Tuesday, 11 March 2008

Demand and supply in daycare

There is an interesting post on the Economic Logic blog on the effects of Quebec's daycare policy. The post points out that
In 1997, Quebec introduced the C$5-a-day daycare, heavily subsidizing existing daycares. The fee was increased to C$7 in 2004.
The obvious economic outcome, an excess demand.
... with such a drastic reduction in price, the quantity demanded increases tremendously. And it did. People who had found other arrangements, for example within the family, do not to bother the grand-mother anymore if it costs only a few bucks a day to put a child in daycare. Parents who did not even need daycare now find it convenient to get free time at little cost. Now, was the supply subsidized enough to meet the demand? Of course not. One could think that the under-supply would be only temporary, in particular as new daycares need to be certified, manpower needs to be trained. But a decade after the introduction of the policy, the government is still struggling to provide anything near what demand would require, and at a huge cost.
And yes, what looks like a black market has developed.

The less obvious outcome,
... the policy in Quebec is that everyone has equal access to public services (health care, schools, daycare, etc). Given that there must be rationing, who actually gets to use the subsidized daycare centres? Those with higher incomes, that is those who could have paid for the daycare anyway.
It turns out that daycare utilisation rates (and subsidies received) increase with income. Some some plausible explanations for this
  • High-skilled women are more likely to choose to work than those with fewer skills.
  • The daycare system is almost entirely designed for those with 9-to-5 jobs, the sort that low-income workers are less likely to have.
And according to this report
The cost of Quebec's subsidized daycare won't go up as long as there remains a shortage of spaces, says the Family Minsiter.
So not increasing the price will remove an excess demand?????

But here's another approach to dealing with an excess demand for childcare,

(HT: Greg Mankiw)

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