2021 – five economics studies about universal childcare in Canada
The Canadian government announcement to fund universal 3rd party daycare, not to equally fund care at home or with a sitter, nanny, grandparent or parent, or care at a privately run daycare, just the one care style run by government, has raised the ire of many groups. Women’s rights activists who see this as an insult to women as caregivers at home, have joined voices of private daycare operators who feel excluded from benefit, and legal commentators about whether this is a violation of basic principles of equality, choice and equal benefit under the law. One sector raising its concerns is however the one that government may listen to most attentively- economists. The government plan aims to recoup financial loss of the pandemic so the goal is to create jobs, to get more women and men into paid work full time and to give their children a place to stay while they do earn. The argument government makes is that this will not only free women to have great careers, but will create a huge financial benefit to the household and to the economy as a whole. The cost of the daycare in the billions in theory would be recouped by the huge benefit of having so many people, even childcare workers paying tax.
These arguments have been countered by 5 economics commentators recently.
a. Cardus Family- in a study of “The real costs and complexities of national daycare’ looks at the economics angle. The study, called “Look before you leap” is written by Andrea Mrozek, Peter Jon Mitchell and Brian Dijkema They make the case that the plan is not being transparent about how much it would actually cost. The estimate we are told is $9.2 billion a year after five years have passed and then at $ 6 billion a year. They suggest this is an underestimate.
-the plan will cost more than is being announced. The estimate historically keeps going up. In 1984 a task force said a national plan would cost $11.3 billion a year ($26.1 billion in today’s dollars). A 1998 study estimated $7.8 billion cost ($12.1 billion today) In 2009 Dr. Fraser Mustard estimated national care would cost $18- $20 billion a year ($22-24.5 billion in today’s dollars)
-the plan admits there will be costs in addition to the announced one. There will be $2.5 billion for indigenous childcare over the next five years. There will be a secretariat to oversee the whole thing costing $34.5 million over 5 years.
-the plan does not however mention the likely equivalent matching costs each province will have to make under a 50/50 agreement
-the plan does not count some obvious new costs. Before and after school care is not counted in. Full day kindergarten for 4-5 year olds is not counted. The cost of liability insurance, education equipment, office supplies, transportation and hygiene is also not counted.
-the plan does not admit that there will be new costs, indirect ones that in past experience go up when universal daycare is set in place. Costs to the criminal justice system that result when kids are more aggressive have been noticed in Quebec but are not counted. Economists Kottelenberg and Lehrer in 2013- 14 studied the Quebec program and found that negative outcomes for some kids in Quebec daycare lasted several years, especially for those who were enrolled from very young. Economists Baker, Gruber and Milligan found that parents also had higher health care costs and lower marital satisfaction when their kids were in daycare very young. They also note that private childcare operators were nearly put out of business when the government-run program came in, that many female entrepreneurs lost their business. This is likely to happen with a federal plan also.
The Cardus research looks at what the real costs of the federal daycare plan would be and has two scenarios
-the low cost model would actually cost $17 billion in year five, being $9.2 billion from the federal government, $3.6 billion from user fees and $4.2 billion from the provinces
-the high cost model would cost $36.3 billion, being $9.2 billion from the federal government, $3.8 billion from the user fees and $23.3 billion the provinces have to cover. The researchers estimate that the provinces will be forced to subsidize the plan much more than is being announced, with PEI being forced to pay $76 billion per year and Ontario possibly as much as $9.5 billion a year.
b. Montreal Economics Institute – Miguel Ouellette and Maria Lily Shaw are economists who studied the Quebec childcare model. They note that the cost of $30 billion for the federal plan ($6 billion a year) will rise to $8 billion a year thereafter. This huge cost they question. They make the case that the Quebec model that is being used already has shown flaws. In Quebec though government kept spending more and more on childcare, and though it raised fees to parents, there is so much administrative red tape that children wait on wait lists sometimes for years to get a space in the program. The system set up in 1997 in Quebec has not yet become efficient and there are in 2021 51,000 children on wait lists. Ouellette and Shaw are concerned that the unions that organize daycare workers have been increasing their demands every year and so costs will continue to soar. They are concerned that though the program claims to benefit the poor who need to have a paid job and can’t afford childcare unless it is low cost, the program actually is used more by and benefits more the middle and highly paid woman. They find that the program therefore disproportionately helps high income parents. The rich could afford to pay more but don’t have to so they have more money to take home, subsidized by general taxpayers. Ouellette and Shaw suggest that the better answer is to “subsidize parents rather than childcare establishments” They say this money could go based on household income but they feel that parents should be ‘in charge’ and daycare services should have to be ‘subject to the rules of a competitive market’ so each centre has to provide good service to get customers. “Having the money follow the children would also ensure greater accessibility and avoid a one size fits all policy”,
c. Economist Jack Mintz of the University of Calgary school of public policy has written that the daycare plans that say they will ‘pay for themselves’ use an argument that rarely turns out accurate. He notes that economist Arthur Laffer persuaded President Ronald Reagan to cut personal income tax rates in 1982 saying the lower tax rates would increase work effort and investment and would generate so much extra government revenue that there would no longer be deficit. However the tax cuts did not pay for themselves as advertised. Deficits rose since tax revenue was not as high as predicted.
