Concerns about intended changes in childcare

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The Dutch Cabinet wants to make childcare more accessible by, for instance, simplifying the funding. But the announced broadening of the childcare subsidies could become detrimental to people with lower incomes, three researchers from Utrecht University say. Higher subsidies will result in higher gross prices, especially in this time of big staff shortages in childcare. This is why the economists Janneke Plantenga and Thomas van Huizen, and pedagogue Paul Leseman advocate for a gradual transition to a different arrangement of the system and for price regulations. On top of that, these could also discourage the influence of private equity in the sector and shift the attention to the quality of the care children receive, instead of just unburdening working parents.

The Dutch House of Representatives had a debate about the reimbursement for childcare. Various MPs shared the academics' concerns, and one of the things the Minister promised was a study into compensation possibilities for the lower and medium-income brackets. On 21 June, there will be a vote on the submitted motions.

Concerns about intended childcare policy


The reform and expansion of childcare compensation announced in the coalition agreement seem to be positive for everyone at first glance. On top of that, the ambitions of the Cabinet are high: a more simple system of funding (much needed after the Childcare Subsidies Affair), but also: moving the focus to childcare focused on the social-emotional development of children aged 2.5 to 4 years instead of childcare focused on unburdening working parents.

But there are also risks connected to the intended childcare policy, economists Janneke Plantenga and Thomas van Huizen, and pedagogue Paul Leseman state with concern in their article ‘Het maatschappelijk belang van kinderopvang vereist prijsregulering’ in the journal ESB.

Besides advantages, market function also has important disadvantages – such as the loss of public resources and the limited possibilities for guidance.

"The proposed increase of the reimbursement for childcare especially stimulates demand among the low and medium-income brackets, resulting in childcare for low-income brackets still becoming unaffordable and an impending loss of quality. And of course, besides advantages, market function also has important disadvantages – such as the loss of public resources and the limited possibilities for guidance."

The authors studied the possible effects of the intended policy on the rates, accessibility, quality and entrepreneurship in childcare.

The simpler way of funding would mean a reimbursement of 95 percent of the gross hourly rate (up to a maximum hourly rate), to be paid directly to childcare organisations. Parents would then pay an income-dependent personal contribution; good news for middle and high-income brackets. But for low-income brackets, this could very well have a negative result. This is because childcare organisations are free to raise their hourly rates above this maximum.

“With the Cabinet proposals coming into effect, the reimbursed maximum hourly rate becomes less compelling for the actual pricing. The big increase in subsidies will increase the demand and the gross price (and the personal contribution with it), especially in combination with big staff shortages. In order to prevent such inequality as an (unforeseen) effect, price regulation would be a solution,” the researchers write.

The expansion of the reimbursement for childcare, and disconnection from the hours worked, will primarily result in an increase of demand among middle and high-income brackets. Considering the harmonisation of childcare and toddler care, which both belong to the same privatised market, the reimbursement for toddler care and preschool education (for children whose parents do not meet the work requirement) would have to be raised too. But the funding for this higher reimbursement has not been arranged yet. The rise in demand for more full-time arrangements could also supplant the part-time supply for working and non-working parents.

In regards to the quality, the authors note that no measures are being announced in order to additionally monitor the quality of childcare, while it can come under pressure because of the expected rise in demand. After all, the sector currently already has big staff shortages.

Besides that, they point out the unease of private equity in the sector, in part because of the bankruptcy and return of childcare organisation Estro in 2014: “If childcare becomes (close to) free, the role of private equity becomes even more uncomfortable: a mostly tax-funded sector should not be paying dividends to investment firms.”

By regulating the price, the sector also becomes less appealing to private equity because the margins become smaller as a result.

Recommendations


All in all, the researchers make four recommendations:
 

  • Take time for the transition.
  • Put a restriction on the use, which is gradually released, so price increases, loss of quality, waiting lists and supplanting effects will be limited.
  • Regulate the price in order to prevent unwanted side effects.
  • Take the plan for a 'rich school day' (guidance in homework, sports and culture in collaboration with local organisations and libraries) seriously, and realise a serious collaboration between childcare, healthcare and education.

More reading material


The article ‘Het maatschappelijk belang van kinderopvang vereist prijsregulering’ was published on 16 June 2022 in no. 107 of the Dutch journal Economisch Sociale Berichten (ESB). Are you a member of ESB? If you are, you can read it here (in Dutch): https://esb.nu/esb/20070617/het-maatschappelijk-belang-van-kinderopvang-vereist-prijsregulering.