Turnover and Labour Supply in the Early Care and Education Sector

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

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

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

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

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

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

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

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

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REFERENCES

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

British Columbia’s New Spaces Funding Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.