The Market for Child Care. (Research Summaries)

By Mocan, H. Naci | NBER Reporter, Spring 2002 | Go to article overview

The Market for Child Care. (Research Summaries)


Mocan, H. Naci, NBER Reporter


Recent research reveals a positive relationship between cognitive skills and labor market success. (1) Developmental psychologists argue that the cognitive, social, and emotional development of children is enhanced by exposure to high-quality child care and is harmed by low-quality care. (2) Given the relationship between the quality of child care, child outcomes, and children's future labor market achievement, it is critical to develop an understanding of the way the child care market operates and how it relates to quality. The issue is important because the average quality of center-based child care provided in the United States is thought to be mediocre, especially compared to the quality of care provided in other developed countries. (3) As a result, there is significant interest both at the federal and state levels in devising mechanisms to improve the quality of child care in this rapidly growing market. (4)

One main strand of my research focuses on the child care industry. From 1990 to 1993 I was a member of an interdisciplinary team that collected data from a stratified random sample of approximately 100 child care centers in Colorado, North Carolina, Connecticut, and California. (5) These data include very detailed information on classroom, staff, and center characteristics, as well as information about the parents of children attending the centers. Although center-based child care constitutes only 30 percent of all child care arrangements, (6) it is the sector which has the most detailed and reliable data, particularly for the analysis of provider behavior.

Using this dataset, my research addresses issues such as: the behavior of firms in supplying quantity and quality of child care services; the behavioral differences between for profit and nonprofit providers; the determinants of child care workers' wages; the production of quality in child care centers; the determinants of fees; and the analysis of information asymmetry between parents and providers.

Quality and Quality Production

There are two distinct but related concepts of quality in child care. (7) One is "structural quality," which describes the child care environment measured by such variables as the child-staff ratio, classroom size, the average education of the staff, and staff turnover. These structural measures of quality are thought to be inputs to the production of "process quality," which measures, among other things, the nature of the interactions between the care provider and the child and activities to which the child is exposed. Process quality is measured by instruments designed by developmental psychologists. (8) The index of process quality has a seven point scale, with a range from inadequate (1), to mediocre (4), to excellent (7). This index is used widely in early childhood literature to gauge the quality of the services produced at child care centers. I estimated quality-adjusted cost functions for child care centers and found an elasticity of cost with respect to (process) quality of 0.4. (9) By these estimate s, it would cost $243 to $324 per child per year (in 1993 dollars) to increase the quality of child care services from "mediocre" to "good." David M. Blau and I obtained similar estimates of the marginal cost of quality. (10)

Our knowledge about how to increase quality, on the other hand, is limited. Using the same data, my co-authors and I estimated center-level quality production functions. (11) Although the estimates we obtained, as well as others in the literature, demonstrate the existence of a positive and statistically significant relationship between structural center characteristics (for example, staff-child ratios, group size of the children, average teacher education, and training) and center quality, the magnitude of that relationship is numerically small. We obtain the same result when estimating the quality production function at the classroom level. (12) Furthermore, production functions explain at most 50 percent of the variation in center or classroom quality, indicating that there exists a significant amount of residual center or classroom level idiosyncrasy that is related to quality.

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