An Economic No-Brainer

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The Employment, Income, and Fiscal Benefits of Universal ECE

By Jim Stanford *

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 à 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.

This commentary originally appeared in Interaction, the on-line journal of the Canadian Child Care Federation.

* Jim Stanford is an economist with Unifor. He is the author of Economics for Everyone (published in 2008 by Pluto Press and the Canadian Centre for Policy Alternatives), which has been translated into six languages.

JULY 2018

Vol. 12 - No. 12


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