Today
• Test the hypothesis that market failures create barriers
to accessing childcare in London
• Define our terms
• Profile the London childcare market
• Look at the “major barriers” to childcare access
• Availability, price, flexibility, quality, information
• For each
• Evidence of the barrier existing
• Evidence of market failures cause or constitute the
barrier
• Evidence of equity failures
Market failures
• Market failures – when markets can’t allocate
resources efficiently
• Market failures are not when they’re doing “nasty”
things
• Golden rule 1 : Government can intervene to fix failing
markets
• Eg - insufficient competition, lack of information to
make a decision, when customers can’t be
effectively charged
• Golden rule 2 : Government can intervene to achieve
equity objectives
PROFILE OF THE LONDON CHILDCARE
MARKET
The size of the London childcare market
Rest of England
875,100 ‘nondomestic’ places
Rest of England
240,250 childminder
places
London
London
42,200
childminder
places
Source: Ofsted
152,300 ‘nondomestic’ places
The size of the London childcare market
£0.6 billion
(11%)
East
£0.5 billion (9.5%)
West Midlands
South West
£0.5 billion (9%)
Yorkshire
North West
£0.5 billion (8.5%)
£0.7 billion
(13%)
East Midlands
£0.5 billion (8%)
North
£0.2 billion
(3.5%)
London
£1 billion
(18%)
South East
£1.1 billion
(19.5%)
Source: Laing and Buisson
The childcare market in England has now
matured following a period of strong growth
%
6
London
5
4
3
2
1
0
England
-1
-2
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q2
2003
2004
2005
2006
20 07
2008
2009
2010
Childcare places in London have fallen in
recession, but not as badly affected as others
Impact of Recession in 2009 on Nursery Business Performance, London and UK
London
UK
%
60
50
46.2
40
34.9
34.6
30.6
30
20
10
16.5
3.8 5.5
7.7 8.3
3.8 4.3
3.8
0
Improved
Significantly
Improved a Bit
No Change
Source: Laing and Buisson Surv ey of Children’s Nurseries
Worsened
Significantly
Worsened a
Bit
Don't Know
London has proportionately fewer third sector
providers, and more public sector than England.
Private provision levels are similar
Share of Non-Domestic Childcare Places by Sector, mid 2010
100%
90%
19
13
80%
70%
27
34
60%
Public Sector
50%
Third Sector
40%
Private
30%
54
53
London
England
20%
10%
0%
How do types of provision in London compare to
elsewhere?
• Childcare groups (operating three or more settings)
similar to rest of England
• London provides
• comparatively high levels of out of school provision
• comparatively lower levels of day nurseries,
playgroups and pre-schools
AVAILABILITY BARRIERS TO CHILDCARE
TAKE-UP
What is the evidence for availability representing
a barrier to childcare access?
• London - relatively low early years and under 10s
childcare supply density
• Apparent shortages also reduced by the fact that London
parents have a lower demand for childcare...
...and London - 15% vacancy in full day nurseries,
more in out of school clubs and childminders –
suggesting little frustrated demand...
Average occupancy for full day nurseries, London & UK, 2002-2010
%
100
London
90
80
UK
70
60
50
40
30
20
10
0
Jan
2002
Source: Laing and Buisson
Jan
2003
Jan
2004
Jan
2005
Jan
2006
Jan
2007
Jan
2008
Jan
2009
Mar
2010
...there has been strong growth in available supply –
particularly in deprived parts of East London...
Source: Laing and Buisson
...although more deprived areas still have relatively
low supply density of places.
Source: Laing and Buisson
Evidence suggests that lower levels of childcare supply are
accompanied by lower employment rates...
10
80
9
70
Female Employment Rate
% (rhs)
8
60
7
50
6
Female Unemployment
Rate % (lhs)
5
40
4
30
3
20
2
10
1
0
0
South East
South
West
East
East
Midlands
North
West
West
Yorkshire North East London
Midlands & Humber
Source: APS
...and in London, higher levels of childcare provision
accompany higher levels of female employment...
Female Employment Rates and Childcare Density for London Boroughs
Female employment rate
80
70
60
50
40
30
20
10
0
0
20
40
60
80
100
Childcare provision density index
120
140
Source: APS, Laing & Buisson
...and growth in levels of childcare provision accompany
increases in levels of female employment...
