined as moving out of the child care industry (NAICS code 624410) over the course of one year, between the third quarter of one year and the second quarter of the next. 

The authors are concerned with turnover in the sector, because they believe that turnover is likely to negatively affect children’s development.  Overall, turnover rates are 39% in the ECE sector in Texas where their data is from and that’s quite a bit higher than in other sectors.  And turnover is higher for workers with a college education, which means that workers with more education are more likely to leave. 

The authors estimate that the elasticity of turnover is -0.5, which is to say that a 20% rise in staff compensation will reduce turnover by about 10%. 

The authors go on to estimate the elasticity of labour supply in the ECE sector and find it is equal to 2.0.  To put it another way, an earnings increase of 25% in labour income in the ECE sector would be likely to lead to a 50% increase in employment in the sector. We can say, therefore that labour supply in this sector is highly elastic – highly sensitive to changes in compensation.  If we are able to raise child care staff wages in Canada, we should expect it to have a strong impact on recruitment and retention.

There are previous estimates of labour supply elasticities in the ECE sector in the U.S. by David Blau (1993, 2001), but they are from quite a few years ago.  He, too, found that labour supply in ECE is quite sensitive to compensation levels.  His overall estimates of labour supply elasticity were 1.94 and 1.15.  He was able to estimate what are called the extensive, intensive and total elasticities.  The extensive elasticity refers to the decision to be employed as an ECE or not.  The intensive elasticity refers to the decision to work a larger number of hours.  The total is the sum of the two.  In 1993, his estimates were 1.2 for the extensive elasticity,  0.74 for the intensive elasticity, and 1.94 for the total.  In 2001, using different data, his estimates were 0.73 for the extensive, 0.42 for the intensive and 1.15 for the total.

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REFERENCES

Blau, David M. (1993) The Supply of Child Care Labor.  Journal of Labor Economics 11(2): 324-347. 

Blau, David M. (2001) The Child Care Problem: An Economic Analysis.  New York: Russell Sage Foundation.


Cunha, Flavio. and Lee, Marcus. (2023) One Says Goodbye, Another Says Hello: Turnover and Compensation in the Early Care and Education Sector.  Working Paper 31869, National Bureau of Economic Research. Cambridge, MA.

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What  the Australian Competition and Consumer Commission Can Tell Us About For-Profit Child Care

What would Canada’s child care system look like if we let it be dominated by for-profit child care providers?  Particularly with Pierre Poilievre lurking in the wings, it’s an interesting question to ask.

So, into my inbox arrives a fascinating study from what they call the “A triple-C” (ACCC) or Australian Competition and Consumer Commission.  When the new Labor Prime Minister of Australia – Anthony Albanese – arrived in office in 2022, he commissioned two big studies of child care.  He asked the ACCC to examine how well or badly the market for child care was working.  And he asked the Productivity Commission – a permanent body rather like the old Economic Council of Canada – to report on how best to make child care universally accessible and affordable in Australia.

Both of these bodies have now produced Interim Reports.  This blog post will comment on the one from the ACCC.  The ACCC report focuses on the cost of producing child care services, the nature of competition in child care markets and the effectiveness of Australian government attempts to regulate child care fees.

You don’t want to read the whole report, so let me cherry-pick some findings for you.

  • The cost of child care in Australia is pretty high.  Centre-based child care fees per hour (averaged across ages 0-5) were $11.72 in 2022 or $117.20 for a 10-hour day. 
  • Australia’s Child Care Subsidy system (like a tax credit for child care expenses) costs the government a lot but does not make child care affordable.  For a couple on average wages with 2 children (aged 2 and 3) in centre based day care full-time, net child care costs came to 16% of net household income in 2022. In contrast, the average for OECD countries was 9%, with Australia ranked 26th out of 32 countries. This is despite the Australian Government contribution to fees being significantly higher than most other OECD countries – 16% in Australia compared to the OECD average of 7%.
  • From 2018 to 2022, gross fees in Australia increased by 20.6% in comparison to the OECD average of 9.5%.
  • Looking at detailed data on the cost of producing centre-based child care for children younger than school age, 69% was accounted for by labour costs, 15% by land/occupancy, and 9% by finance and administration costs.  But these proportions are quite a bit different for for-profit and not-for-profit providers.  69% of centre-based child care services in Australia are provided by for-profit operators.
  • Land and occupancy costs are about 18% of the total of all costs for large for-profit providers compared to about 10% for large not-for-profit providers. This is not due to what the Aussies call “peppercorn rents” (i.e., below-market rents provided on a goodwill basis).  As the ACCC report says, this may be due to non-arms-length transactions in land rental of for-profit providers (to be investigated in the final report).
  • Not-for-profit child care operators pay a higher proportion in labour costs for two reasons.  They are much more likely to pay “above-award” wages – in other words, wages that are above the minimums set by the Fair Work Commission wage grid.  About 95% of the staff in not-for-profit centres are paid “above-award” compared to 64% in for-profit centres.  The second reason is that not-for-profit providers are much more likely to hire their staff on a full-time basis, whereas for-profit providers primarily rely on part-time staff.  As the report suggests: “large not-for-profit centre-based day care providers invest savings from lower land costs into labour costs, to improve the quality of their services and their ability to compete in their relevant markets.”  The ACCC finds that centre-based day care services with a higher proportion of staff paid above award and with lower staff turnover have a higher quality rating under the National Quality Standard. 
  • The ACCC finds that parents and guardians typically prefer centr- based day care services located close to their home. Most households travel a short distance to child care – between 2 and 3 kilometres.
  • Parents’ and guardians’ perception of quality is a key factor driving decisions for selecting a child care service. As child care is an ‘experience good’, meaning it is difficult to accurately determine quality of a child care service without having used it, parents and guardians appear to rely on informal measures of quality over formal National Quality Standard ratings.
  • Providers’ decisions to establish child care centres are highly influenced by expectations of profitability within a particular area or market, which are driven by expectations of demand and willingness to pay. The willingness to pay for child care within a local area is heavily influenced by household incomes, as this influences the opportunity costs of not using child care services. These factors encourage supply to markets where demand for child care is highest, and parents and guardians are likely willing to pay higher prices. In particular, for-profit providers are more likely to supply these markets as the opportunity for profit is greater.
  • These markets tend to be in metropolitan areas of higher socio-economic advantage. This higher demand and greater willingness to pay explains why we find operating margins are higher in areas of higher socio-economic advantage and Major Cities of Australia.  The child care sector is widely viewed as a safe and strong investment with guaranteed returns, backed by a government safety net
  • While providers’ supply decisions are generally driven by considerations of viability, we note that there are providers that supply some services at a loss. This reflects that – like many other human services – child care plays an important societal role. This results in not-for- profit providers accounting for a greater proportion of services in areas of very low advantage.
  • The nature of child care markets and the role played by price, as well as the impact of the Child Care Subsidy, also mean it is unlikely that market forces alone will act as an effective constraint on prices to ensure affordability for households (including households with low incomes and vulnerable cohorts) and to minimise the burden on taxpayers.
  • Large for-profit providers of centre based day care have consistently had higher profit and operating margins than not-for-profits since 2018. The average profit margin for large centre based day care providers was about 9% for for-profit providers and about 6% for not-for- profit providers in 2022.

