Price and quality in the UK childcare market

Abstract

ACKNOWLEDGEMENTSWe gratefully acknowledge the support of the Nuffield foundation under the project "The effects of local childcare provision and costs on the employment of mothers". We are also grateful to Ian Crawford and Rachel Griffith for comments on an earlier draft and for comments received from seminar participants at the Institute for Fiscal Studies and at Warwick University. AbstractChildcare subsidies are typically advocated as a means to making paid employment profitable for mothers, but also have important ramifications for the use and quality of paid childcare. Even if one is concerned primarily with the quantity aspect, the quality dimension cannot be ignored. This paper provides an exposition of the potential biases in estimates of price elasticities with respect to quantity that do not allow for quality variation or for the possibility of non-linear pricing structures. Using an approach developed in the demand estimation literature, a price measure addressing these issues is derived and the importance of using this measure is tested using British data. Price is found to have a negative impact on the use of formal paid care, the hours purchased and the quality chosen. However, failure to control for quality effects and non-linearities in the price measure is shown to generate significant overestimates of the price elasticities.

Childcare Assistance: Are Subsidies or Tax Credits Better?

“…An alternative to using median prices in each LFSR would be to estimate the price for each locality, controlling for average hours of childcare and the average level of household factors that affect the quality choice. This approach, taken by Duncan, Paull and Taylor (), assumes that relative prices over quality and quantity are fixed across markets but are allowed to shift upwards or downwards based upon an LFSR‐specific component. We employed this method as well as using median prices and we find very little difference in the results – for example, none of the elasticities reported in Table changes significantly.…”

“…Then, in a second step, they decide how much additional (or less) quality to purchase than the median. The Duncan, Paull and Taylor () approach can be similarly justified, with families using a ‘quality‐adjusted’ price measure. Empirically in this case, these work out to be very similar.…”

“…Variation in prices comes from three sources – different average quality across LFSRs, different costs across LFSRs, and demand factors such as different local wage and income levels. We do not have good measures of quality and, when we implement the regression approach of Duncan, Paull and Taylor (), the relationship between total spent on childcare (which includes quality) and observable individual characteristics is very weak (the R‐squared is about 6 per cent). Prices are higher in urban areas than in rural areas and higher in more expensive neighbourhoods.…”

Military Mothers

“…These include quality, cost and availability (Duncan, Paull & Taylor, 2001;Pugh, 2005). Military mothers face these challenges in addition to the specific demands of their career, including relocations, deployment, and unpredictable working hours, all of which can make childcare arrangements difficult to secure.…”

Mothers' employment and childcare in Britain

“…A comprehensive approach is presented in Duncan, Paull and Taylor (2001a). The model derived in that paper augments a standard labour supply model to incorporate non-maternal childcare not only as a means of facilitating employment for the mother, but also as a good in itself which families may desire to purchase for the pure benefit derived for the child or to provide child-free leisure time for the mother.…”