Ottawa should heed lessons from Quebec daycare experience

Last week’s massive 724-page federal budget includes a $27 billion spending promise to reduce the cost of daycare. The intent is noble—make daycare more affordable and accessible. To bolster the claim, many defenders of the measure point to Quebec’s universal daycare program adopted in the 1990s. Yet, a rigorous analysis of Quebec’s more than two-decade long experiment with heavily-subsidized daycare should raise questions about the Trudeau government plan.

Let’s get some things clear before proceeding.

First, as it affects the net return from going to work, the cost of daycare is an important determinant in the decisions of parents, particularly mothers with young children. Reducing the cost of daycare incentivizes mothers to return to work. Second, the benefits of high-quality daycare on later-life outcomes of children are considerable—higher levels of school completion, cognitive and non-cognitive skills, income, etc.

These are clear benefits from daycare. However, Quebec’s experience suggests there are better ways to secure those benefits.

First, the Quebec program never yielded the benefits many claim. While it encouraged tens of thousands of mothers to return to work earlier than expected, one influential peer-reviewed study noted that the increase in payroll tax and income tax revenues only recovered 40 per cent of the increased government expenditures.

And this 40 per cent figure probably is likely an overestimation. Estimating the number of mothers returning to work because of the program requires creating a baseline scenario where the program never existed. Generally, the baseline used for Quebec is the rest of Canada (ROC). But the Atlantic provinces—not the ROC—offer a more reliable baseline because while Quebec was subsidizing daycare, reforms to the federal employment insurance program also encouraged more work, particularly in Quebec and the Atlantic provinces. After one compares the evolution of the rate of employment for childbearing-age women in Quebec and Atlantic Canada, instead of comparing Quebec to the rest of Canada, one observes much smaller differences in increased employment. Accounting for this fact reduces the 40 per cent recovery rate cited above.

Second, even with the best-case scenario, Quebec’s “successes” are unlikely to be duplicated. When the reform was passed, Quebec had one of the lowest rates of female labour force participation in Canada. It was basically starting from a low floor and was thus more likely to encourage larger numbers of mothers to return to work. Right now, given the much higher levels of female labour force participation observed in all provinces, such an increase is likely impossible to replicate.

Finally, the long-run benefits to children of daycare tend to disproportionally go to low-income households who are less likely to access daycare services. Quebec’s blanket policy helped everyone including parents from high-income households who would have sent their children to daycare regardless of the subsidy. As a result, the universality of the measure helped people who did not require help. Targeted measures—transfers linked with income—would have been more cost-efficient by helping those who actually need help. As presently phrased, the federal proposal is unlikely to satisfy the principle of helping those who really need help.

Quebec’s experience clearly does not support federal government intervention in daycare.

If the goal is to make daycare less expensive, there are better ways. For example, one key determinant of the costs of supplying daycare (as economists Diana Thomas and Devon Gorry emphasized with evidence specific to the United States) is the set of service-specific regulations that have little to no relevance to the quality of the service. For example, having group size fall by one fewer infant per educator increased costs by between 9 per cent and 20 per cent. Degree requirements for educators caused increases in the cost of childcare of between 25 per cent and 46 per cent. These regulations also exist in Canada, so relaxing them would significantly reduce daycare costs.

Most Canadians would like to make daycare cheaper. However, as the old saying goes, the road to hell is paved with good intentions.