Why Universal Childcare Makes “Economic Sense”
A study by Economist Impact has found investing in childcare is not only urgent for the people involved, but also “fiscally responsible.” It could lead to GDP growth between 0.2 to 1.09% per year.
As parents struggled with fulfilling their job duties while taking care of their children during the first months of the Covid-19 pandemic, childcare became one of the main concerns of life under lockdown. But once movement restrictions were lifted and schools reopened, the feeling of urgency around the subject dropped, and childcare stopped being considered a priority in the long list of crises to solve for policy-makers.
Yet, the conversation continued on for families with young children because childcare remained an urgent matter for them.
Economist Impact set out to study that urgency and the importance of childcare investment and policy reform – first through an analysis of online discussions of the topic (on pre-Musk era Twitter), then through measuring the potential financial impact of such an investment by 2027 for 15 countries.
The childcare dividend initiative is an ambitious two-part project carried out by a core team of six researchers, in collaboration with model developers, producers, writers and designers, and input from childcare experts.
Monica Ballesteros, senior manager at Economist Impact, tells us about the genesis of the project, the challenges faced when it comes to data collection and their key and most surprising findings.
With our guest’s permission, the following interview has been edited and condensed for more clarity and accuracy.
How did The childcare dividend initiative project start?
Monica Ballesteros – Three years ago, we were in the middle of Covid, and we were talking to the gender team at the Gates Foundation about the areas where we could produce a really solid and rigorous piece of research, but also create original research of things that had not been discussed in particular related to women’s empowerment. We did a big white space analysis, and we realized there’s a lot of literature about why childcare is important, but there was almost no data on childcare. And at the time, with Covid, it was really gaining a lot of momentum because suddenly you have people in their houses realizing how hard it is to both work and take care of their children. So a lot of things aligned, and it was kind of like an aha moment.
“We found that all of the countries that we were measuring are today losing money because they are not investing in childcare.”
As you pointed out, there’s a lack of data on the subject to begin with, so how did you manage to do this research?
There was no data, so we had to create it. First, we did the social media scraping. It’s like social listening, which is a methodology and a tool that is used a lot for marketing purposes. We had seen a few studies that were using it to study policy issues so we developed a methodology in which we could repurpose a lot of the tools that are being used for social listening. And we’re not the first ones to do it, but I think it was one of the first efforts to do it around childcare on a global scale. For example, when we were doing literature review, we found a study in the United States that had used Yelp reviews to track the quality of childcare, but that was done at a very small scale.
For that first stage, we used Twitter, which is not a perfect source. We recognize that a lot of the people that are having these conversations are not having them online, and a lot of the women that need the most support are not online, right? But we still thought that it was valuable to, at least, kind of see the big picture, and also how it compares to other issues.
For the second phase, where we wanted to quantify the economic impact of childcare, again, we found very little economic data. In order to come up with a robust dataset, we leveraged our advanced analytics capabilities and partnered with The Economist Intelligence Unit, our sister company. The EIU has been a global leader in economic forecasting for over 75 years. Together we built interconnected econometric models that estimate the annual impact of investment in childcare for the next five years. Our models allowed us to use the data available to actually make a reasonable assumption about what’s needed. Fortunately, as we were working on these models, the International Labour Organization was starting to do a really big exercise to get global data on childcare, and the World Bank has done a lot of work on this at the country level, so we used some of that work as the basis of how we build our assumptions and then we scaled it for 15 countries.
What were you aiming for exactly with those models?
What our model measures is the link between childcare enrollment rates and female labor force participation, and we also measure how maternal labor force participation impacts GDP. This model was inspired by Claudia Goldin’s model, which was recently awarded the Nobel Prize in Economics.
What we did is that we not only estimated the female labor force participation, but we estimated the maternal labor force participation. Many times, people talk about the gender pay gap and they talk about women’s economic challenges, but there was really not a lot of data linking this to childcare. So what we first kind of tried to establish is: “Are moms the ones that are struggling the most to stay in the workforce?” And if the answer is “yes,” then it’s likely that childcare is one of the reasons why they are not allowed to stay in the workforce as maybe a younger or older or wealthier woman that does not have kids.
