Insights & Analysis

September 16, 2021

Child care affordability in Alberta

Child care has always been on the minds of parents but now is a part of a larger, public discourse. 

A year and a half ago, COVID and the related public health measures begged the question: if child care is unavailable, how do parents work? Since then, Canadians have become keenly aware of how crucial safe, affordable, and dependable child care is to enable parents to work: to heal those with illness; get new business ideas off the ground; and keep Canada’s lights on. 

As well, it is clear the issue remains linked with gender equality. Though moms and dads alike have had to hone the delicate craft of something that resembles plate spinning—even more so than in pre-COVID times—time use studies of the past year show, when child care is unavailable or inaccessible, these responsibilities fall more on the plates of women. In other words, when push comes to shove, women are most likely to be the ones to step away from work. 

With the impending federal election, the issue has become one of central focus. Differences aside, what is most noteworthy is that both the Liberal government and the Conservative Party of Canada 1) recognize the interest in and need for a plan, and 2) seek to tackle one of the biggest issues of care: affordability. 

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Our intention is not to get into the details of the two policies nor to favour one over the other. Rather, it is to look at a question both these proposals raise: how affordable is child care in Alberta under the current model and why does affordability matter?

In this commentary, we:

  • Estimate the impact of child care costs on a typical family in Alberta
  • Discuss the consequence of female labour force participation
  • Consider whether female labour force participation is the right goal
Collaboration
We believe an important part of this work is to assess how much of a barrier cost may be for a typical family in Alberta—and, in particular, for women. To this end, the BCA has collaborated with two experts on this topic: Rob Buschmann, a research associate at the University of Alberta, and Gordon Cleveland, an economist who specializes in child care research, from the University of Toronto.

Background

Defining affordability 

There are a couple of ways to think about child care affordability. 

One is how much of a family’s budget is dedicated to child care. This measure is important in understanding the overall financial burden of child care on families with young children.

However, from the perspective of gender equality, there is a second measure which is at least as important and is the basis of our analysis below. In two-parent couple families, this second measure is: how much child care costs eat out of the salary of the parent who earns less. 

The reason this measure is important is because decisions about child care in couple families have more to do with how much more income—after taxes and after benefits—the family has if both parents are working compared with if one cares for children, forgoing this income but avoiding the cost of child care. 

The assumption here is that the parent whose employment is in question is the one who earns less. It would simply make less financial sense for the higher earner to quit their job. This connects back with gender equality: in heterosexual couples with different earnings, the lower of the two potential earners is the female 74% of the time. If child care were to eat a large portion out of the additional income from the second parent working, it may not be worth the time, effort or money to pursue employment.

Therefore, though other factors like an individuals’ longer-term career trajectory or a desire to return to the workforce may play a role, if the cost of child care is high compared with the additional earnings, women are more likely to leave their job for an extended period of time. As a result, this measure of affordability has consequences with respect to both labour force participation as well as the gender wage gap, both of which are described in more detail below.

Estimating cost of care 

Unfortunately, child care fee data province-wide is unavailable in Alberta. As a proxy, we use the typical fee for licensed child care in Edmonton from the latest Canadian Centre for Policy Alternatives survey of child care fees as of 2019, recognizing that fees are likely to be somewhat lower in rural Alberta and higher in Calgary. Because fees differ based on the child’s age, we use different fees for an infant versus a preschooler.

Some families receive a subsidy from the provincial government to help cover some or all of the cost of child care. Our estimates of what families would pay for child care, therefore, vary by income to reflect the true cost the family would pay out of pocket, given their subsidy eligibility.

In Alberta, this subsidy model targets low-income families. Previously, it targeted families earning up to $75,000, but it was recently expanded to apply to families with income of up to $90,000. We use the most recent subsidy expansion in our estimates. 

Measuring income

As mentioned, to understand affordability, fees must be compared against the additional income earned from working. The difference in income of both parents working versus one parent working (with changes in taxes and benefits taken into account) is calculated by: 

  • Estimating the second earner’s after-tax income 
    • Based on the assumptions made by the OECD when measuring child care affordability, we assume that in a couple family, the higher earner earns 60% of the family’s total earnings and the second earner earns 40%. This is also consistent with evidence from the 2016 Census for median earnings of fully-employed mothers and fathers of children 0-5.
  • Deducting the Canada Caregiver Credit and other benefits lost
    • Couple families with one parent working receive a tax credit. This credit would be lost if both parents were to work. Essentially, both the spousal amount in the tax system as well as the Canada Child Benefit become smaller the more income that the second earner earns.

To estimate the income of a “typical” Alberta family with young children under 5, we calculate the median income of these families as of 2019 using tax records and income surveys[1]. As of 2019, the median income for two-earner couples with a child under 6 in Alberta was about $108,000, which means the income of the higher earner was about $64,800 while the income of the second earner was around $43,200.

To simplify in the analysis below, we describe child care costs as a percentage of the second earner’s income. However, it is, technically speaking, the cost of care as a percentage of the family’s additional earnings (post-taxes and post-benefits) from both parents working, taking into account the loss of the Canada Caregiver Credit and decreases in other benefits, as described above. So subsequently, when we say income of the second earner, we mean the net additional income for the family.

Affordability in Alberta for a typical family

So, how affordable is child care in Alberta for a typical family?

For a typical couple family with a baby, child care eats up over 40% of the second earner’s net income. This means that, if they were to go back to work, the family would take home just over half of the additional income from work, once they’ve covered the cost of child care.

The cost of child care is pretty high; if we were to add in additional costs of working (e.g. transportation to and clothing for work) the family takes home even less of what the second earner makes as additional family income.

Though affordability is somewhat subjective, and the threshold will vary by family, household behaviour and the literature suggest that child care costs that equal to more than 30% of the second earner’s income are generally considered by families to be unaffordable and more than 60% is considered completely unaffordable.

