Quality Public Child Care: An Economic No-Brainer

Child care will be a major issue in this federal election campaign. The NDP has pledged to create 370,000 new $15-per-day spaces through joint federal-provincial initiatives by 2017-18, at an estimated cost of around $2 billion per year (growing that to 1 million spaces by 2023). The Liberals have not yet announced their child care platform, but have indicated it will also include significant funding for federal-provincial initiatives. The Conservatives, in contrast, have launched an ideological war on the very concept of publicly-funded child care, claiming it is unaffordable and that families should be allowed to spend “their money” on whatever priority they choose.  (That individualistic argument, if applied consistently, would also justify eliminating public education and health care, too.) Instead they are emphasizing their suite of fiscal transfers and tax subsidies (including the UCCB and income-splitting), motivated in large part by the party’s desire to keep its social conservative base (those who believe fervently that women should stay home to raise children) passionate and engaged. Recall that cancelling the just-inked national child care program was one of the Harper government’s first acts after being elected in 2006; and resisting the expansion of public education to the under-6 crowd is clearly still a red meat issue for the Conservatives.

So the choice between Conservatives and the opposition parties on this issue (like so many) will be stark. And of course the debate will be complicated by competition between the opposition parties (who will sharply criticize each others’ child care plans — hopefully without allowing the Conservatives to sit back unscathed!).

The economic arguments in favour of public, accessible child care are powerful.  Here is a commentary summarizing those benefits which I recently prepared for Interaction, the on-line journal of the Canadian Child Care Federation:

Early Childhood Education: An Economic No-Brainer

Usually when social advocates approach government to lobby for a needed improvement in our social or income support programs, we are immediately confronted with the same old knee-jerk response: “That’s all well and good, but we simply can’t afford it.”  More often than not, this claim that the cupboard is bare is not justified.  In reality, Canada’s governments have ample fiscal capacity to fund the programs and services necessary for a healthier, more inclusive society.

In the case of early childhood education, however, this standard claim of government “poverty” is exactly backwards.  Because there is overwhelming and credible economic evidence that investing in universal ECE programs is actually a money-maker for governments.  In this case, the argument is truly not whether government can afford to provide universal quality care.  In reality, especially at a moment in history when economists worry about long-run fiscal capacity and future labour supply, it is clear that governments cannot afford to ignore any longer this pressing economic and social priority.

The economic benefits of a universal public child care program can be grouped into four broad categories:

1. Positive impact on women’s labour force participation and employment.
2. Direct and indirect job-creation associated with the provision of child care services.
3. Improvements in household and family financial well-being.
4. Superior child development, resulting in better health, employment, income, and community outcomes in future years.

Various economists have considered each of these classes of economic benefits, and attempted to measure the positive employment, income, and GDP effects generated through all of these channels.  Their combined effect makes it undeniable that providing quality, accessible child care services leaves the economy, society, and government in better shape.

The first channel of benefits listed above has been especially well-studied.  Statistical and econometric evidence confirms that women’s labour force participation is highly sensitive to the cost and availability of early childhood education services.  Where affordable ECE is available, more women work in the paid labour force, and they work longer hours.  The resulting expansion of value-added generates new incomes, stronger household finances – and, crucially, more government revenues (since families pay taxes on all that new income and spending).

The experience in Quebec since the introduction of universal low-cost child care there provides a convenient natural experiment for considering this positive effect.  Women’s labour force participation is 3 percentage points higher in Quebec than elsewhere in Canada (84% versus 81% for prime working age women).  Employment and hours worked are correspondingly higher, too.

Pierre Fortin, a prominent economist at the Université du Québec á Montréal and former President of the Canadian Economic Association, led a team which estimated the resulting fiscal flowback to both levels of government (provincial and federal) from the growth in women’s employment and the resulting income.*  Fortin finds that women’s employment in Quebec is 3.8% higher as a result of the child care program, GDP is 1.7% higher, and revenues for both levels of government are increased by $2.2 billion (in real 2008 dollar terms).  Moreover, transfer payments to families are reduced by $430 million, thanks to higher family market incomes.  The program generates about $2 in fiscal benefits for government, for each $1 in direct expenditure on the service.  It is not a “cost” to government, but rather an investment – and a lucrative one, too.

The one complicating factor raised by the Fortin analysis is that this fiscal windfall is shared between the provincial and federal governments, even though the cost of providing the service is borne overwhelmingly by the province.  Ottawa, in essence, is free-riding on the economic and fiscal windfall generated by Quebec’s program (due to the federal government’s failure under the Conservative government to implement child care).  This free-riding makes Ottawa’s failure to move ahead with a national program all the more lamentable: Ottawa gladly pockets the fiscal benefits from child care, without contributing to the costs.

Hard economic data also confirms the second category of benefits highlighted above: the direct and indirect jobs supported by the provision of public ECE services.  On average, one billion dollars of GDP in social services (Statistics Canada’s industry category which includes ECE services) directly supports 26,000 jobs – one of the highest employment multipliers of any industry in the Canadian economy.  (Sadly, that high number partly reflects the undervaluing of the work of child care providers, and their consequently inadequate wages.)  In contrast, a billion dollars of GDP in petroleum extraction supports just 650 jobs.

In addition to those direct jobs, the expansion of child care services generates subsequent spin-off benefits and a multiplied total effect on employment and income.  This positive spillover is felt partly through purchases of inputs and services by child care centres (everything from building construction and services, to utilities, to accounting and management services, to furniture, books, toys, and supplies).  Then, additional jobs are created when child care workers (and those working in the child care supply chain) in turn spend their own incomes.  Altogether, there are close to 2 jobs created in total (including “upstream” supply chain effects and “downstream” spending effects) for every job in a direct child care centre.

The third channel of economic benefit considers the positive impact on household financial stability from the provision of this essential service at a lower cost.  Without public provision, child care expenses for families are equivalent to “paying the mortgage twice.”  The drain on family incomes contributes to reduced consumption spending, higher household debt, and even family stress and breakdown.  By allowing families to balance their budgets more sustainably, public child care underpins greater consumer spending, reduced family bankruptcy, and enhanced household stability.

Finally, the fourth category of economic benefit is rooted in the benefits received directly by the children in care.  Scientific evidence confirms that children in quality group care achieve higher benchmarks of cognitive, social, and intellectual development – and that these benefits cascade through their lives into stronger educational attainment, employment outcomes, and income generating potential.  Once again, governments are among the beneficiaries of this virtuous circle: receiving higher revenues for decades to come thanks to the higher earnings and reduced call on social supports of children successfully educated in a quality, accessible ECE system.

Supporting accessible public child care is thus not solely a matter of attempting to build a more caring, inclusive society (although those effects of public ECE are undeniable, too).  Even more compelling, it is a matter of hard-headed economic rationalism.  To allow future generations to maximize their productive and income-generating potential, and to allow the parents (and particularly women) of this generation to participate fully and productively in the economy, publicly-funded and universal ECE services are one of the best economic investments we could possibly imagine.

* Pierre Fortin, Luc Godbout, and Suzie St.-Cerny, “The Impact of Quebec’s Universal Low Fee Childcare Program on Female Labour Force Participation, Domestic Income, and Government Budgets,” University of Sherbrooke Working Paper 2012/02, May 2012.