Socioeconomic Benefits
and Labour Market Developments
for New Brunswick
Robert Fairholm
The Centre for Spatial Economics
April 2010
©2010 The Centre for Spatial Economics
Effects Of Quality ECEC On Children
Effects on social outcomes generally found to
be positive, particularly for disadvantaged
Effects on cognitive abilities generally found
to be positive, particularly for disadvantaged
Mixed results for effects on socio-emotional
development
Quebec
Quality
Meta analysis suggest on balance quality
ECEC positive
Parent have hard time determining quality
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Effects Of Child Care On Parents
Labour supply of mothers
Participation rates
Average hours worked
Access to quality ECEC can be more
important than price
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Economic costs and benefits
Short and long-run effects
Short-run stimulus multiplier
Long run benefit-cost ratio
Growth theory demonstrates that investing
in people is crucial in determining longterm success for a province like NB
Investing in education increases labour
productivity and boosts real incomes, so
might as well start when they are young
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Multiplier - Definition
Multiplier: Number of extra units of output
per unit increase in input
If there is a direct $100 increase in
spending on cars
The car industry will need to increase
production by $100
There will be an indirect increase in
production by all the suppliers to the car
industry (e.g. Tires) by $20
Their suppliers will need to increase
production, etc. e.g. $2
Multiplier = $122/$100 (or 1.22)
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Short-Run Multipliers - Types
Direct Multiplier—industry directly
experiencing the increase (or decrease) in
spending/production
Indirect Multiplier—sum of the supplying
industries that experience an increase in
production
Gross Output (GO) multiplier
Gross Domestic Product (GDP) multiplier
Employment multiplier:
 Number of additional jobs for each
million dollars spent
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Direct & Indirect Short-term Multipliers
Direct & Indirect Industry Multipliers
Industry
Finance, Insurance, Real Estate
and Rental and Leasing
Education
Retail trade
Non-profit institutions
Child Care Outside the Home
Government
Recreation
Accommodation & Food Services
Construction
Agriculture
Manufacturing
GDP Gross Output GO Rank GDP Rank
0.95
0.94
0.92
0.92
0.90
0.90
0.87
0.85
0.78
0.77
0.61
1.37
1.39
1.53
1.42
1.35
1.48
1.67
1.78
1.76
1.97
1.67
Source: Cross & Ghanem (2006) & Stats Canada Input-Output Impact Assessment (2008)
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21
20
13
17
22
14
4
2
3
1
5
1
2
3
4
5
5
14
16
19
21
23
Employment Multipliers
Employment Multipliers (Jobs per $Million)
Industry
Child Care Outside the Home
Other Services (Except Public
Administration)
Educational Services
Accommodation & Food Services
Government Sector
Construction
Manufacturing
Finance, Insurance, Real Estate
and Rental and Leasing
Rank
Direct Jobs
1
2
3
4
12
16
20
21
Indirect
Jobs2.6
36.9
20.4
7.2
24.6
19.8
8.9
5.7
3.1
3.1
Both
2.9
5.2
4.4
4.3
3.7
2.0
Source: Statistics Canada Input-Output Impact Assessment & "S Level" Employment Multipliers for 2005
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39.5
27.6
27.5
25.0
13.3
10.0
6.7
5.1
Induced Effects
The previous estimates do not take induced
effects into account
Induced effects capture the impact on the
economy from increased employment,
income and household spending caused by
the direct & indirect impacts
The ECEC sector has a high induced
multiplier because labour costs are a large
share of total costs and workers earn low
wages so every extra dollar is spent
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Total GDP Multiplier
2.5
Direct, Indirect & Induced GDP Multiplier
2.0
1.5
1.0
0.5
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Manuf.
Fin., Insur. &
Real Estate
Construction
Wholesale
Government
Retail
Admin.
Non-profits
Other
Services
Education
Child Care
0.0
ECEC Affects Jobs Via Mothers Too
1200
Jobs Created per Thousand Increase in ECEC Workers
1000
800
600
400
200
0
Direct
Indirect
Induced
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Mothers'
Full-time
Work
Government Revenue Affected by ECEC
35
30
Cumulative Gov't Revenues Vs. ECEC Worker Costs, $Millions
Govt Revenues
Cost of 1000 ECEC Workers
Current Avg CDN Govt Subsidy
25
20
15
10
5
0
Direct
Indirect
Induced
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Mothers' Fulltime Work
Long-Run Benefit Cost Ratio
Long-run benefits to society
Long-run costs to society
Benefit/Cost Ratio = (Benefit to children
and parents)/(cost of program)
Used observed academic gains from
Carolina Abecedarian program
Results adjusted because Abecedarian
program was for disadvantaged children
using highly trained educators
Results further adjusted to reflect average
Canadian child
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Benefits To Children - Results
Higher future earnings
Benefits from decreased smoking
Savings on primary education
 Lower rate of grade retention
 Lower rate of special education
 Higher high school graduation
Does not take all possible effects into account
 Crime rates
 Multi-generational effects
 Impact of smoking on other outcomes
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Benefits To Parents
Immediate wage gains
 Working more
Future wage gains
 More experience if mother works
Does not take all possible effects into account
Higher future income stream if mother
gets more education
Higher productivity of workers with
access to child care
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Benefit-Cost Results
Summary of Costs & Benefits of Current Canadian Child Care
Net Present Values
(NPV)
NPV hourly costs of formal child care
$5.08
NPV hourly cost savings on informal child care
-$2.31
NPV hourly net costs of formal child care
$2.77
NPV hourly net benefits mothers
NPV hourly net benefits children
NPV hourly net benefits from formal child care
Benefit-cost ratio of formal child care
Note: Using 3% real discount rate, for 2005
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$5.42
$1.62
$7.04
2.54
Demand for ECEC Services
Many factors influence demand for ECEC
Demographics,
Family characteristics,
