©2010 the centre for spatial economics socioeconomic benefits and labour market developments for...

©2010 The Centre for Spatial Economics

Socioeconomic Benefitsand Labour Market Developments for New Brunswick

Robert Fairholm

The Centre for Spatial Economics

April 2010

Effects Of Quality ECEC On Children

Effects on social outcomes generally found to be positive, particularly for disadvantaged

Effects on cognitive abilities generally found to be positive, particularly for disadvantaged

Mixed results for effects on socio-emotional development

QuebecQualityMeta analysis suggest on balance quality ECEC positive

Parent have hard time determining quality


Effects Of Child Care On Parents

Labour supply of mothersParticipation ratesAverage hours workedAccess to quality ECEC can be more important than price


Economic costs and benefits

Short and long-run effectsShort-run stimulus multiplierLong run benefit-cost ratio

Growth theory demonstrates that investing in people is crucial in determining long-term success for a province like NB

Investing in education increases labour productivity and boosts real incomes, so might as well start when they are young


Multiplier - Definition

Multiplier: Number of extra units of output per unit increase in input

If there is a direct $100 increase in spending on cars

The car industry will need to increase production by $100

There will be an indirect increase in production by all the suppliers to the car industry (e.g. Tires) by $20

Their suppliers will need to increase production, etc. e.g. $2

Multiplier = $122/$100 (or 1.22)


Short-Run Multipliers - Types

Direct Multiplier—industry directly experiencing the increase (or decrease) in spending/production

Indirect Multiplier—sum of the supplying industries that experience an increase in production

Gross Output (GO) multiplier

Gross Domestic Product (GDP) multiplier

Employment multiplier: Number of additional jobs for each million dollars spent


Direct & Indirect Short-term Multipliers

Industry GDP Gross Output GO Rank GDP RankFinance, Insurance, Real Estate and Rental and Leasing 0.95 1.37 21 1Education 0.94 1.39 20 2Retail trade 0.92 1.53 13 3Non-profit institutions 0.92 1.42 17 4Child Care Outside the Home 0.90 1.35 22 5Government 0.90 1.48 14 5Recreation 0.87 1.67 4 14Accommodation & Food Services 0.85 1.78 2 16Construction 0.78 1.76 3 19Agriculture 0.77 1.97 1 21Manufacturing 0.61 1.67 5 23

Direct & Indirect Industry Multipliers

Source: Cross & Ghanem (2006) & Stats Canada Input-Output Impact Assessment (2008)


Employment Multipliers

Industry Rank Direct Jobs Indirect Jobs

BothChild Care Outside the Home 1 36.9 2.6 39.5Other Services (Except Public Administration)

2 20.4 7.2 27.6

Educational Services 3 24.6 2.9 27.5Accommodation & Food Services 4 19.8 5.2 25.0Government Sector 12 8.9 4.4 13.3Construction 16 5.7 4.3 10.0Manufacturing 20 3.1 3.7 6.7Finance, Insurance, Real Estate and Rental and Leasing

21 3.1 2.0 5.1

Employment Multipliers (Jobs per $Million)

Source: Statistics Canada Input-Output Impact Assessment & "S Level" Employment Multipliers for 2005


Induced Effects

The previous estimates do not take induced effects into account

Induced effects capture the impact on the economy from increased employment, income and household spending caused by the direct & indirect impacts

The ECEC sector has a high induced multiplier because labour costs are a large share of total costs and workers earn low wages so every extra dollar is spent


Total GDP Multiplier

Direct, Indirect & Induced GDP Multiplier

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ECEC Affects Jobs Via Mothers Too

Jobs Created per Thousand Increase in ECEC Workers

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Direct Indirect Induced Mothers'Full-time

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Government Revenue Affected by ECEC

Cumulative Gov't Revenues Vs. ECEC Worker Costs, $Millions

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Direct Indirect Induced Mothers' Full-time Work

Govt RevenuesCost of 1000 ECEC WorkersCurrent Avg CDN Govt Subsidy


Long-Run Benefit Cost Ratio

Long-run benefits to society

Long-run costs to society

Benefit/Cost Ratio = (Benefit to children and parents)/(cost of program)

Used observed academic gains from Carolina Abecedarian program

Results adjusted because Abecedarian program was for disadvantaged children using highly trained educators

Results further adjusted to reflect average Canadian child


Benefits To Children - Results

Higher future earnings

Benefits from decreased smoking

Savings on primary education Lower rate of grade retention Lower rate of special education Higher high school graduation

Does not take all possible effects into account

Crime rates Multi-generational effects Impact of smoking on other outcomes


Benefits To Parents

Immediate wage gains Working more

Future wage gains More experience if mother works

Does not take all possible effects into account

Higher future income stream if mother gets more educationHigher productivity of workers with access to child care


Benefit-Cost Results

Net Present Values (NPV)

NPV hourly costs of formal child care $5.08NPV hourly cost savings on informal child care -$2.31NPV hourly net costs of formal child care $2.77

