Evaluating the impact of 20 hours free early childhood education on mothers’ labour force participation and earnings

Abstract

New Zealand introduced a substantial childcare subsidy just over a decade ago, providing 20 hours free early childhood education (ECE) to all three- and four-year-olds. We evaluate the impact of this policy shift on mothers’ labour market participation and earnings. Using a difference-in-differences strategy and population-wide administrative panel data, we follow mothers’ quarterly earnings from pre-pregnancy to six years post-childbirth. The estimated impact of the ECE reform varies depending on the number of children eligible. For mothers with one child, there is some evidence of a drop in labour market participation and earnings, which potentially indicates this group is using the savings in ECE expenditure, a gain in real income, to consume more non-work time. For mothers with two eligible children, there is an increase in labour market participation, potentially because these households find it more worthwhile to increase ECE consumption and return to work when there are two children who benefit from the policy.

KEYWORDS:

• Early childhood education
• difference-in-differences
• mothers’ earnings
• intertemporal substitution
• administrative data

JEL Classifications:

• C21
• H40
• J13
• J22

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This is based on 2006 data from the OECD: https://data.oecd.org/emp/labour-force-participation-rate.htm.

2 Of course, we cannot attribute this increase solely to the ECE subsidy as there are numerous other factors that could jointly affect ECE participation, such as population growth dynamics, for instance.

3 The latter was widely used prior to the new subsidy because subsidised childcare in Norway was severely rationed.

4 In general, ECE services cater for children from birth to school entry age, which is on or near their fifth birthday (Meade & Podmore, 2002). Children are eligible to start at school on the day they turn five and must start before they turn six. There is no public provision of ECE services in NZ, rather it is organised by private or community-based providers, either teacher-led or parent-led.

5 See http://www.educationcounts.govt.nz/publications/series/annual-early-childhood-education.

census, figures 1.9 and 1.23.

6 See 2011 survey at https://www.educationcounts.govt.nz/publications/ECE/income-expenditure-and-fees-of-ece-providers-in-new-zealand.

7 A more verbose description for the group of ‘eligible non-mothers’ would be: non-mothers who would otherwise be eligible if they had a child during our definition period.

8 When we search for ‘20 h ECE’ in the Newztext Database, from 1 Jan 2004–31 Dec 2007, it yields 319716 search results, across newspapers, magazines, and newswires. The number of search results distribute evenly across the years.

9 This is instead of referencing against a point in calendar time.

10 These earnings observations can be positive or zero: when the mother is either unemployed or out of the labour force.

11 From our data exploration, we believe this is a general observation, and not solely an artefact of our choice on the matching window.

12 Some sources may define a ‘motherhood wage penalty’ differently. For example, the difference in income between a comparable man and woman who are both parents.

13 Such as Tanaka (2014) and Finkelstein (2007).

14 The indicator variables on their own have signs that we expected based on results in Figure 1. The Mother indicator is always negative and significant. The Eligible indicator is mostly negative and significant in participation regressions, and positive and significant in earnings regressions.