Universal Childcare is No Panacea: Promised productivity gains are unlikely to materialize

Commentary, Taxation, Ben Eisen


One frequently discussed policy proposal in the area of childcare is the creation of a “universal system.” This would provide daycare to every family who desires it but with government—taxpayers— picking up most of the tab. Proponents of this approach often present universal childcare subsidization as a wise “investment in human capital.” They assert universal daycare can bring long-term benefits to society in the form of improved performance in school, increased economic productivity in adulthood, and reduced criminality.
Unfortunately, these promises are based on a weak empirical foundation. The best available research suggests that, for most kids, there are minimal long-term benefits associated with participation in formal childcare. Far from being the social and economic panacea that some activists suggest, universal childcare is therefore an “investment” from which we cannot realistically expect to receive substantial returns.
The creation of a national, universal childcare system is an enormously expensive proposition. The estimated annual cost of such a program is $15 billion – a new tax burden of about $2,000 per family. Proponents argue that we should happily incur these costs because they represent a prudent long-term investment. To get around the objection of cost, they claim formal childcare participation at very young ages is a net economic benefit— a smart long-term strategy for promoting economic growth.
Unfortunately, an examination of the research in this area reveals the evidence surrounding the developmental impacts of childcare participation is actually quite ambiguous, and gives little support for universal daycare subsidies.  
For example, universal childcare proponents correctly claim participation enhances “school readiness,” as measured by cognitive tests given to children when they enter the first grade. What they generally neglect to mention is that for the vast majority of children, these benefits fade out almost entirely within just a few years. This fadeout effect is so strong that by the time they are ten years old, childcare participants are statistically indistinguishable from non-participants in terms of almost every measure of cognitive development.
 According to one high-quality study recently conducted in the United States that made use of the rich Early Childhood Longitudinal Data set, the fadeout effect may actually be even faster. This study showed that children who participated in formal pre-kindergarten programs slightly outperformed their peers in reading and math tests at the moment of school entry. However, by the spring of first grade, these cognitive benefits faded out almost completely.
This research suggests that after just a few years of formal education, children exposed to formal pre-kindergarten programs become virtually indistinguishable from children who have not. There is an important exception to this general rule: for children from poor families. In their case, there do appear to be benefits from childcare participation that last into adulthood. A number of carefully performed studies prove beyond a reasonable doubt that high quality preschool interventions can bring long-lasting benefits to kids from economically disadvantaged homes. This reality should be recognized and inform policymaking. However, it does not change the fact that for the majority of children who come from middle-income families, there appears to be virtually no long-term benefit associated with formal daycare.
The policy implications seem quite clear. While subsidizing childcare for poor children may produce long-term social and economic benefits for the country, doing so for middle- and high-income families will likely have zero long-term impact on Canada’s store of “human capital.”
If promoting long-term economic growth is an objective of childcare policy, a targeted approach that provides access for poor families (through vouchers or some other means) will accomplish just as much as a system of universal subsidies. It will also do so at a small fraction of the cost of an unnecessary universal program.
Happily, this cheaper approach also has the benefit of creating universal access to childcare, by providing assistance to those who need it, while allowing those with money to choose—and pay for, whatever childcare arrangements best suits their particular needs.
As governments work to develop priorities and allocate scarce funds, they constantly face partially true, misleading and patently false claims from a wide variety of interest groups. Such groups are often determined to demonstrate why their pet project is the most deserving of government largesse. The myth that universal childcare represents a prudent long-term investment in Canada’s human capital is one of these claims. Governments should recognize this canard for what it is and dedicate scarce resources to more urgent priorities.