NPV hourly net benefits mothers $5.42NPV hourly net benefits children $1.62NPV hourly net benefits from formal child care $7.04Benefit-cost ratio of formal child care 2.54Note: Using 3% real discount rate, for 2005

Summary of Costs & Benefits of Current Canadian Child Care


Demand for ECEC Services

Many factors influence demand for ECECDemographics,Family characteristics,Government programs,Availability and accessibilityOther factors- egg. Quality

Higher fees reduce demand

Higher mothers’ wages increase demand

Canadian parents found to be more price sensitive and less wage sensitive than parents in other countries

Implications for workforce and ECEC quality


Demand for Child Care Quality

Parents value quality, but they have difficulty in assessing the quality of child care they are purchasing

Parents may be interpreting the signals of quality incorrectly

US study finds evidence of “moral hazard” where the centres with positive observable traits tend to produce a lower level of quality for unobservable items


Market Failure In Provision of Quality

If parents cannot distinguish between high-quality and low-quality services, then demand for quality ECEC is curtailed

This can be described as a market failure

Market failure is a reason for government involvement to encourage a more socially optimal outcome


Government policies and ECEC

Training requirements and staff-child ratios for ECEC workforceDirect delivery of ECEC services Direct and indirect financial subsidies

Private providers, Grants, Contracts, Tax incentives

Financial subsidies to parents Cash benefits and allowances for ECECTax benefits to offset the costs Cash benefits to remain at home


ECEC Workforce

The quality of ECEC is influenced by the quality of child care workers, which in turn is influenced by level of ECE education

Employer characteristics & HRM can influence the quality of workers

NB has a below average number of early childhood educators and assistants (ECE&A) relative to children as per 2006 census

NB has a below average share of workers with ECE education according to 2006 census


Concentration of ECEC workers


Qualifications in ECE&A: Canada

Qualifications in ECE&A: NB

ECEC Workforce

More than half of ECE qualified workers in Canada and NB do not end up working in the sector according to the 2006 census

Difficult to pull workers from higher wage sectors

Must recruit those not in the labour force (NILF) & encourage new entrants

Those not in the labour force are already not enticed to work in sector, wage must exceed their reservation wage


Canadian ECEs Mostly Not In ECEC

NB ECEs Even More Outside ECEC

Four Main WFS Questions

Why do workforce shortages occur?How to define a workforce shortage? How long do workforce shortages last? Does a workforce shortage exist?

Why Do WFS Occur?

Workforce shortages occur when wages remain below the wage necessary for the supply of workers to meet the demand for workers

ECEC employers may not be willing/able to pay the wage necessary to attract enough qualified child care workers

ECE qualified workers might have higher wage prospects outside sector

How To Define A Workforce Shortage

An occupation specific workforce shortage occurs when there are not enough potential employees with the skills sought by employers to fill the available jobs

How Long Do WFS Last?

Workforce shortages (WFS) can be short-term reflecting the business cycle or long-term reflecting structural factors

Structural factors include globalization, technological and demographic change

Changes in government policy can also cause or alleviate WFS

Recent ECEC workforce shortages are due to both cyclical and structural factors

Falling WFS caused primarily by business cycle. Unemployment rate in sector highly correlated with overall unemployment rate

Does A Workforce Shortage Exist?

Most methods of determining if there is an occupational workforce shortage looks at unemployment rate, wage growth and employment growth vs. average

COPS Unemployment Rate 30%<avg., Wage gains 30%>avg. &

Employment growth 50%>avg.

ECEC salaried (qualified) ECEC workers are experiencing a workforce shortage

Hourly paid ECEC (lower qualified) workers are not experiencing a shortage


No indication of WFS using LFS data

Data issues given size of sample

Census data suggest there may be a small absolute shortage for ECE trained staff in 2006, but not a shortage for staff in general.

These estimates understate the situation faced by employers because of the high rate of staff turnover

NB Labour Shortages


NB Labour Shortages for ECE Qualified


Effects of High Turnover

Turnover rates in the Canadian ECEC are much higher than general turnover ratesReplacement demand is very highImplies recruitment and retention crisis is really retention crisisHigh turnover can decrease the quality of care that children receive, increase employer costs and cause vicious cycleNumber of provinces have instituted direct or indirect wage subsidies for workers in the ECEC sector in recent yearsImprovements in HRM can improve job satisfaction and reduce turnover


Job Satisfaction, Wages & Quits

As wages rise the quit rate falls

Importance of non-wage factors diminishes as wages rise

At low wage levels there is a very large dispersion in quit rates that seems to be related to job satisfaction

Changing the job satisfaction rate from the lowest to the highest rating at the lowest income level lowers quit rate by over 20%

Equivalent to a huge increase in pay

HRM practices affect job satisfaction


R&R – Job Satisfaction And Wage


Source: Lydon and Chevalier (2002)

To have the full benefits of early childhood education and care the ECEC sector must have trained staff

Policies should encourage improved training of ECEC workforce

NB should institute training requirements

Any wage subsidies should be linked to training in order to encourage retention of trained staff

Revamping of HRM practices can deliver large gains in job satisfaction & retention

Conclusions of Research


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