In conclusion, the ACCC sees substantial benefit in a detailed consideration of supply-side models, the role of market stewardship and direct price controls for child care services. There will be a final report from the ACCC soon.

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HOW MUCH WILL IT COST TO RAISE THE WAGES OF EARLY CHILDHOOD EDUCATORS?

It is now widely acknowledged that the pay of early childhood educators is too low.  Comparisons of ECE hourly wages to those in other competing occupations show that educators are paid as if they had a high school education rather than a college certificate or diploma.  We can see the effects of this in the extreme shortages of fully-qualified ECEs for existing and new child care facilities.  In most Canadian provinces and territories, growth in spaces is held back as much by the lack of staff as it is by the lack of organizational and financial support for planned and funded expansion.  

The big questions for governments are (1) how much will it cost to raise wages? (2) how should they do it? and (3) who will pay? 

Up till now, it’s been hard to answer the “cost” question because we haven’t had good data on how many program staff work in licensed services and what their average wages are now. 

I’ve spent a large amount of time pulling together and analyzing the best publicly available data on this, province by province (sorry, I haven’t done the Territories yet).  The details of this (staff numbers and typical wages by qualification level for each province) will appear in another blog on this site once I have finished crossing the t’s and dotting the i’s (lots of numbers and boring reading for most people).  But, using those numbers, I can now make estimates of how much raising ECE wages will cost.  If you have better numbers, I’m happy for you to send them to me so I can make revisions.

The table below shows my estimates of how much it would cost to raise the wages of fully-qualified ECEs across the country by 25% from whatever their current level is.  For the average ECE, that would mean a raise of $5 to $7 an hour from current levels.  I’m not trying to say that’s enough, or that this is the right way to raise ECE wages.  If I look at the data on wage comparisons to other occupations, it very likely isn’t enough.  But, it may begin to move the needle on the supply of early childhood educators.  It may encourage more new ECE graduates and existing ECEs to stay in the sector. 

Have a look at the last column province by province. Each cell shows the overall cost of raising qualified ECE hourly wages by 25% compared to what they are now (including the effects of wage grids, wage grants and wage supplements).

This is simply a simulation to give us all an idea of how much it will cost to have a significant rise in ECE wages.  It is not a carefully thought out design for wage increases. What is needed will vary from one province to another; some provinces have done a lot already, others have done little.  In provinces with generally high wage levels for all types of workers, a 25% rise in ECE wages may not do very much. In provinces that have already done a lot to raise wage levels and establish wage grids, a 25% wage rise might be very significant.

To see all of the columns, view the table below in a new window

ESTIMATED STAFF NUMBERS (0-12), CURRENT WAGE BILL, AND COSTS OF WAGE INCREASES FOR FULLY-QUALIFIED ECEs

ProvinceNumber fully-qualified incl directors/ supervisorsNumber of less qualifiedTotal program staffTotal FTE program staffCurrent annual wage bill ($ mil)Cost of 25% increase for fully-qualified ($ mil)
BC16,8006,80023,60020,600$1,005.4+$208.0
AB13,00010,75023,75021,000$965.8+$155.9
SK1,6501,3002,9502,600$90.7+$15.5
MB3,4003,0006,4005,700$215.3+$34.9
ON35,00020,00055,00051,000$2,183.0+$391.7
QC (0-4)29,00010,30039,30035,000$1,576.0+$315.9
NB2,7002,0004,7004,300$186.0+$29.9
NS2,6008003,4003,200$142.4+$29.9
PE7004001,100950$42.3+$7.3
NL8254001,2251,100$48.2+$8.9
CANADA105,67555,750161,425145,450$6,455.1+$1,198.0
CA – QC76,67545,450122,125110,450$4,879.5+$882.1
To see all of the columns, view the table above in a new window
  • Fully-qualified refers to ECEs with a 1-year college ECE certificate or a 2-year college ECE diploma, or more.
  • These calculations are produced by Gordon Cleveland, based on the estimated wages and staff numbers in Estimates of Staff Numbers and Wages in ELCC Centres, by Province, August 16, 2023.  Numbers for the Territories are not yet included.
  • It is assumed that wages would have to rise equally for ECEs caring for children 6-12 years of age.  However, in Quebec where fully-qualified staff caring for children 5-12 years are employed by the school system, numbers refer only to staff caring for children 0-4.

These numbers do not include the extra cost of compulsory benefits like contributions to pay for EI and CPP/QPP and vacation pay.  That would add another 15%-18%, perhaps.  However, these estimates do include an allowance for supply staff.

