Uncategorized – Childcarepolicy.net

September 6, 2024September 6, 2024

Affordable Child Care Services vs Money for Parents

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

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

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

(a) isn’t what most families want

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

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

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

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

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

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

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

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

Please read the full report and executive summary.

July 25, 2024July 25, 2024

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

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

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

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

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

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

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

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

Ontario knew there would be a substantial shortage of spaces

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

I had published similar estimates in May 2021.

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

Ontario knew what to do to expand child care

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

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

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

Ontario has done very little to facilitate expansion

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

In Ontario:

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

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

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

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

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

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

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

Ontario wants to blame the federal government

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

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

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

If Ontario does not do the hard work of…

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

For-profit expansion is easier but more dangerous

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

May 30, 2024

New Support for the Economic Benefits of Universal Child Care

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

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

Sebastien’s main conclusions?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

March 28, 2024

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

December 5, 2023

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 31^st, 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.

December 5, 2023

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.

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.

August 17, 2023August 20, 2023

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

Province	Number fully-qualified incl directors/ supervisors	Number of less qualified	Total program staff	Total FTE program staff	Current annual wage bill ($ mil)	Cost of 25% increase for fully-qualified ($ mil)
BC	16,800	6,800	23,600	20,600	$1,005.4	+$208.0
AB	13,000	10,750	23,750	21,000	$965.8	+$155.9
SK	1,650	1,300	2,950	2,600	$90.7	+$15.5
MB	3,400	3,000	6,400	5,700	$215.3	+$34.9
ON	35,000	20,000	55,000	51,000	$2,183.0	+$391.7
QC (0-4)	29,000	10,300	39,300	35,000	$1,576.0	+$315.9
NB	2,700	2,000	4,700	4,300	$186.0	+$29.9
NS	2,600	800	3,400	3,200	$142.4	+$29.9
PE	700	400	1,100	950	$42.3	+$7.3
NL	825	400	1,225	1,100	$48.2	+$8.9
CANADA	105,675	55,750	161,425	145,450	$6,455.1	+$1,198.0
CA – QC	76,675	45,450	122,125	110,450	$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.

June 27, 2023June 27, 2023

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.

April 23, 2023

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 5^th 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 28^th, 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 21^st, 2023

March 28, 2023March 28, 2023

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