An Equilibrium Model of the Impact of Increased Public Investment in Early Childhood Education

73 Pages Posted: 13 Jun 2022 Last revised: 8 Nov 2024

See all articles by Jonathan Borowsky

Jonathan Borowsky

University of Minnesota

Jessica H. Brown

University of South Carolina

Elizabeth E. Davis

University of Minnesota - Department of Applied Economics

Chloe Gibbs

Department of Economics, University of Notre Dame

Chris M. Herbst

Arizona State University (ASU) - School of Public Affairs

Aaron Sojourner

W.E. Upjohn Institute for Employment Research; University of Minnesota; IZA Institute of Labor Economics

Erdal Tekin

American University

Matthew Wiswall

University of Wisconsin-Madison - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 2022

Abstract

Recent policy proposals call for significant new investments in early care and education (ECE). These policies are designed to reduce the burden of child care costs, support parental employment, and foster child development by increasing access to high-quality care, especially for children in lower-income families. In this paper, we propose and calibrate a model of supply and demand for different ECE service and teacher types to estimate equilibrium family expenditures, participation in ECE, maternal labor supply, teacher wages, market ECE prices, and program costs under different policy regimes. Under a policy of broadly expanded subsidies that limits family payments for ECE to no more than 7% of income among those up to 250% of national median income, we estimate that mothers’ employment would increase by six percentage points while full-time employment would increase by nearly 10 percentage points, with substantially larger increases among lower-income families. The policy would also induce a shift from informal care and parent-only care to center- and home-based providers, which are higher-quality on average, with larger shifts for lower-income families. Despite the increased use of formal care, family expenditures on ECE services would decrease throughout most of the income distribution. For example, families in the bottom three income quintiles would experience expenditure reductions of 76%, 68%, and 55%, respectively. Finally, teacher wages and market prices would increase to attract workers with higher levels of education. We also estimate the impact of a narrower subsidy expansion for families with an income up to 85% of national median income.

Suggested Citation

Borowsky, Jonathan and Brown, Jessica and Davis, Elizabeth E. and Gibbs, Chloe and Herbst, Chris M. and Sojourner, Aaron J. and Tekin, Erdal and Wiswall, Matthew, An Equilibrium Model of the Impact of Increased Public Investment in Early Childhood Education (June 2022). NBER Working Paper No. w30140, Available at SSRN: https://ssrn.com/abstract=4134936

Jonathan Borowsky (Contact Author)

University of Minnesota ( email )

Jessica Brown

University of South Carolina ( email )

Darla Moore School of Business
1014 Greene Street
Columbia, SC 29208
United States

HOME PAGE: http://www.jessicahbrown.com

Elizabeth E. Davis

University of Minnesota - Department of Applied Economics ( email )

1994 Buford Avenue
St. Paul, MN 55108
United States

Chloe Gibbs

Department of Economics, University of Notre Dame ( email )

United States
574-631-4963 (Phone)

HOME PAGE: http://www.chloegibbs.com

Chris M. Herbst

Arizona State University (ASU) - School of Public Affairs ( email )

Box 870603
Tempe, AZ 85287
United States

Aaron J. Sojourner

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

University of Minnesota

Carlson School of Management
MN
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Erdal Tekin

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

Matthew Wiswall

University of Wisconsin-Madison - Department of Economics ( email )

William H. Sewell Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
441
PlumX Metrics