There is no magic in this 25% wage rise simulation.  But, now, with data on current numbers of staff and on current wage levels, we can do whatever simulations we think are appropriate and estimate the costs of taking action (and compare them to the costs of inaction).  That, I think, is a big step forward.

With these simulations in hand, we can turn to the next two questions.  Question #2 was how exactly we should raise wages.  That debate is too big for this blogpost, but let me make some observations. I believe that the big staff supply problem is centred in the inadequate supply of fully-qualified early childhood educators, whether that is a one-year ECE college certificate or a two-year ECE college diploma.  Recruiting untrained staff or recruiting staff that need to take only an orientation course or two is not where the problem lies.  That means we need to concentrate our scarce funds on raising the wages of qualified educators.

And once we have decided to concentrate our wage-raising efforts on fully-qualified staff, we need to avoid the Ontario mistake.  Ontario decided to raise wages by concentrating their efforts on low-paid educators.  In 2022, they boosted all early childhood educators earning less than $18 an hour up to $18, but they did nothing for anyone else.  In 2023 and beyond, they are raising the pay of other educators by $1 per hour each year, but only if the educators currently earn less than $25 an hour; $25 is the top wage for this program.  This focus only on low-paid educators ensures that ECE will continue to be a low-paid profession; even $25 an hour will keep educators well below competing occupations.

And, the Ontario wage supplement design ensures that most of the wage assistance will go to centres that previously were underpaying their workers, disproportionately those in the for-profit sector.  The Doug Ford government is developing a bit of a reputation for favouring for-profit friends, whether it be the Greenbelt or child care, but this kind of wage supplement design will not do a good job of retaining the best-qualified and most experienced staff and making ECE an attractive profession.

Finally, there is the question of who will pay.  I would be overjoyed if the federal government decided to come up with a billion dollars of extra annual funding, but I don’t think that will happen very soon, and wage rises do need to happen very soon.  Some provinces may be willing to up their spending to solve wage problems, and that is welcome.  But the most obvious immediate place to get funding for educator wages is to change priorities for the expenditure of federal dollars under the Canada-Wide Early Learning and Child Care Agreements.  The very large majority of the federal funds under current Action Plans goes to lowering parent fees.  Right now, many provinces are renegotiating Action Plans to cover the next three years.  Why not allocate a larger portion of money in the next three years to cover wage increases for fully-qualified early childhood educators?  And there should be provincial contributions to cover the wage increases for staff caring for 6-12 year-olds. 

The numbers in the table above tell us about how much reallocation of dollars is needed in each province.  Let’s get it done, or expansion will not happen and access to affordable child care will continue to be a dream for most families.

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British Columbia’s New Spaces Funding Program

My opinion of British Columbia’s New Spaces Fund is shaped by the context.   It’s a valuable, if imperfect, source of capital funding for the expansion of not-for-profit and public child care.

The context is that we’re not doing a good job in expanding the availability of child care services in Canada.  That’s disappointing, of course, but also a danger to the ultimate success of the Canada-Wide Early Learning and Child Care program. 

Without rapidly expanded capacity, most parents will not be able to benefit from $10 a day child care.  Women will not be able to enter the labour force.  The economic growth benefits of child care will not happen.  Parents will be angry and frustrated at governments that have promised them services they can’t deliver.  A new government may come in and turn everything over to the for-profit sector, loosening staffing regulations, and allowing operators to surcharge parents for “extras” to make providing child care more profitable. 

The decision of federal and provincial/territorial governments to rely on the not-for-profit and public sectors for child care capacity was good for the long-run, but it’s having lots of problems in the short run.  Not-for-profit and public services are typically of higher quality with better effects on children’s lives.  Not-for-profit and public services become trustworthy community assets, here for the long term, in a way that for-profits do not, always anxious to sell assets or property to the highest bidder. 

But, not-for-profits need more help to expand than the for-profits do. For-profits have better access to capital funding from the private sector than not-for-profits do; many banks and financial institutions are unwilling to make construction loans and mortgages to not-for-profit organizations.  Most not-for-profit organizations find it too risky to make expansion promises until future on-going operational funding arrangements for services are settled;  some for-profit organizations are willing to take a gamble that future operational funding will be generous, or that costs can be slashed to ensure a profit.   On top of all this is the shortage of qualified early childhood educators.  Not-for-profits are typically unwilling to expand until they can hire enough fully-qualified educators to run good-quality programs.  For-profits are often willing to plan to operate without a full complement of trained staff, hoping they can get exemptions from government regulations and be able to operate with unqualified staff.

British Columbia’s New Spaces Fund is not perfect.  Yet, in the context I’ve just described, it provides some important support for child care expansion to not-for-profit and public organizations in B.C.  And that’s a lot more than I can say for most of Canada’s provinces, outside Quebec.  The New Spaces program provides capital grants only to not-for-profit and public organizations who are willing and anxious to expand the supply of child care services.  Previously, it was available to the for-profit sector who did not need it; that was a big mistake that has since been corrected. The budget last year was $292 million, about $84 million from provincial funds and the rest from federal funding under the Canada-Wide ELCC program. 

Some of the projects are for minor renovations, some for equipment only, but some are for much bigger projects.  The new Ministry of Education and Child Care prefers to have projects that are funded for $40,000 or less per space, but this restriction can be waived.  Since, construction costs have been rising rapidly, $40,000 per space is now below full cost for many projects.  And applicants are expected to come up with 10% of the entire project cost from other sources. 

It’s also a one-time capital grant, so you have to know a lot of detailed cost and design elements up-front when you apply.  At the time you apply, you are guessing at much of this.  This is a disadvantage.  A capital program, instead of a one-time capital grant, can be more flexible.

