As material workforce participation and interest in early childhood education have increased, the supply of formal childcare has expanded. It is unclear, however, how much this has contributed to an increase in consumers’ surplus or the welfare of households with small children.
Theory suggests that in a competitive market, the entry of new firms increases consumers’ surplus; however, this may not be true in a market with a differentiated service such as childcare.
For example, childcare services may differ with respect to quality, proximity and flexibility, making it unlikely for them to be exactly identical products for diverse households.
In such a market, the overall effect of entry on the welfare of households is unclear. On the one hand, it has been shown that the price of service can rise with the entry of service providers. Entry, therefore, could yield a negative effect on consumers’ surplus.
On the other hand, new service providers within a local market are likely to increase proximity to providers and reduce transportation costs.
This might offset the negative effect of an increase in the price of service. In addition, if new providers offer previously unavailable services with quality and flexibility, this might mitigate the cost of the search for a provider that satisfies a household’s preference.
In the case of childcare, if the benefits from better matching and the proximity to service providers dominate, an increase in the availability of childcare could mitigate perceived difficulty in the search for providers. This could in turn improve households’ life satisfaction.
This study provides empirical evidence on the relationship between the availability of service providers and consumers’ surplus, measured by parents’ perceived search costs and life satisfaction, focusing on the market for children.
The aim of the paper is to reveal the overall relationship utilizing new panel data on the number of center based childcare places per 100 children within a household’s residential area.
The paper studies the rapid supply growth that happened in Australia between 2001 and 2006, during which the number of center-based care places grew by 69,122 or 26 percent.
Results of the study show the following:
an increase in the availability of childcare, raises consumers’ surplus or the welfare of households, through mitigating the costs associated with searching for childcare and freeing up mothers’ time
benefits are found to be concentrated among less-educated mothers and parents having older children with younger siblings
there are few significant relationships between the average accreditation status and perceived childcare accessibility.