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.
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.