Eligible costs for the New Spaces program include project management, design/engineering costs and site evaluations, architect and accountant fees, and business planning development (business case model and analysis).  Also eligible are infrastructure costs – water, sewer, roads, sidewalks.  And equipment. And GST/PST and a 10% contingency.)  Not included are costs of purchasing real estate, or buildings or commercial space (however, modular buildings to be erected on site are an eligible expenditure).

Many of the applicants for New Spaces funding are local governments, school boards, health district authorities, public post-secondary institutions, and First Nations. This is a great use of the program.  Many of these bodies may have access to land for building, and many will have considerable experience in managing large development projects.

The New Spaces Fund is application-driven.  In other words, organizations have to take the initiative and plan child care expansion and apply for capital funding.  The New Spaces Fund is therefore a capital grants program, it is not part of a program of capital expansion.  In many ways, this is a weakness and this feature has been criticized.  Advocates say that B.C. needs planned child care expansion, focused first on areas of higher need, with support for many aspects of expansion – not just capital grants.  Most child care centres do not have the resources to take on major capital development, raising millions of dollars of capital funding and managing multi-year expansion projects.  Capital expansion requires more than just money. It needs organizations that will take responsibility for development; it needs architects with knowledge of child care,  it needs design standards.  It also needs a much longer guarantee that facilities will stay in place than the current 10-year requirement of the New Spaces Fund.   Manitoba’s Ready-to-Move program is a model to look at for how resources of different actors can be mobilized for child care expansion.

While that’s true, let’s give B.C. some kudos for having a program of capital grants at all.  Believe it or not, most provinces apparently believe that (capital) money grows on trees (for not-for-profit and public organizations).   Alberta offers $5,000- $6,000 per space.  Ontario offers about $7,000 per space.  In the context where the cost of new-build construction is often more like $50,000-$60,000 per space, that’s not a serious amount of capital assistance.

B.C. has much to do.  They are planning development of a wage grid to attract early childhood educators, but there is no deadline for when this will happen. 

B.C. has not yet developed a funding formula for the provision of operational funding when parent fees are an average of $10 a day for everyone.  This means that future revenue streams are uncertain, so the planning of child care expansion for not-for-profit and public services is more risky than it needs to be.

B.C. has not yet developed mechanisms for planning and guiding the child care expansion that will have to happen.  Based on current use patterns in Quebec where parent fees are now $8.75 a day, we can expect that B.C. will need to have  spaces for 174,180 children 0-5.  That would mean a need for about 77,750 additional child care spaces compared to 2021.  So, B.C. needs to get its game on.  As many other provinces do.

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Modular Child Care Expansion in Manitoba: An Idea Worth Looking At

This is a good-news story about the expansion of child care capacity. 

Right now, there are not many good-news stories; child care expansion is happening much slower than it should be.  And all the indications are that even the 250,000 additional child care spaces that provinces and territories have planned (but not funded!) by 2026 will not be enough.  TD Economics, in its recent publication, calculates that at least 243,000 MORE spaces will be needed to satisfy demand for child care when it is available at $10 a day. 

So, we had better get working on designing, funding and building extra child care capacity.

Manitoba has a good plan for how to expand child care services in rural, remote and northern communities.  It’s called the Ready-to-Move project.  Its origins were with the 2017 Canada-Manitoba ELCC agreement when the Department of Families in Manitoba developed three rural child care facilities through a modular construction project.  The initiative was developed by the Department in co-operation with Manitoba’s Social Innovation Office which seeks innovative solutions for complex social and environmental issues.  By the way, Early Learning and Child Care is , since 2022, part of the Department of Education and Early Childhood Learning.

The Winnipeg Metropolitan Region has an incorporated entity called JQ Built that is providing project management support to municipalities that wanted to be involved.  The result is known by the name “Daycare in a Box”.  It creates modular buildings with a pre-fabricated construction process.  The child care centres are made in a manufacturing facility in Winnipeg and transported to a permanent site in the relevant municipality for assembly.

To date, there are 23 communities with projects approved and another 14 applications being considered for future rounds of development.  The first batch of facilities began construction in February 2023, and the first facility is planned for opening on July 21, 2023.  That’s quick!

Municipalities and First Nations communities that want to participate have to provide serviced land in their community rent-free for 15 years.  And they have to agree to provide maintenance, snow clearing and repair services for this period.

The province is providing 100% of the capital funding for the centres.  This is an investment of between $4 million and $6 million each depending upon the size of facility. A 74-space facility is about $4 million while a 104-space facility is closer to $6 million. The centres will become municipal assets.

So, let’s make a tally:

100% capital funding from the province – check

Municipalities and First Nations communities have serious skin in the game – check

There is an experienced public sector project manager to provide development services that child care centre leadership cannot readily do – check

The centres become municipal assets in perpetuity – check

The whole process is designed to provide new spaces quickly in areas that are currently underserved – check.

I like it.

Of course, it’s only a beginning.  It is not the model for every situation.  And attracting sufficient fully-qualified educators is still an unsolved problem.  But, it’s a good initiative that deserves attention from other jurisdictions.  Good on you, Manitoba.

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Ontario’s 2024 Funding Formula

Ontario’s new funding formula should be providing clarity about guaranteed operating funding going forward.  It should provide for significantly increased staff compensation to deal with the obvious crisis in retention and recruitment.  It should give guarantees of sufficient future funding to make possible the rapid growth in not-for-profit and public facilities.  It should provide spending discretion to operators to spend funds in ways that are most appropriate to their program and community.  It should make clear that there will be ongoing and detailed financial accountability at the end of the funding year. 

Further, the funding formula should be designed to give a key role to CMSMs and DSSABs to adjust annual funding of services to meet local priorities.  And, the funding formula should ensure that child care services serving low-income, prioritized and underserved communities have the extra resources needed to serve them equitably.  Otherwise, access to child care services may be monopolized by more affluent families.

