Regulating Child Care: The Effects of State Regulations on Child Care Demand and Its Cost

by V. Joseph Hotz, V. Joseph Hotz, M. Rebecca Kilburn

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In this paper, the authors examine the effects of existing state-level child care regulations on the cost, or price, of nonparental child care, the demand for (nonparental) child care by parents, and the mother's decision to enter the labor force. The authors distinguish between the indirect effects of regulations on demand via their effect on the cost of such care facing parents as well as the direct (and non-price) effects regulations may have by imposing standards in the form of minimum levels of quality on available care facing parents. In the authors' empirical analysis, they analyze the child care decisions of all parents with preschool age children, including households with working and nonworking mothers, using child care data from the 1986 wave of the National Longitudinal Survey of the High School Class of 1972 (NLS72). The authors present estimates of the effects of two sets of regulations--namely, restrictions on child-to-staff ratios in day care centers and educational and/or training requirements of workers in either centers or home day care settings--as well as two types of child care subsidies--child care tax credit for working mothers and subsidies to providers--on the child care and maternal work decisions of households as well as on the hourly cost of child care. The authors' evidence indicates that state regulations both increase the cost of child care as well as have direct (non-price) effects on utilization, but that their total effect tends to reduce the utilization of market-based child care, especially among households with nonworking mothers. Since economically disadvantaged and black women are disproportionately represented in the latter group, it appears that one of the consequences of regulations is to deter the utilization of child care by households with children for whom the purported developmental benefits of organized day care might be most beneficial.

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