Policy Note 44: The economic and personal value of childcare
The coronavirus crisis has taught us a few impressive facts. Firstly, the often questioned suitability of mathematics for everyday use in school lessons as a contribution to understanding exponential functions, for example. Secondly, that a world without companies and without growth is anything but desirable. And finally, and this is the topic of this policy note, that institutional childcare and the school system perform important tasks in our society, even if they are only appreciated when they remain closed, as was recently the case during the lockdown.
However, institutional childcare is not only valuable when parents are juggling work and school from home. It also has a number of positive effects. Firstly, according to the economic literature, institutional childcare has a positive effect on women's labor market participation and wages. However, it depends on the exact design, as the opposite results have also been reported. Secondly, childcare has a number of positive effects for the children cared for in later adult life: This applies both in terms of educational success and labor force participation and in terms of minimum social security benefits.
Despite massive investment in childcare in recent years, there is still a problem that affects women's earnings. As long as childcare is not available on a full-time basis, the full-time employment of women with children remains restricted. There may even be a statistical paradox in that the expansion of childcare is associated with a higher gender gap in labor income if it means a shift from inactivity to part-time but not full-time. The effect arises because inactive women are not included in the usual gender gap statistics, but part-time employees are. This is exactly what has been observed over the last 50 years: practically the entire increase in childcare is due to morning attendance, while the number of children attending nursery schools full-time has remained almost the same since 1972.
Even if the results show no effect on the gender gap, this does not argue against the further expansion of childcare. However, it does provide an opportunity to take a closer look at the exact structure of childcare and improve it.
In the study, we show how important it is from an educational policy perspective that kindergartens are financially affordable and available with longer opening hours. The literature identifies the so-called "Mathew effect", according to which children who would benefit the most from institutional care are also those who use it the least. This is largely due to short opening hours, as people from lower-income groups in particular are less able to take advantage of full-day childcare for professional and private reasons.
The study shows ways in which opening hours could be extended without significantly increasing costs. One key to this is local cooperation between municipalities and providers as well as incentives in funding, particularly in financial equalization, to increase such cooperation. In the smaller municipalities in western Austria in particular, it would be possible to extend opening hours almost cost-neutrally if the often very small facilities were expanded at the same time through cooperation. This implies that the childcare ratios in these municipalities, which are often already low due to their location, could be brought closer to the legal framework through cooperation. The example of Vorarlberg shows that an increase in opening hours to the level of Vienna, where opening hours are the longest in a comparison of federal states, would cost around 25 million euros per year. At the same time, it would be possible to spend another 26 million euros less if the childcare ratios were adjusted to the most efficient level in Carinthia compared to the other federal states. It should be expressly emphasized that, firstly, the statutory ratios should not be raised - these are already quite high internationally, and secondly, an increase in the care ratios only makes sense if the quality of care does not suffer as a result.
We show which incentive mechanisms in the financing and funding systems as well as in the requirements implemented therein should be adapted to the providers in order to realize the efficiency potential. The relevant framework conditions are initially very heterogeneous between the federal states. Furthermore, a large part of childcare is financed from the budgets of the municipalities and therefore outside of the originally desired task orientation. The federal and state funding and contribution systems must be evaluated with regard to interactions between different individual funding schemes. It is currently the case that existing and correct efficiency incentives are being undermined by other subsidies. If cooperation is sought, care must also be taken to ensure that all stakeholders involved in the cooperation benefit from it, otherwise implementation will be made politically more difficult. A number of "best practice" examples of such cooperation from Vorarlberg and Upper Austria show that this is not only possible in theory, but also in practice.
High-quality childcare is not only of great importance during the coronavirus crisis, both for mothers, who can avoid poverty in old age by working, for example, and for children, who will benefit from this decades later. In order to realize this potential, however, this topic must actually move closer to the center of politics even after the pandemic has been overcome.
