Regulation and the cost of childcare

ABSTRACT

Female labour market choices depend on the availability, affordability and quality of childcare. In this article, we evaluate different regulatory measures and their effect on both the quality and the cost of childcare. First, we analyse data on regulations and costs to estimate the effect of regulatory measures on the cost of childcare. Next, we summarize the existing literature on the effect of regulation on childcare quality. We find that regulation intended to improve quality often focuses on easily observable measures of the care environment that do not necessarily affect the quality of care but that do increase the cost. Thus, we find that the regulatory environment could be improved by eliminating costly measures that do not affect quality of care.

KEYWORDS:

• Childcare policy
• economics of regulation
• regulation and business law: general

JEL CLASSIFICATION:

• L51
• K20

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Data are from the Statistical Abstract of the 2012 Census, table 599, https://www.census.gov/compendia/statab/cats/labor_force_employment_earnings/labor_force_status.html.

² Rigby, Ryan, and Brooks-Gunn (2007, 901) find that while higher regulatory teacher training requirements improve the quality of childcare, more stringent regulation overall decreases the number of children attending centre care.

³ Anderson and Levine (1999) and Blau (2000a) summarize the empirical literature on the effect of child care costs on employment. Overall, the evidence suggests a strong and significant negative effect of childcare costs on women’s employment.

⁴ Previous studies on the empirical relationship between childcare costs and welfare recipience found either a small negative effect or a near-zero effect. For more information see Connelly (1990), Kimmel (1995) and Houser and Stacy (1998).

⁵ Gormley (1990) reports that annual staff turnover rates for childcare providers are 40%.

⁶ For a systematic review of the existing literature on the effect of regulation and subsidies on quality of and access to care, see Gormley (2007).

⁷ Results are similar if 2010 data is used. There is not much variation across years so we only present the more recent 2012 results.

⁸ All of the regressions were also run using weighted least squares, with population as the weight. The results are similar in magnitude and significance.

⁹ Exact percentages are calculated as $e^{\beta }-1$.

¹⁰ Unfortunately, the data does not have time variation to allow for a fixed-effects analysis.

¹¹ For reviews of the literature on childcare quality, see Lamb (1998) and Love, Schochet, and Meckstroth (1996).

¹² Love, Schochet, and Meckstroth (1996, 5) characterize high process quality as follows: ‘Caregivers encourage children to be actively engaged in a variety of activities; have frequent, positive interactions with children that include smiling, touching, holding, and speaking at children’s eye level; promptly respond to children’s questions or requests; and encourage children to talk about their experience, feelings, and ideas.’

¹³ Existing evidence suggests that lower child–staff ratios, smaller group sizes and better caregiver education (i.e. structural measures of quality) are correlated with better child–caregiver interactions (i.e. process quality). However, cross-country evidence (Cryer et al. 1999) suggests that although many of the same structural features affect process measures of quality, identifying a particular type of structural quality measure that contributes consistently to process quality is difficult. Among the structural measures, teacher education and wages seem to be the most important (Pessanha, Aguiar, and Bairrão 2007; Phillipsen et al. 1997).

¹⁴ Hotz and Xiao (2011) do not look at the effects of regulation on direct quality measures.

¹⁵ Being placed in lower-quality care settings can have significant detrimental effects on child development and learning outcomes, especially for children from lower-income households. Dearing, Taylor, and Kathleen (2009, 1329) report that ‘low income was less strongly predictive of underachievement for children who had been in higher quality care than for those who had not.’ O’Connell and Farran (1982) report that infants from low-income households in high-quality centre-based care demonstrate better language development than do home-reared infants from low-income households. Conversely, Melhuish et al. (1990) find that language development for infants from middle-class families was poorer when those infants were in low-quality childcare settings compared with better-quality home care. Studying the effect of day care participation on the cognitive development of 867 children from the National Longitudinal Survey, Caughy, DiPietro, and Strobino (1994) found that entering day care before the first birthday is associated with higher reading recognition scores for children from impoverished home environments.

¹⁶ An alternative policy recommendation to reduce the cost burden to families without affecting quality would be to provide greater subsidies for early childhood. Subsidies should also mitigate the effect the cost of childcare has on labour market outcomes for women. However, subsidies are costly to the taxpayer whereas eliminating ineffective but costly requirements could lower costs of childcare without increasing taxpayer burden.