And then the second thing that we tried to establish, at a national level, was the cost and the benefits of investing in childcare. And we found that all of the countries that we were measuring are today losing money because they are not investing in childcare.
“If you’re a hard economist, if you care about macroeconomics and if you care about GDP, you need to care about childcare. It’s not only a sensible investment, but it will allow you to shift your GDP very significantly.”
You estimated the economic potential of investing in childcare in Australia, Brazil, Canada, Chile, Germany, India, Indonesia, Kenya, Mexico, Nigeria, South Africa, South Korea, the United Kingdom, the United States and Vietnam. Why these countries in particular?
We tried to find countries that are geographically representative. We couldn’t just focus on the Global South. We also wanted low, mid and high-income countries.
Then we created an index and used some sources to understand the level of development of childcare. And this was also interesting because you have countries like the United States, like the United Kingdom, that are actually lagging behind. So we tried to have countries that were laggards and countries that were model countries, and many of the model countries are in the Global South.
And then it was about data availability. We at least needed data on enrollment rates on women’s workforce, so we did choose 15 countries where we could run this study soundly.
We don’t want to say these are global findings because then we’re underestimating the growth rate, but the size of the economies are close to the global GDP, so it is a sample of countries that will actually move the needle of global growth.
I think the country-level findings are huge. I mean Nigeria is one of the countries that will drive global growth because they have the largest youngest population. Nigeria would grow exponentially if they invested in childcare. We found India to be another country that would grow exponentially. And you have mid-income and low-income countries that are doing a lot more for childcare than, for example, the United States is doing.
Were there findings that surprised you?
Definitely how much economic sense it makes, I would say. In the short amount of time that we were able to scale this dataset, it was very, very powerful to see these numbers. Because we knew it at a country-level and we expected this to be true, but now the data is there. Like, the gains are massive, massive.
For me, as a woman, it just makes sense, but I’m also someone who has worked in macroeconomics for a long time, you know, many times, I’m sympathetic to governments and to ministers of finance because their job tends to be very difficult. You have a limited pot of money, and you need to do your best to promote economic growth, right? So sometimes I kind of stand in the middle of things. And this does make economic sense.
And what was surprising is that, again, we had seen the work on the link between the female labor force and the GDP, there has been a lot of work about the pay gap, so we know that women’s economic inclusion is important. But what was surprising was to see that we can attribute a lot of these gaps to childcare.
It was also surprising to see that developing countries can actually both afford this, and make a lot of money out of it. Like if you’re a hard economist, if you care about macroeconomics and if you care about GDP, you need to care about childcare. It’s not only a sensible investment, but it will allow you to shift your GDP very significantly. It’s not only affordable, but the return on investment is huge. We found that all countries in our study would grow their GDPs between 0.2 to 1.09% in a year if they had universal childcare. The evidence here is super clear. So to me, just the magnitude of the change was surprising.
What do you hope news outlets and journalists can take away from this project?
As it is with economists, with our team, we focus a lot on writing our methodology notes to make sure that people understand that the model is robust. We have a sign of approval from The Economist Intelligence Unit and from Economist Impact, right? We spent most of our time just making sure that this makes sense first, and our job now is to create a really good toolkit both for advocates and for journalists. We have the economic data, we just need to translate it into something that the public can read and be like, “Oh, when I’m voting I need to make sure that childcare is on the ballot.” I think that’s something that’s driving change in the United States for example.
It’s an important thing to bring to the table because I think it’s a unifying issue. No one is against better quality affordable childcare. The argument is often “there’s no money for this,” but the takeaway here is that it’s proven that not only is there money for this, but it will help you grow, it’s fiscally responsible.
What we were able to prove in this study is that childcare should be front and center because it’s necessary, it’s urgent, and it makes economic sense. It’s good for women, it’s good for reducing poverty rates, it’s good to increase the GDP, it really is in my mind now a no-brainer for economic development
Editor’s note: The Bill & Melinda Gates Foundation has funded The childcare dividend initiative and funds Towards Equality, the program that has created In the Balance.