New Report Analyzes Economics and Costs of High Quality Child Care

As policymakers begin considering how to improve early learning in the coming tight budget season, a new report offers them an analysis of the economics behind high quality child care and its cost – not cheap at $11,500 a child.

The analysis zeroes in on one market, Southeast Wisconsin, and reports the region’s direct child care services, driven largely by labor, cost roughly $370 million. In contrast, it would cost $701 million in direct services to create a high quality system.

While, it would be a dramatic jump in investment, the Public Policy Forum’s analysis adds this critical point:

The research also demonstrates, however, that the most significant long‐term benefits have been found to accrue only from high quality care. Mediocre or low‐quality care may have some short‐term benefits, but does not result in the same return on investment as higher quality care. – “The Price of Quality: Estimating the Cost of a Higher Quality Early Childhood Care and Education System for Southeast Wisconsin” December 2009.

(The report does not endorse any strategy, but instead is designed to explain costs, outcomes and other factors, all material policymakers could use in upcoming budget battles. It also goes deeper into government and other related costs.)

In fact, the report is packed with useful information for legislators, advocates, teachers and parents, including summaries of high quality care’s definition and research on the economic returns of early learning investments.

The cost‐savings can be estimated per child; for example, the average high school dropout recently was found to cost taxpayers more than $292,000 in lower tax revenues, higher cash and in‐kind transfer costs, and imposed incarceration costs compared to the average high school graduate.

Researchers may have already explained the broken economics of child care, but this report offers one of the best summaries of why the industry doesn’t follow the rules of supply and demand.

In a well‐functioning market, consumers are informed about the quality of the product and would be expected to pay more for a higher‐quality product. In the child care market, however, research shows parents have little information about the educational quality of the care they are purchasing. In addition, the cost of high‐quality care is too great for most parents. Thus, there is little demand for highest‐quality care, and child care providers have little financial incentive to increase the educational quality of their services. This dynamic provides a rationale for government intervention to either subsidize or regulate quality in light of its demonstrated economic, educational, and societal benefits.

Further Reading:

Thanks to the National Institute for Early Education Research for highlighting this report.

Happy Holidays!