Universal Childcare in Northern Ireland - Presentation
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The document analyzes the costs and benefits of subsidized childcare in Northern Ireland. It summarizes findings from studies in Quebec, Denmark, and the Netherlands on the economic impacts of increased childcare subsidies. The analysis estimates that while subsidies may increase maternal employment and earnings, the quantifiable costs of the subsidies would likely exceed the quantifiable economic benefits. It finds that large fiscal deficits would result and the policy would not pay for itself. While there may be social benefits, the document concludes the economic case for subsidies to pay for themselves is not clear.
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Universal Childcare in Northern Ireland - Presentation
- 1. www.pwc.co.uk/ni Childcare in Northern Ireland: A cost-benefit analysis Dr Esmond Birnie, Chief Economist PwC in NI and Scotland 1 December 2014
- 2. Why the debate around childcare matters… • International evidence associates PwC maternal employment rates with o reduced child poverty o economic benefit of increased (female) labour supply. • Supported by a “consensus” of government, employers, unions. • Challenged by “dissenters” who question “quality” of childcare & impacts, plus a disincentive towards care in the home. Figure 4: Maternal employment rates compared to child poverty rates, 2010 1 December 2014 2 BGR USA AUS LTLVUA AUT BEL CAN CZE DNK EST FIN FRA DEU GRC HUN ISL IRL ITA JPN LUX MEX NLD POL NZL PRT SVK SVN ESP SWE GBR CHE CYP MLT ROU 27 24 21 18 15 12 9 6 3 20 30 40 50 60 70 80 90 Employment rate for mothers with children under 15 Proportion of children living in poor households R = 0.53
- 3. Working hypothesis… Increased subsidisation improves childcare affordability, promotes greater (female) labour supply and, in turn, should deliver quantifiable benefits in excess of quantifiable costs over time. But: • Affordability of childcare is one factor amongst many influencing maternal PwC labour supply. • Greater labour supply needs to matched by increasing employment. • The highest per-capita GVA jobs accelerate the quantifiable benefit, but how likely are these? NICVA/CEE 1 December 2014 Slide 3
- 4. Looking to external models… Focus on the rate of subsidy. • Three external models exemplify possible impacts: PwC o Quebec/Canada with c. 85% rate of subsidy. o Denmark c. 80% rate. o Netherlands rate between 40% - 80%. But: • Subsidy rate not sole relevant factor. • Are international models transferrable? • These models are not necessarily “ideals”. 1 December 2014 4
- 5. Estimating the quantifiable benefits… Two main quantifiable/economic benefits: • Increased labour supply of mothers with dependent children: PwC o econometric studies of Quebec provide direct estimates of % impact. o Denmark/Netherlands assume half of gap in maternal employment rates would narrow. o reduced in Netherlands by negative impact of business levy. • Increased lifetime earnings of mothers because fewer career breaks (estimated using human capital research). But: • We assume labour demand rises to meet supply. • Mix between F/T & P/T workers would reflect existing split. • Assumptions are such so as to increase benefits relative to costs. 1 December 2014 5
- 6. Estimating the (public spending) cost… Main quantifiable cost increased public spending (adjusted for likely consequent decline in welfare spending). • Quebec- took average of Quebec and Scottish proposals. • Denmark- 95% of Quebec’s unit costs, given subsidy rate 80%. • Netherlands- OECD data adjusted down by 33% given employer subsidy. But: • Danish figures too high. • Exchange rate issues. • Assume a P/T place costs 60% of F/T. • Uncertainty re. requirement for part and full-time places. • Assumed minimal additional deadweight. PwC 1 December 2014 6
- 7. Snapshot or annual comparison of quantifiable costs and benefits… PwC Model Benefits higher employment & higher earnings, £m Costs public spending adjusted for welfare reductions, £m Net cost costs minus benefits, £m Quebec 535.4 545.3 9.9 Denmark 487.6 513.5 25.9 Netherlands 287.2 399.5 112.3 1 December 2014 7
- 8. Results, will the policy achieve economic lift-off? • Quantifiable costs exceed quantifiable PwC benefits though not by a large margin. • When discounted, the net present value is substantial and negative. • Large fiscal deficits are implied… so, the policy does not pay for itself. • In devolved terms it could cost £260m - £397m annually, even if all existing childcare spending could be re-directed. • No certainty of job-creation offering employment opportunities, especially high wage/GVA, for new maternal workers, so lift-off may not happen. 1 December 2014 8
- 9. Where does that leave us? “…despite increasing cross-party support, there is a remarkable lack of clarity over objectives and evidence underlying the current debate…robust evidence on the impact of ECEC on parents’ labour supply is surprisingly limited…We have stumbled a long way in the dark in this policy area…It is time to stop stumbling, shine a light on the policy landscape and plot an effective route forward.” PwC Institute for Fiscal Studies, February 2014. • Be realistic about what we don’t know. • Do not exaggerate the economic benefits of subsidised childcare. • There are probably social impacts, but not certainly, positive. • It’s likely childcare subsidies would not pay for themselves in fiscal terms. 1 December 2014 9
- 10. Thank you, discussion… Esmond Birnie PwC | Chief Economist Direct: +44 (0)28 9041 5808 Mobile: +44 (0)7850 907892 Email: esmond.birnie@uk.pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.