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.

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


[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 for a discussion of details of child care funding in Quebec and see 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 Reform

[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  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.,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.

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.

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.

Do You Want to Know How to Make Child Care Expansion Happen in Ontario?

I’m done some work recently with Building Blocks for Child Care (B2C2) on how to facilitate the expansion of not-for-profit and public child care in Ontario. They are an organization that knows a lot about all the different steps necessary to expand child care services – planning, design, rules and regulations, financing. With their advice, I wrote a primer called How to Make Child Care Expansion Happen in Ontario, giving 10 recommendations for action in Ontario to make not-for-profit and public child care grow.

Briefly, they are:

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

It’s not rocket science. These are some obvious steps to help the necessary expansion of not-for-profit and public child care services. Parents and children will suffer when expansion doesn’t happen. Soon there will be long waiting lists to get into child care facilities in Ontario if the government does not act now.