However, it is not clear that any of these objectives will actually be met.  Comments on the proposed funding formula can be made here until May 5th 2023.


What’s Wrong or Unclear About the Proposed Formula

  • It would be preferable to base the funding formula on its outputs rather than on its inputs.  In other words, the funding should be based on a target per diem for projected annual enrollment of infants, toddlers, preschoolers, kindergarten children etc., with funding adjustments for facilities with extra costs and unusual situations.  The proposed funding formula, which is based on inputs, is excessively bureaucratic and does not give much discretion to operators about how best to spend money to achieve desired goals in their circumstances.  Hopefully, this current proposed funding formula is a step along the road towards a better design.  However, a better funding formula based on a target per diem requires that wage rates and other compensation are reasonably uniform across all operators – that means that operators are paying staff according to a wage grid.  This is where the future of the funding formula should lie.
  • It is unclear what the meaning of “average base wage rate” is for RECEs and non-RECEs.  Is this some kind of average across the CMSM/DSSAB?  That would not make any sense; for many operators, it would not even cover current costs.  Instead, it seems to be the facility-specific current average wage before any wage supplements as reported on the most recent child care operator survey. 
  • The first problem is that these average wages have not generally been reported on the child care operator survey.  Instead numbers of staff in different wage ranges are reported. The new operator survey with responses due in early May has narrower wage ranges for reporting.  Is this going to be used to calculate average wages?  In any case the average wage should be taken only across staff providing care for children 0-5, and this is probably not the case on the most recent operator survey.  And the average wage should be calculated as a weighted average wage for RECE staff with the weights being the different number of hours worked by different staff.  That would be more appropriate than a simple average, but the proposed funding formula ignores this.
  •  The second problem is that there are clearly very significant retention and recruitment issues at prevailing wage and benefit rates.  Average wage rates for ECEs in Newfoundland and Labrador will be considerably higher than in Ontario for the foreseeable future!  This is ridiculous and unsustainable, as the cost of living is much higher in Ontario.  The funding formula should be based on a target wage grid at considerably higher wages than currently and operators should be invited to calculate compensation costs based on this wage grid.
  •  The program staffing grant funding formula is based on 260 days rather than 261. In fact, 2024 will have 262 days of operation.
  •  The staffing grant is not based on the expected number of hours worked but on the expected number of hours and days that the centre will be open.  This is an issue for kindergarten children where the formula seems to assume full-year attendance though many children of this age do not actually attend during summer hours and days.  In general, the government’s proposed formula will advantage centres where children attend less than full-time hours because the formula will pay for the number of staff required as if the child was present for all hours the centre is open.   
  •  The annual wage cost increase is part of the formula but has not been specified.  This should be inflation plus some percentage. Of course, some collective agreements and other commitments made by School Boards will already specify an annual increase that needs to be respected.
  •  The program staffing grant formula is based on the percentage of program staff who are RECEs and the percent that are not RECEs.  Instead, it should be based on the percent of the projected number of hours worked by RECEs and by non-RECEs, not the simple numbers of staff of each kind.  Variations in staffing costs are based on hours worked, not just the numbers of staff hired.
  • Are director’s approvals staff working in RECE positions considered to be RECEs for wage calculation purposes?  Is this an incentive for operators to seek director’s approvals in future hiring?
  • The program staffing grant does not include any allowance for training and professional development, or covering absences for professional development.  It is important to provide strong incentives in the funding formula towards increased and regular professional development.
  • The program staffing grant does not make any explicit allowance for planning time for RECEs and staff meeting time.
  • Only one FTE supervisor is allowed (e.g., for 7.5 hours per day) and no assistant supervisor.  This does not account for all the hours a centre is open in a day, let alone the need for more supervisory staff in larger centres.
  • There is no allocation for pedagogues that are above required ratios.
  • The supervisor’s wage appears to be based on some kind of average across centres in a previous survey, rather than the past wage or necessary future wage received by the supervisor in this centre.  In the future, there will need to be a salary scale for supervisory staff.
  • The accommodation grant formula is based on gross floor area.  Does this include playground space?   
  • How will this accommodation formula take into account capital renewal and capital maintenance?  Will the typical rental rate be based on new facilities, old facilities or what?
  • The accommodation (i.e., occupancy cost) formula should distinguish between for-profit and not-for-profit auspices.  For-profits may own their own building or may have an non-arms-length interest in the value of the property.  Accommodation funding may increase the value of their real estate in private hands.  Not-for-profits do not accrue these increases In value because their assets stay in public hands.  This suggests there should be very tight rules on accommodation grants for for-profits that have any financial interest in their premises, and looser rules on accommodation grants for not-for-profits.
  • There does not appear to be any recognition of the considerably larger costs going forward that are due to administration and reporting requirements.  This should be an explicit part of the operating grant.
  • The funding formula is silent on what will happen to future funding for children whose families receive child care subsidy.  This is a big problem.  There is no explicit commitment in the funding formula about the amount and distribution of money or number of families who will benefit from child care subsidies directed at low-income families and families otherwise in need.  We know that as the parent fee for licensed services is lowered, a larger and larger percentage of available spaces will be taken by families whose incomes are above subsidy-eligible levels. We also know that providing high quality care for subsidized children may take extra staff time and result in higher costs.  If the funding formula does not reward centres who take subsidized children with extra funding, subsidized children will tend to get squeezed out.  It may also be necessary to take other measures, such as reserving spaces for subsidized children, to ensure that children receiving child care subsidies and other prioritized children are at the front of the line for available spaces.
  • The proposed funding formula makes CMSMs and DSSABs into flow-through agencies for the distribution of funds, rather than service system managers.  Previously, CMSMs and DSSABs have played a key role in defining and funding local child care priorities.  The new funding formula should restore some of this local funding discretion, allowing municipalities with long subsidy waiting lists to direct more funding to these families, allowing other municipalities to direct more funding to children with special needs, to centres serving Indigenous children, to centres increasing accessibility for rural families, etc.

