Should Governments Subsidize Child Care and Work Leaves? BECKER

Germany and the United States, among many other countries, have been criticized for not having the extensive system of benefits to parents who have children found throughout Scandinavia and some other countries. For example, the Swedish government not only heavily subsidizes day care activities for young children with working mothers, but also allows up to eighteen months of paid leave to care for a newborn child. These benefits are open to both mothers and fathers, but mothers take practically all leaves. Benefits almost fully compensate for the loss in earnings during the first 12 months of leave, while they offset more than half of earnings during the next 6 months of leave. Also companies have to take their employees back at comparable jobs when they decide to return to work from a child leave. The many advocates of a Swedish-type childcare system believe it permits mothers of young children to work while guaranteeing that their children have adequate childcare at government-run facilities. At the same time, it allows mothers to care for their young children without losing their jobs. In addition, these subsidies tend to encourage families to have more children since they reduce the cost of having and raising children. Despite these claims, I believe it would be a mistake for the US, Germany, or other countries to emulate the Swedish approach. For starters, middle class and rich families can pay for their own childcare services for young children, such as preschool programs, whether or not the mothers are working. In fact, the majority of such families in the United States do send their young children to day care programs. It is much more efficient to have better off families buy childcare services in a private competitive market than to spend tax revenue on preschool government-run programs for the children of these families. The Swedish childcare system was insightfully criticized along these lines in a controversial but I believe correct analysis by my late colleague Sherwin Rosen (see "Public Employment, Taxes and the Welfare State in Sweden", NBER Working Papers 5003, 1995). It could make sense to subsidize the preschool activities of children of poor families since these children may well receive inadequate care without such subsidies. The US takes this approach by only subsidizing preschool care of low-income families. These subsides appropriately take the form of a voucher system rather than government-run pre-school programs. Poor families are in essence given vouchers each month that they can spend on any approved private day care program for young children. The market is highly competitive and I believe works well, although there are few careful evaluations of this system. Still, I believe it provides an example of how a voucher system might work for older children in school. The case is also weak for following Sweden by providing all women who work with generous and lengthy government-financed paid leaves. The US does not have this system, yet many working women leave their jobs at least temporarily, or work part time, in order to care for their children. The vast majority of parents are very concerned about the wellbeing of their children, and give that a lot of weight when deciding whether to care for them rather than using preschool programs and other outside help. Government –financed payments to working mothers who take a leave of absence to care for their young children subsidizes women who work compared to women who decide to stay home fulltime to care for children and engage in other activities. It is still controversial whether there is a significant benefit to children from having mothers who stay home to care for them instead of having mothers who work, and care for their children (perhaps more intensely) only before and after work and on weekends. On the whole, I believe that work decisions are best left to parents without government subsidies or other government involvement. Generous government childcare and work benefits for families with young children are advocated sometimes because they promote larger families. European and some Asian countries are particularly receptive to this argument since their birth rates are so low that their populations would begin to decline soon unless births increased a lot, or they accepted large numbers of immigrants. Yet while the Swedish total fertility rate is quite a bit above that of Germany, Italy, and some other European nations, it is still too low to prevent its population from declining in the near future, despite the world's most generous system of work and child care benefits for families with young children. This may be because the Swedish-type system promotes larger families in an indirect and inefficient manner. The most direct and best way to encourage births, if that is the goal, is to provide monthly allowances to families that have an additional child. Subsidizing births directly encourages larger families without mainly targeting women who work, or women who value childcare services a lot. Moreover, since the vast majority of families even in Europe have at least one child without government subsidies, an efficient family allowance program should concentrate subsidies on the marginal fertility decision; that is, on second, third, or higher order births that may not happen without subsidies. France has an extensive and complicated system of direct allowances mainly to families that have more than one child. The best study of the effects of this program (see Laroque, Guy & Salanié, Bernard, 2005, "Does Fertility Respond to Financial Incentives?" CEPR Discussion Papers, 5007) shows that it has had a significant effect in raising French birth rate to among the highest in Western Europe, although other factors are also important. However, the system is expensive, and the French total fertility rate is still considerably below its replacement level. The US does not apparently need any stimulation to family size since its total fertility rate is the highest of any developed country, and it is even above that of many much poorer countries, like China or South Korea. The case for general subsidies to childcare and for work leaves to employees with young children is also weak. So I believe that present American policy in these areas is much better than the Swedish approach, and does not need drastic changes.

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