That’s a typical family, but what about lower income families? In those cases, the amount that childcare eats out of the second earner’s net income varies and, in some cases, is less (as low as 30%) than the typical family. This is because the current subsidy model in Alberta does a good job of targeting the lowest income families, which means they pay less for child care.

How about higher income families? For these families, affordability is also better. That said, it is not until the second earner makes more than $60,000 that child care costs consume less than 30% of their net income. Even an individual earning $75,000 pays over 25% of their income on child care.

Source: Own calculations and modeling by Dr. Gordon Cleveland using the current provincial subsidies as of September 2021, the Canadian Tax and Credit Simulator for income tax and benefits data (produced and updated regularly by Prof. Kevin Milligan of University of British Columbia.), and Edmonton median child care fee data based on the 2019 Canadian Centre for Policy Alternatives survey.

But this is just for one child. Most families have more than one, and most have children closer in age rather than spaced out.

For a typical family in Alberta who has two children under 5, child care costs eat a whopping 70% out of the second earner’s net income. For families who earn just 15% less than the typical family, this bite is nearly 90%. Even an individual earning around $60,000 spends over half of their net income on child care. In fact, few families lose less than 45% of their additional earnings to child care.

In other words, for a typical family with two young children in Alberta, child care is likely to be completely unaffordable. Unsurprisingly, labour force participation of women with two young children is estimated to be a meager 59% in Alberta.

Source: Own calculations and modeling by Dr. Gordon Cleveland using the current provincial subsidies as of September 2021, the Canadian Tax and Credit Simulator for income tax and benefits data (produced and updated regularly by Prof. Kevin Milligan of University of British Columbia.), and Edmonton median child care fee data based on the 2019 Canadian Centre for Policy Alternatives survey.

Consequence for female labour force participation

A central concern with child care affordability is that high cost of child care curbs female labour force participation and, likewise, Alberta’s economic potential.

Labour force participation of married women with young children in Alberta—though it has increased over the last few years—remains low. 80% of married women (whose spouse is employed) who do not have children are a part of the labour force. Of those who have children and whose youngest child is between 3 and 5, this drops to 74%. For those whose youngest is less than 3, it drops further still to just 67%.

Also of note, women with children in Alberta are less likely to participate in the labour force than women in other parts of Canada: where average participation rates for married women with a child between 3 and 5 is 79% and for those with a child under 3 is 75%. In fact, female participation rates of women with young children are among the lowest in Alberta of all the provinces. Specifically, in Alberta 30% of households with a child under 5 had just one parent working (as of the latest data in 2015). That said, one caveat to note is that we do not currently have affordability data across provinces to compare, so, while it seems likely that cost is a contributing factor, other differences across provinces may also be at play.

Put another way, the upside to more affordable child care is that more parents working translates to a higher GDP and standard of living. When child care is more affordable, more women choose to work. This increase in GDP is not just because more women are earning money; evidence from the US suggests an increase in female labour force participation tends to increase the wages of both women and men.

What is equally important to note is what an increase in female labour force participation actually means. When high child care costs do not pull women out of the workforce for an extended period of time, this means more professional opportunities and advancement for women over the course of their career and, likewise, more voices at the table. Better representation of women in the workforce benefits businesses’ bottom line and society at large.

There are a few potential reasons for why this is the case: more women may increase the competitiveness of labour markets and add important skillsets and perspectives. Another reason is businesses with better gender representation—both across the company and up the ranks all the way to the boards of directors—better meet customer needs, because the workforce better reflects their customers. Globally, women are responsible for the majority of household spending and decision-making.

Put simply, higher labour force participation of women and a better gender balance in the workforce is good for society.

Should labour force participation be a goal?

One concern is that emphasizing female labour force participation could be tantamount to suggesting that caring for children is undesirable. Given this, perhaps child care affordability is not an issue per se and instead governments should provide financial support to all families and allow them to choose how to spend it.

This is an important point: families should have the right to choose what is right for them, whether that means that both parents work, or making the choice about which one should work and which should care for children.

However, this argument overlooks two things.  

First, it suggests the gender gap in labour force participation following the birth or adoption of a child represents a preference, regardless of the cost of care. The research shows this is not the case: when the time-cost of unpaid care work like childcare is reduced, shared more equally with men, and made more compatible with paid work, female labour participation increases. In other words, women choose to work in paid employment, when societies are designed to support families.

Second, and perhaps more importantly, so long as a gender gap in wages holds—and gender norms prevail—decisions made due to a high cost of care will continue to fall more heavily on women’s plates. If dad earns more than mom when a couple has their first child, this will perpetuate the gap. Family decisions are made based on this gap. As a result, women miss out on professional experience and opportunities, increasing the gap in future pay and slowing career progression. A high cost of child care ensures gender differences in jobs and pay across and within industries will persist, at great cost to society.

While female labour force participation is certainly not the only measure or goal of child care affordability, it is an important consideration.

Conclusion

Based on the current subsidy model, child care costs for a typical family in Alberta remain relatively high. In the case of a family with two young children, affording child care is likely to be out of reach.

Though the current subsidy model in Alberta successfully targets some families with low household income, it overlooks families with more moderate levels of income and ignores this important gender dynamic: when child care costs are high, employment tends to become less feasible for women.

This perpetuates gender differences in labour force participation and, in turn, leads to an imbalance across and at all levels of business. Further, this reinforces the disparity in the male-female wage gap and limits the province’s economic potential.

As the province considers support for families and child care beyond the current model, Alberta would do well to consider this measure of affordability and its impact on female labour force participation.

Footnote:

[1] Data is from the Social Policy Simulation Database and Model from Statistics Canada

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