Principles Upon Which the Funding Formula Should Be Based

The funding formula should:

  • cover all the legitimate operating costs of a centre providing quality licensed child care services at or above regulatory minimums for children 0-5 across Ontario;
  • cover compensation costs for Registered Early Childhood Educators and assistants at wage and benefit rates that are competitive with other occupations requiring similar education, training and practicum requirements such that early learning and child care in Ontario is not characterized by staff shortages and widespread director’s approvals;
  • reward and encourage ongoing professional development and increased educational qualifications of both early childhood educators and assistants;
  • provide for extra compensation for early childhood educators with special qualifications such as special needs qualifications and pedagogue qualifications;
  • give operators discretion in decisions about the expenditure of allocated funds (ability to transfer funds across grant categories), but also require operators to report in detail at year-end about how funding has been spent, and adjust funding amounts as necessary;
  • adopt a desired wage grid and, perhaps, a timeline over which to achieve it.  The funding formula should reward operators who pay wages and benefits according to the timeline of recommended wage and benefit rates;
  • recognize sources of additional legitimate costs, such as providing care to a large number of children with special needs, even if not diagnosed, or caring for a large number of subsidized children living in disadvantaged circumstances or providing extended hours of care;
  • recognize higher costs per child that come from operating a small centre in a rural or remote area;
  • distinguish between legitimate and illegitimate reasons for having higher than normal occupancy costs;
  • encourage expansion, especially within existing facilities.  So, for instance, the formula should be based on either licensed capacity or the expected number of enrolled spaces over the next year as opposed to past enrollment (i.e., past operating capacity).

General Comments on the Funding Formula

The agreement signed between Ontario and Canada sets Ontario on the path to charging approximately $10 a day for licensed child care by 2025-26.  For those operators who have chosen to become part of the CWELCC system, fees charged to parents are already more than 50% lower than the fees charged on March 28th, 2022 when Ontario signed the agreement.  It is likely that all providers will charge a regular parent fee of $12 per day in 2025-26.  Because the fees for children in low-income subsidized families will be at or close to zero, the average parent fee across the province will average $10 per day.

The agreement moves licensed child care in Ontario towards a public service largely funded by government, so that it is affordable to families.  Over time, the amount of licensed child care for children 0-5 in Ontario will expand, so that the service is essentially universal.  However, right now, there are supply shortages of all types of care in all parts of the province.

The purpose of a funding formula is to determine the amount of funding needed by each participating operator in each facility to cover the reasonable costs of providing child care services to children 0-5.  These services will include full-day and part-day care for infants, toddlers, preschoolers, and children of kindergarten age.  There will be some services that are open for non-standard hours or perhaps even overnight.  There will be special support for children with special needs.  There will be some centres that offer a forest school experience or services that are enriched in other ways. 

There are two components of the cost of providing child care that are highly variable across operators – costs of compensating staff and accommodation costs.

In other jurisdictions that have wage grids, either bargained by unions or through an awards system or by government fiat, compensation levels are more similar across different providers.  This makes it easier to, for instance, work out the approximate variation in costs of providing care for infants, toddlers, preschoolers etc.  If there is a wage grid, as in Quebec, a funding formula will be based on the services delivered, with a standard amount of funding for each unit of service.  In Quebec, the largest component of the funding formula is based on projected enrollment in spaces for each age category.   There are adjustments to these gross amounts to take account of higher costs in centres with higher wage and benefit levels, differences in enrollment and attendance, etc.

Ontario does not have a wage grid that defines expected wage and benefit levels and it has not historically collected information about legitimate variations in costs across providers.  As a result, Ontario has chosen to design a funding formula based on expected or current staffing costs, rather than on the amount and detail of services provided. The 2024 Funding Formula Discussion Paper indicates that there will be four separate grants relevant to the costs of child care centres:

  • The program staffing grant
  • The program leadership grant
  • The operations grant
  • The accommodations grant

In addition there will be a home child care grant and a grant to cover the administration costs of service system managers.

All of these grants refer only to CWELCC services for children 0-5 in facilities that have become part of CWELCC.  They will not fund services to children 6-12 or the staff that care for them.  They do not explicitly cover the financing of child care subsidies and there is no commitment in the funding formula to maintain and expand the number of children who receive additional subsidized assistance with child care costs. They do not cover funding of facilities that have not joined CWELCC.  All of the existing grants including wage enhancement and other grants for services covering children 0-5 are rolled into the new funding formula and disappear as separate grants.

The new funding formula will have to cover staffing costs, operating costs and occupancy costs for child care facilities across the province in very different situations.  The funding formula is not intended to cover capital costs of expansion or start-up costs.  However, the funding formula is intended to provide a guarantee of future funding amounts upon which a child care facility’s decisions about expansion will depend.

The funding formula paper is supposedly a formula for determining the amount of funding that will be allocated to each CMSM/DSSAB.  However, the funding directed to CMSMs and DSSABs is based on the aggregation of the amounts of funding that facilities in the CMSM or DSSAB will get.  So the funding formula apparently determines funding both at the level of the individual facility and of the CMSM/DSSAB.

The Ministry sponsored a mini-survey of child care costs designed to help calculate amounts needed to cover the costs of each facility.  The degree of detail on costs collected is insufficient to fill holes in the funding formula.  However, the funding formula paper says that this mini-survey is “foundational to building this cost-based model” and that “Those cost structures, including their variability, are captured through weighted averages and benchmarks at the CMSM and DSSAB level in the funding formula.”   In apparent contradiction to this talk about data at the CMSM and DSSAB level, the document also says that “Funding from CMSMs and DSSABs to licensees would consider the cost structure of each individual licensee and, since the formula captures high and low cost structures, the funding allocations would support the financial viability of licensees.”  Greater clarity is needed about these apparent conflicts in description.