Mintz says that the childcare plan by the federal government today is also questionable. In Quebec childcare subsides only turned out to have half the impact on GDP than was advertised. More women did go to paid work once they had daycare available, and they did make fewer claims on government income transfers but Quebec spent $1.2 billion on a childcare plan that netted only $246 million in actual fiscal benefit. Mintz argues that making childcare cheap may push more women into paid work but men also are doing more paid work and it is not clear that daycare alone drove the change. In Canada the employment rate of women overrall was close to 80% before the pandemic and it is not clear that childcare and its huge cost would make that number so much higher that the program would ‘pay for itself’.
d. Danielle Kubes has done a study of the economics of the daycare plan and published her summary in the National Post. She quotes economists Michael Baker, Jonathan Gruber and Kevin Milligan from 2008 who found that when Quebec embarked on a costly universal daycare plan, it only recouped 40% of its outlay of $2.6 billion.
She quotes a study by Catherine Haeck, Pierre Lefebvre and Philip Merrigan in 2015 that also found that the Quebec program costs far exceeded the benefits.
She quotes a study by Pierre Fortin, Luc Godbout and Suzie St-Cerny that claims that Quebec program raised GDP by 1.7 and increased maternal participation in the paid workforce by 3.8%. However she notes that men also joined the paid workforce then and so did older women so the stats are misleading as a gain due to the childcare plan, She says European counties with universal daycare have not seen a growth in GDP.
She quotes a study by Baker, Gruber and Milligan that found new costs came out of the Quebec daycare plan, including unforeseen hyperactivity, aggressiveness among kids and an increase in criminal behavior compared to youth the same age in other provinces.
She cites polls finding that parents actually do not want a universal childcare plan to enable full time work, as the program promotes. She cites 3 studies
2021- Angus Reid poll found that 84% of Canadian parents would like to be home with a child full time till the child enters school
2015 -The Working Mother Institute survey found that even among women in paid work 70% said they would prefer part time over full time.
2007 – PEW Research Center found that nearly 60% of mothers with young children preferred part time to full time paid work to enable time with the kids
Her research found that the European norm in fact is not to have mothers at full time paid work. In Sweden 32% of women with one child are at part time work, in Denmark 22%, in England 45%, in Norway 37% and in Iceland 38%. If a mother has two or more children, she is even more likely to be home. Among those mothers of more than one child, 30% of Danish mothers, 40% of Swedish mothers and 60% of British mothers have part time not full time paid work.
Kubes suggests that government fund not universal daycare but children universally with a bigger child tax benefit to enable the style of care the mother wants. She notes that there already is a lot of subsidy to daycare users, through the Canada Child benefit and the daycare subsidies per province and the childcare expense deduction of up to $8000 as parents pay tax. The preferential treatment of daycare users is at question and Kubes suggests it is not economically wise to continue it.
e, Caitlin Rose Morgante is an economics student at Boston University and a research associate with the Frontier Centre for Public Policy.. She has written in May 2021 in Troy Media that universal daycare is a type of social engineering. She notes a 1997 National Bureau of Economic Research study that found that universal childcare “hurt children and families”. It found that the policy in Quebec resulted in a 60-150% rise in anxiety for children in it and an 8-20% decline in motor and social skills. Though $9,000 was invested by government per child to set up the program, the results were not positive.
She cites the Centre for Future Work that found the real goal of such a plan is to generate $17-$29 billion in tax revenues from increased labor force participation of parents and an expanded childcare worker base. Jim Stanford of the centre admits this is an ‘activist ‘ agenda that empowers unions and workers.
She cites Mercatus Institute research studies that found that the price of childcare has been going up, as rules require small group sizes, but that quality has not gone up with those costs. She says that so many regulation hoops are set up for small operators to jump through that many are discouraged from even providing the service.
Morgante says the federal daycare plan aims to devalue the traditional single income household and transfer taxes to the dual earner model, and therefore this discourages the rule of nurturing the young. She is not against daycare but says that operators should be accountable to parents and not just to government. She would like more choices for parents so that traditional and nontraditional families alike’ should be free to use’ the style of care that meets their needs ‘without prodding nor roadblocks from the government’.