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Market-Based Solutions to Vital Economic Issues
Kenan Insight
Dec 15, 2023

Universal Childcare Boosts Mothers’ Careers, Firms’ Bottom Lines

As the adage goes: It takes a village to raise a child. And yet in modern societies, where women aspire to ambitious careers and firms require highly productive employees, families must pay for childcare, or a parent – generally the mother – makes long-lasting professional sacrifices and provides the care themselves. This conundrum saddles mothers with the costs of rearing young children, contributing to widespread and persistent disparities between men and women in pay and career advancement.

Is there a policy fix for this problem? New research from UNC Kenan-Flagler Business School Associate Professor Elena Simintzi, co-authored with Assistant Professor Sheng-Jun Xu of the University of Alberta School of Business and Assistant Professor Ting Xu of University of Toronto Rotman School of Management, examines a universal childcare reform implemented in Quebec, Canada, in the late 1990s and its effects on mothers’ careers and earnings, finding broadly positive outcomes for these new parents and for some companies as well.

Universal Childcare a Big Boost for Mothers

Among the chief findings in the forthcoming study, “The Effect of Childcare Access on Women’s Careers and Firm Performance,” Simintzi and her co-authors report that early access to childcare significantly increases employment among new mothers. This effect is largely driven by mothers who were not in the labor force before childbirth, suggesting that childcare subsidies are most effective in drawing those into the labor force. The authors note that Quebec’s childcare reform had no significant, long-term effect on the workforce participation rate of mothers who were already employed before giving birth, proposing that this difference in outcomes shows that having a job was sufficient to prevent a woman from dropping out of the labor force for childcare-related reasons. Canada, after all, has nationally mandated maternity leave for employed parents.

Quebec’s childcare reform, which was rolled out gradually between 1997 and 2000, subsidized care for children from birth up to 4 years of age, no matter their family’s income or employment status, bringing the cost to individuals down from a median daily $11 Canadian dollars to CA$5. The childcare program also resulted in the proliferation of “Centres de la petite enfance” (in English, “centers for young children,” known by the acronym CPE), greatly increasing availability and reducing frictions for mothers seeking childcare (Figure 1). The program’s gradual rollout allowed the researchers to compare outcomes for different groups in the years before, during and after the reform’s implementation, and, using detailed administrative labor data, the authors were able to uncover the policy’s effects on individual parents, firms and gender segmentation in the labor market.

Figure 1: Childcare Provision and Usage in Quebec Around 1997

More than reducing the cost of childcare, Quebec’s universal childcare program resulted in the proliferation of “Centres de la petite enfance” (in English, “centers for young children,” known by the acronym CPE). From 1996 to 2005, the number of CPEs doubled and the number of regulated home-based care centers quadrupled (Figure 1, Panel A). Meanwhile, the proportion of Quebec children from 0-5 years old in childcare centers nearly tripled, from 11% in 1996 to 31% in 2002 (Figure 1, Panel B).

In addition to reducing frictions, the reform helped families plan for the years after giving birth. Merely having the knowledge that one would receive subsidized childcare in the future allowed mothers to join the workforce in greater numbers than they had before the policy’s announcement. The reform’s gradual rollout created a natural experiment with separate treatments for different cohorts of mothers. Mothers who gave birth in 1997 – the policy’s first year, when only care for 4-year-olds was subsidized – maintained their employment at a higher rate than those who gave birth in the preceding years (Figure 2, Panel A). The cohorts that gave birth in the years after the reform went into full effect, and whose children were immediately eligible for subsidized childcare, uniformly exhibit steady employment following childbirth (Figure 2, Panel B).

Figure 2: Mean employment rate by cohort around childbirth

Figure 2, Panel A shows that mothers who gave birth in 1997 were able to maintain their employment at a higher rate than those who gave birth in the preceding years, indicating that merely the knowledge that one would receive subsidized childcare in the future allowed new mothers to join or rejoin the labor force. The cohorts that gave birth in the years after the reform went into full effect (Panel b), and whose children were immediately eligible for subsidized childcare, uniformly exhibit steady employment following childbirth.

By many metrics, Quebec’s universal childcare policy improved the professional lives and incomes for new mothers, making it more likely that they would receive promotions – and increased pay – bolstering lifelong earnings. There is evidence of improved incomes and career advancement stemming from promotions earned with existing employers, and yet the study shows even stronger outcomes resulting from new mothers’ ability to switch firms. The researchers discern a nearly 40% increase in the number of new mothers voluntarily changing employers from one year to the next relative to the post-childbirth average before the reform.

Less Friction Leads to Better Labor Allocation, Lifting Pay, Productivity and Profits

These changes afforded working mothers more choice in their employer, giving them the freedom to follow their professional ambitions and pursue the career of their choosing instead of a job or home life that conforms to a life with insufficient childcare. And while Quebec’s childcare policy relieved new mothers of various constraints – money, time, mental energy – it likewise removed labor constraints from certain firms, namely those considered less “friendly” to new mothers. 

In the years following the childcare reform’s implementation, more women had reallocated their labor from “mom-friendly” firms to “mom-unfriendly” firms – the ones that offer jobs that reward long hours or those with fewer maternity benefits and less flexible work arrangements. The observed shift in labor allocation was also reflected in firm’s bottom lines. Not only did “mom-unfriendly” firms increase their share of the female workforce, their overall productivity increased relative to “mom-friendly” firms, which translated to greater return on assets. With more working mothers pursuing more demanding jobs, “mom-unfriendly” employers typified by higher pay and longer work hours could draw from a larger and more diverse labor pool. The study’s results suggest that by lowering professional barriers for new mothers, the universal childcare reform made labor allocation more efficient, leading to better matching between employees and employers, and both reaped the benefits.

The authors point out that “mom-unfriendly” firms’ becoming more productive and profitable after the reform reflect equilibrium effects generated by a mix of factors. New female employees, for instance, may be more productive than existing workers, which would contradict the norm that existing employees are more productive than new ones, perhaps reflecting that the new employees in this case are more suitable matches for the jobs they seek. Another possibility is that the reform may have eased labor constraints on “unfriendly” firms, or that merely having greater gender diversity in the workforce may increase overall productivity. Thus the firm-level results, the researchers caution, should not be construed as being entirely driven by new mothers’ employment preferences. The authors also note that they were not able to comprehensively assess the reform’s allocative efficiency, as the childcare subsidies created mixed outcomes and knock-on effects for mothers, families and firms. Their study does not, therefore, attempt to evaluate the reform’s fiscal costs versus its economic benefits. And yet, for mothers, universal childcare’s implications are clear.

Universal Childcare Is Universally Beneficial

Having easy access to childcare makes a world of difference for new mothers who earn long-term gains, some measureable, such as money, and others less tangible, such as the fulfillment of pursuing one’s professional ambitions. The benefits from Quebec’s reform were strongest among young, single and lower-income women, a result consistent with earlier studies on the effects of universal childcare. This observation is perhaps intuitive, as young, single and lower-income women would be most constrained in procuring private care. Universal childcare, however, is universally beneficial, as new parents of any social economic status find themselves suddenly short on valuable resources – time, money and energy among them.

Certainly, a complex mix of factors influences the professional decisions of new mothers, yet the study’s policy implications are unambiguous. Having access to childcare frees new mothers to choose where and how to allot their labor, increasing their employment and enhancing their careers by a multitude of metrics, including better pay, professional advancement and more voluntary changes of employer. The benefits from granting new mothers greater authority over their own labor choices are realized not only by the mothers and their families, but also by the firms that suddenly have a larger and better-suited labor pool from which to draw.

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