The formula for the Program Staffing Grant is described in simple terms as “multiplying the number of program staff working hours by the compensation cost per hour, and adding a supply staffing allocation (for coverage during absences).  This calculation would be done at the child care centre level and then aggregated to derive the program staffing grant amount for each CMSM/DSSAB….”

The actual formula looks somewhat different to this simple description, however.

Instead of actual hours worked by staff, the formula calculates the number of staff that should be required (according to legislated child-staff ratios) times the number of hours the centre would be open if it were open every day of a 260 day year.   That means if a centre is “over-staffed”, the extra staff is not included in the funding formula.  If the centre is located in a particularly disadvantaged area or has children with substantial extra needs, you can easily imagine a centre being staffed above the ratios.  This might be an issue in rural areas with small centres where the required number of staff is fractional.  The formula does not account for this.

The formula presumes that all children attend the centre for the full number of hours it is open each day (e.g., 11 hours per day), rather than some arriving after opening and some leaving before closing.  It is presumed that the total number of operating days per year is 260 (rather than 261 or 262).  And it assumes that the daily staffing costs do not vary on statutory holidays, when the centre may be closed, which could be an issue especially for workplace-based extended-hours care.  Further, the formula is based on “operating capacity”.  The glossary defines operating capacity as “the number of children the centre/home child care is planning to serve as per the licensee’s staffing complement and budget, to a maximum ceiling of the licensed capacity.”  In other words, it is the capacity that the centre is staffed for.  Operating capacity is an intention or plan.   It is not clear how operating capacity is related to enrolment.  The actual costs of staffing are likely to be closely related to enrolment.

This calculation of the number of hours of staffing required (which is calculated separately for different age categories with special complications for children of kindergarten age), is then multiplied by a composite average compensation amount per hour.  This average compensation amount per hour is calculated as the sum of (a) average wage plus benefits of RECE program staff in the centre times the percent of staff that are RECE and (b) the average wage plus benefits of non-RECE program staff in the centre times the percent of staff that are non-RECE. 

This calculation of the average program staff compensation per hour has many problems.  First, it is said to be based on average wage information from the most recent child care operator survey.  However, the annual operator survey in Ontario does not collect information about average wages; instead it collects information about the numbers of staff whose hourly wage is in different ranges (e.g., $17.50 to $20.00 per hour).  The mini-survey did not collect this information either.  So, there is apparently no accurate basis for calculating the average wage or average compensation in a centre from existing provincial data.

Second, it is based on the percent of RECEs and non-RECEs in the centre.  It should be based on the number of hours worked by RECEs and hours worked by non-RECEs.  And, as long as there are going to be presumed RECEs based on Director’s Approvals that generally earn less per hour than RECE’s, there probably should be three categories of average compensation levels.  And, there does not appear to be any recognition of the need for specialized staff, whether they be related to children with special needs or whether they be pedagogues supporting other staff.  Where does the compensation of these staff fit in?  And where does planning time fit in?

Calculating the average compensation per hour for different groups will not be trivial.  The hourly base wage for each staff member (presumably this means the actual wage directly paid by the operator to each staff member) may be reasonably straightforward if staff are hourly paid, but a little less straightforward for staff earning a salary.  On top of this needs to be layered the various wage enhancement grant amounts whether part of CWELCC or from before.  Then there will be an annual wage cost increase allowed.  Plus the cost of benefits.  And all of this has to be stated as an average per hour compensation amount for each program staff and then this hourly amount will be averaged over all the RECE staff and the non-RECE staff separately.  The cost of many benefits does not necessarily vary directly with hours worked, so that can be a problem.  

And then there is an allocation for supply staff, based on a benchmark somehow calculated.  What about coverage for staff who go on maternity/parental leave, or disability leave, and top-ups paid for these leaves in some centres?  How does a general benchmark cover this?

There is no discussion in the formula about how to handle rising wage costs over the course of the year, presumably related to the rising wages that need to be paid to recruit new staff.  This will be a real problem if expansion is to occur. 

In general, it is unclear how new centres will be funded.  There is no existing base of wage information for these centres on which to base staffing grants.  Their wages and costs are likely to be higher than other centres because (a) they have to recruit staff in a situation of labour shortage and (b) many new centres are located in underserved communities where per-child costs may be high.  How can expansion happen if there is no clarity about future funding guarantees?

Amongst other things, It is obvious that the province should have been collecting much more detailed financial data from operators before trying to design a funding formula.  It will need to ensure the collection of detailed financial data going forward in order to make changes to the funding formula over time.

Gordon Cleveland

April 21st, 2023

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An Open Letter to Kevin Rudd…from a Canadian economist who cares about Australian child care

This is a letter I wrote in 2008 (yes, 15 years ago) to the Prime Minister of Australia, Kevin Rudd. He had recently promised to expand demand-side funding in Australia by extending the Child Care Tax Rebate to cover 50% of parents’ child care spending, up from 30%. I argue in this letter that this will do little in the long run to improve child care affordability, but that it will put a lot of money into the pockets of for-profit child care operators. Unfortunately, I think I have been proven right. I propose that Australia should treat child care as a public service funded with operational funding with strong measures of financial accountability for public dollars. I would make the same proposals today as Australia’s Productivity Commission studies how to make child care provision universal.


Dear Prime Minister Rudd,

The spectacular “collapse” of Eddy Groves’ debt-fuelled ABC Learning empire in the last week leads me to offer you some thoughts on future child care policy in Australia, which has become my second home in increasingly lengthy visits over the last few years.  Under the Howard government, Australia has become the leading example of a country that delivers child care services according to the late Milton Friedman’s dictum on public services: deliver them through private providers funded by vouchers that maximize consumer choice. 