Growth in Childcare Provision and Change in Female Employment Rates by London
Boroughs
15
10
2009
Female employment rate growth 2004-
20
5
0
0
20
40
60
80
100
120
140
-5
-10
-15
Growth in childcare provision Mar 2003 – Aug 2008
Source: APS, Laing & Buisson
...but this doesn’t prove any relationship between
increased childcare supply and increased female
employment
• “Commonsense” assumption often made:
• Barriers to childcare reduce female employment
• More childcare causes more female employment
• So if we want higher incomes, less child poverty, we need more
childcare
• But this not proven
• Instead, low level of (female) employment might cause low demand
for childcare
• In a market system, that would cause low supply
• We don’t have the answer
Summary: the London availability barrier
• Does an availability barrier exist?
• Potentially – though perhaps not to the extent
imagined
• So is this market failure?
• No. Availability ‘issues’ in London are a market
outcome
• Is this an equity failure?
• Potentially. Availability is uneven (but so is
demand)
PRICE BARRIERS TO CHILDCARE TAKE-UP
Internationally, higher use of full-time formal childcare is
related to higher subsidy or public spending
Proportion of children under 3 years enrolled in formal childcare, 2006
Czech Republic
Malta
Austria
Slovak Republic
Mexico
Poland
Germany
Hungary
Lithuania
Australia
Greece
Ireland
Estonia
New Zealand
Canada
Latvia
Italy
Netherlands
Spain
Slovenia
United States
Cyprus
Belgium
France
United Kingdom
Source: OECD
Sweden
Norway
Luxembourg
Portugal
Iceland
Denmark
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
Finland
Full-Time Equivalent Using Formal Childcare
Percentage Using Formal Childcare
%
Childcare fees in London are significantly higher than the
national average. They also vary significantly within London
Regional and London childcare fees per hour
Progress has been made on childcare costs, and
most parents do not report difficulties paying for
childcare
Difficulty in paying for childcare (England)
Source: National Centre for Social Research
Higher staff costs and accommodation costs – and no
offsetting rise in local authority free entitlement payments explain the price differential between London childcare and
childcare elsewhere in the country
Accommodation cost differentials (England and Wales and London)
Source: Valuation Office Agency, RTP
London prices
• So is price a barrier?
• For most people, no. For fewer - yes
• But there could be specific London issues (more
soon)
• Is price caused by a market failure?
• No. High London prices are a market outcome
• So do London prices represent an equity failure?
• Potentially...
Are high prices in London a barrier? Evidence of market failure?
• Structural distortions? – No. Highly fragmented like rest of England,
low barriers to entry and competition. No price distortions from
monopolies. No abnormal profit margins. In actual fact, margins in
London market are probably tighter.
• Market pricing works effectively in London. Price differentials reflect
wage rate differentials, and property/rent values. Inter-regional
price/wage relationship also strong. London childcare pay rates in line
with similar sectors.
• Main oddity is local authority funding. Doesn’t reflect higher cost of
production for childcare providers. At the moment is likely to be the
strongest barrier to entry.
• High London prices are a market outcome.
Affordability is another question
•
•
•
•
•
•
•
•
•
Not asking the question whether childcare is expensive, but is affordability likely to
be more prevalent in London.
International statistics confirm that childcare in UK is relatively expensive.
Qualitative research confirms that childcare is too expensive for approaching a
quarter of people, though no London figures available.
Higher wages in London, however, compensate for higher prices.
Fuller picture is revealed, however, when comparing average net incomes.
London vulnerable to equity failure because of a wide distribution of prosperity.
However, effective tax credit and benefit system should compensate. Does it?
Probably not, but why not? Tax credit and benefit system – end game is complex.
International statistics confirm that single parents receive generous tax
credits/benefits compared to working couples.
Other evidence indicates disincentive for mothers to work part-time. Probably a
number of disincentives that are more prevalent in London. Requires further
investigation.
Potential equity failures: childcare costs are of differing
importance depending on parents’ circumstances
Difficulty in paying for childcare (England)
Source: National Centre for Social Research
Does the high price of London childcare provision represent
an equity failure?