Government programs,
Availability and accessibility
Other factors- egg. Quality
Higher fees reduce demand
Higher mothers’ wages increase demand
Canadian parents found to be more price
sensitive and less wage sensitive than
parents in other countries
Implications for workforce and ECEC quality
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Demand for Child Care Quality
Parents value quality, but they have difficulty
in assessing the quality of child care they are
purchasing
Parents may be interpreting the signals of
quality incorrectly
US study finds evidence of “moral hazard”
where the centres with positive observable
traits tend to produce a lower level of quality
for unobservable items
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Market Failure In Provision of Quality
If parents cannot distinguish between highquality and low-quality services, then
demand for quality ECEC is curtailed
This can be described as a market failure
Market failure is a reason for government
involvement to encourage a more socially
optimal outcome
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Government policies and ECEC
Training requirements and staff-child ratios
for ECEC workforce
Direct delivery of ECEC services
Direct and indirect financial subsidies
Private providers,
Grants,
Contracts,
Tax incentives
Financial subsidies to parents
Cash benefits and allowances for ECEC
Tax benefits to offset the costs
Cash benefits to remain at home
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ECEC Workforce
The quality of ECEC is influenced by the
quality of child care workers, which in turn is
influenced by level of ECE education
Employer characteristics & HRM can
influence the quality of workers
NB has a below average number of early
childhood educators and assistants (ECE&A)
relative to children as per 2006 census
NB has a below average share of workers
with ECE education according to 2006 census
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Concentration of ECEC workers
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Qualifications in ECE&A: Canada
Qualifications in ECE&A: NB
ECEC Workforce
More than half of ECE qualified workers in
Canada and NB do not end up working in the
sector according to the 2006 census
Difficult to pull workers from higher wage
sectors
Must recruit those not in the labour force
(NILF) & encourage new entrants
Those not in the labour force are already not
enticed to work in sector, wage must exceed
their reservation wage
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Canadian ECEs Mostly Not In ECEC
NB ECEs Even More Outside ECEC
Four Main WFS Questions
Why do workforce shortages occur?
How to define a workforce shortage?
How long do workforce shortages last?
Does a workforce shortage exist?
Why Do WFS Occur?
Workforce shortages occur when wages
remain below the wage necessary for the
supply of workers to meet the demand for
workers
ECEC employers may not be willing/able to
pay the wage necessary to attract enough
qualified child care workers
ECE qualified workers might have higher
wage prospects outside sector
How To Define A Workforce Shortage
An occupation specific workforce shortage
occurs when there are not enough potential
employees with the skills sought by
employers to fill the available jobs
How Long Do WFS Last?
Workforce shortages (WFS) can be shortterm reflecting the business cycle or longterm reflecting structural factors
Structural factors include globalization,
technological and demographic change
Changes in government policy can also
cause or alleviate WFS
Recent ECEC workforce shortages are due
to both cyclical and structural factors
Falling WFS caused primarily by business
cycle. Unemployment rate in sector highly
correlated with overall unemployment rate
Does A Workforce Shortage Exist?
Most methods of determining if there is an
occupational workforce shortage looks at
unemployment rate, wage growth and
employment growth vs. average
COPS Unemployment Rate 30%<avg.,
Wage gains 30%>avg. &
Employment growth 50%>avg.
ECEC salaried (qualified) ECEC workers are
experiencing a workforce shortage
Hourly paid ECEC (lower qualified) workers
are not experiencing a shortage
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NB Labour Shortages
No indication of WFS using LFS data
Data issues given size of sample
Census data suggest there may be a small
absolute shortage for ECE trained staff in
2006, but not a shortage for staff in general.
These estimates understate the situation
faced by employers because of the high rate
of staff turnover
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NB Labour Shortages for ECE Qualified
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Effects of High Turnover
Turnover rates in the Canadian ECEC are
much higher than general turnover rates
Replacement demand is very high
Implies recruitment and retention crisis is
really retention crisis
High turnover can decrease the quality of
care that children receive, increase employer
costs and cause vicious cycle
Number of provinces have instituted direct
or indirect wage subsidies for workers in the
ECEC sector in recent years
Improvements in HRM can improve job
satisfaction and reduce turnover
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Job Satisfaction, Wages & Quits
As wages rise the quit rate falls
Importance of non-wage factors diminishes
as wages rise
At low wage levels there is a very large
dispersion in quit rates that seems to be
related to job satisfaction
Changing the job satisfaction rate from the
lowest to the highest rating at the lowest
income level lowers quit rate by over 20%
Equivalent to a huge increase in pay
HRM practices affect job satisfaction
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R&R – Job Satisfaction And Wage
Source: Lydon and Chevalier (2002)
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Conclusions of Research
To have the full benefits of early childhood
education and care the ECEC sector must
have trained staff
Policies should encourage improved training
of ECEC workforce
NB should institute training requirements
Any wage subsidies should be linked to
training in order to encourage retention of
trained staff
Revamping of HRM practices can deliver large
gains in job satisfaction & retention
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