The theory is that private providers would compete against each other for consumers, ensuring low costs and high quality that parents would purchase with their vouchers plus a parent contribution.  The private market would deliver public services much more efficiently than a bloated, inefficient, public sector could. In theory, the Child Care Benefit (geared to parents’ incomes) combined with the Child Care Tax Rebate provide the “voucher” for parents to be spent on approved child care services.  In theory, competition between providers, along with a nudge from the National Childcare Accreditation Council, ensures good quality child care services at affordable prices.  However, as the great baseball philosopher Yogi Berra once famously observed “In theory, there’s no difference between theory and practice.  In practice, there is.”

Competition is not a good mechanism for developing quality in child care.  The kind of quality that optimally promotes child development is very difficult for parents to observe.  It’s based on the nature of the interactions, over time, between teachers/caregivers and children.  Most parents don’t have hours and days to sit in their child’s child care centre and judge the nature and quality of interactions.  And, in any case, the interactions would change because the parent was there.  So parents can’t play their gatekeeper role in the child care market of punishing low quality producers and rewarding high quality ones.

In this case, the profit motive, normally loved by economists, becomes pernicious.  Corporate child care providers, anxious to serve their shareholders’ interests, do best by claiming to produce high quality services, but failing to hire the expensive trained staff necessary to actually provide them.

I do love Australia, but I believe that the Australian model of child care funding and regulation needs rethinking.  Although Milton Friedman’s model of private delivery of public services works not too badly for some public services, it doesn’t work well for child care.  The evidence lies in front of you.  Instead of competitive private provision, you have a single corporation completely dominating the market.  Instead of competitive pressures to keep prices low, you have prices leaping up each time the government tries to increase funding to make services more affordable.  Instead of high quality child care services, you have the Australian Council of Social Services identifying the “variable quality of early childhood care and education” as a major concern. Instead of good quality child care services delivered by knowledgeable staff trained in early childhood education, you have an expensive child care system in which, nonetheless, about 40% of staff are “unqualified” – have no early childhood education diploma or equivalent (National Children’s Services Workforce Study, 2006) and your legislated standards for staff:child ratios are low by international standards.

Instead of a free flow of public information about the quality of services, helping parents to make choices and forcing providers to compete to raise quality, you have the Accreditation Council guarding quality information to protect commercial confidentiality, you have an accreditation process that pretends to guarantee high quality but only actually slaps the hands of the worst offenders.  In fact, instead of inviting the cleansing winds of free competition into the production of a high quality public service, the Friedman model of funding has produced the inefficiency and greed of managed and protected private monopoly.

I realize that you have promised to expand the Child Care Tax Rebate from 30% to 50% in order to improve affordability for parents.  I think you should delay and rethink this change (while putting priority on the companion promise of 15 hours of free preschool).  You know full well what an expanded CCTR will do. Immediately, it will increase the value of Eddy Groves’ assets and that of other private producers.  Next, it will lead to an increase in the price of child care.  Several years down the road, child care will be no more affordable than it is today.

Good quality early learning and child care services have important public benefits, both by reducing the barriers to employment for those mothers that are anxious to enter the labour force, and by stimulating the play-based development of children while their parents are working or studying.  Government can contribute to the achievement of these twin public objectives only if it can find a way of facilitating the provision of high quality care at affordable prices for parents, with special attention to affordability for low-income families.  I would argue that Australia is not scoring particularly well on any of these objectives: not on quality, not on affordability, and not on affordability for low-income parents.  You do have some fine examples of good programs scattered around Australia, and many good individuals working hard to provide better services, but these are only at the margins of the system, rather than at its centre.   It appears that the system of delivery of this important public service is broken, and needs more than a quick-fix solution.

In what direction do solutions lie?  I think you should acknowledge that early learning and child care is, fundamentally, a public service rather than a private market commodity.  Public and community-based not-for-profit providers will have fewer incentive-conflicts in pursuing the public objectives of good quality, and the integrated delivery of care and education.  Many parents recognize this, as the ballooning waiting lists of many community-based centres attest. Governments should find ways of strengthening this sector’s ability to act as a leader and a standard in the provision of community-oriented high-quality integrated child care and family services. 

If the private for-profit sector is going to continue to be an important part of the Australian delivery system, it will need to have strong incentives to serve public interests better.  This means using the money promised for expansion of the Child Care Tax Rebate to, instead, develop effective, conditional, supply-side funding for long day care facilities.  The OECD’s 2006 report on child care policy in member countries (with a prominent Australian co-author) advised that “direct public funding of services brings…more effective control, advantages of scale, better national quality, more effective training for educators and a higher degree of equity in access and participation than consumer subsidy models.”  This subsidy money would be provided to services conditional on their openness and transparency, and on observed meeting of quality standards and measures.

Finally, and importantly, based on my Canadian experience, I would advise serious consideration (in the 2020 review and elsewhere) of publicly-provided maternity and parental leave and benefits.  In Canada, nearly every currently-employed new mother is eligible for 15 weeks paid leave, and, on top of this, employed mothers and fathers can share another 35 weeks of paid leave in the year after the child’s birth.  The leave and benefits are enormously popular, and provide a superb opportunity for (both) working parents to bond with their new-born children.  The benefits are financed by employer-employee contributions; because only a small fraction of the employed population is on leave at any time, the necessary contributions are small.  For many families, maternity and parental leaves make it possible to reduce the conflict between employment and raising a family, making continuous labour force attachment possible.  Maternity and parental leave also make the use of child care before the age of one unnecessary for most families.  This is the age at which child care, when it is done well, is startlingly expensive; when it is not done well, this is when child care can have important negative effects on children.

I urge you to take the opportunities you have created in your new government to redirect early learning and child care policy in new directions.

A shortened version of this letter will be sent for possible publication in an Australian newspaper. 

I would be happy to clarify, or defend, any of the propositions I have advanced here, in further correspondence. 

Yours very truly,

Dr. Gordon Cleveland,
Economist and Associate Chair,
Department of Management,
University of Toronto Scarborough