• Working Families Tax Credit - important way of equalising access to
childcare for low income families
• Tax credit take-up is problematic - mixed picture
• Take-up for single parent working families in London is above average
• Take-up for working couples in London is acutely low
• High childcare costs may act as a barrier to part-time employment in
London. Particularly affects mothers
• So it looks like equity failures persist
• But compared to other countries
• UK costs are relatively affordable for single parents, once the effect of the
(old) benefit system is taken into account
• But UK childcare costs are relatively high for households with two adults
working
FLEXIBILITY BARRIERS TO CHILDCARE TAKEUP
Flexibility
• Working atypical hours relatively common
• Atypical hours can be childcare solution (shift
parenting)
• Flexible provision has not increased since 2005
Source: National Centre for Social Research
A substantial minority of mothers report that a typical hours
cause problems with childcare
Whether a typical working hours caused problems with childcare, by family type (England)
Source: National Centre for Social Research
Flexibility
• So does a barrier exist?
• Yes, for a substantial minority
• Is there a market failure?
• No
• Profit margins are lower outside core hours
• Staff costs go up
• Therefore flexibility problems are a market outcome
• Is this an equity failure?
• Potentially: lone parents’ childcare arrangements
are disproportionately affected by atypical working
Source: National Centre for Social Research
QUALITY BARRIERS TO CHILDCARE TAKE-UP
Is quality a barrier? 40% of parents think quality is poor, or
are “not sure” (but parents’ perceptions of quality do not
necessarily align with those of professionals)
Perceptions of quality of local childcare places, 2004-2008 (England)
Source: National Centre for Social Research
Is a lack of real or perceived quality caused by, or
constitute, a market failure?
• Some evidence of information market failures
cause of perceptions of poor quality
• Childcare funding is too low to secure high quality
care?
• But this does not constitute a market failure
• It’s a market outcome
Does a lack of quality childcare represent an equity
failure?
• Evidence that quality of childcare is perceived as
worse in more deprived areas
• Ethnic minorities do not use childcare services to the
same degree as host populations
• Prima facie evidence of an equity failure (not proof)
INFORMATION BARRIERS TO CHILDCARE
TAKE-UP
Information issues are often quoted as a barrier
• Information has been improved
• England parents: 43% say “enough info”; 37% say
not
• But how much information do you need to make a
choice?
• Our work suggests that generally, this barrier is being
overcome
• A lack of information may cause parents to underestimate the long term benefits of childcare
• This might represent a “barrier to take-up”
Is a lack of information caused by, or
constitute, a market failure? Is it an equity
failure?
• No real evidence of systemic shortage of information
that impedes choices
• Certain individuals and groups need additional help
• This would represent equity failure
Summary: the barriers to access:
• No substantial market failures in London’s childcare
market
• Lots of market outcomes
• If market-based policies are not achieving the desired
objectives, causes may be bad policy, not bad markets
• Equity failures exist in the market
• Significant attempts have been made to correct these
• The causality of the processes involved in creating and
maintaining childcare barriers to take-up are open to
different interpretations, eg
• A lack of available childcare supply might not cause unemployment
• Unemployment might cause a lack of childcare demand
What are the other barriers to childcare
take-up?
• Here we looked at the typical barriers identified:
availability, price, flexibility, quality
• Major progress made on these areas over last decade
• Are we into diminishing returns on these areas?
• All these barriers could be entirely overcome and still some
parents would not take up childcare
• So what are the other potential “barrier” areas to work on?
• “Children are too young” for formal childcare
• Significant cultural barriers to childcare take-up
• Content and concept: Lack of demand for childcare must not
be confused with lack of demand for Early Years Education
Next steps
• These are not rational markets
• Don’t always respond to “rational” treatments
• eg “overcoming barriers”
• If we want to increase take-up in London
• London-only breaks from NatCen work
• Closer look at decision-making processes (perhaps focus
groups, behavioural psychology, ethnographic techniques)
• Interesting applications of “Nudge”-type concepts
• Significant issue in London - relationship between housing
costs, income, tax and subsidy
• Increased provision of early years education (not “childcare”)