Research summary – Analysis of the impact of alternative childcare policies

Official title of the full report: Analysis of the impact of alternative childcare policies on parents’ labour force participation and economic well-being

Authors of the full report: Kambi Djabir and Sid Ali Amedah

Why this study

Childcare participation is associated with parents’ employment and children’s development. Many advanced countries have designed policies aimed at increasing the labour force participation of parents with young children. One type of policy change deals with the issues of childcare availability and costs.

This study aimed to provide empirical evidence related to the effect of childcare costs based on a set of policy alternatives. We looked at:

• employment decisions, and
• the number of hours worked by Canadian parents with young children

What we did

We used statistical modelling methods to understand how parents of young children could react to changes in childcare costs.

We then looked at how parent’s reactions changed under four hypothetical situations (or simulations). These simulations reflected policy scenarios aimed at reducing the costs of childcare.

Data from the Canadian Income Survey (CIS) was used.

What we found

Our results showed that:

• increasing childcare costs has a small negative effect on labour force participation. However, they reduce parental labour supply in terms of hours worked
• childcare costs has a strong effect on the employment of parents with pre-school-aged children. These effects are more significant compared to those with school-aged children. They are also larger for single parents than for couples

Based on our simulation results, we found that:

• for lower income women in couple relationships, employment and total hours worked are slightly reduced when the cost of childcare is cut by half and each child is eligible for a subsidy. As childcare costs fall, household income after childcare spending rises
• single parents and women in couple relationships slightly increase their employment but reduce their hours worked when the current daily childcare cost as charged in Quebec ($8.50/day as in January 2019) is applied across Canada. This is like the case of Quebec
• for all family types there is a moderate increase in employment, hours worked and disposable income when childcare policies adjust costs to match household net income

What it means

Our results suggest that any policy aiming to reduce childcare costs has more impact on paid hours worked than on employment participation. This is because Canada’s labour force participation rate is already high for men and women in all family types.

Contact us

Strategic and Service Policy Branch, Social Policy Directorate, Social Research Division

Email: esdc.nc.sspb.research-recherche.dgpss.cn.edsc@hrsdc-rhdcc.gc.ca