# **7 Conclusions**

Child care markets are at the center of the trade-off facing parents as they allocate time between the labor market, child care, and leisure. By supplying labor in the market, parents receive income yet lose a portion of the time they would otherwise devote to caring for children. Therefore, access to high-quality child care options, which can effectively substitute for parents’ time, is crucial to family-friendly policies, child development, and labor supply. Any policy seeking to expand child care access should recognize that center-based quality and price are market equilibrium outcomes, which will adjust in response to policies.

We model the child care market and estimate its structural parameters, endogenizing both demand and supply to evaluate policies in an equilibrium context. We model parental choices on labor supply, child care, and time allocation and providers’ decisions on entry, quality, and price. We model two- and single-parent households. In addition to exclusive parental care, we allow parents to choose between care provided outside the home by center-based providers or relatives (e.g., grandparents), and home-based care provided by non-relatives (e.g., nannies). In equilibrium, the market features multiple levels of quality as well as horizontal differentiation and price variation within and across qualities.

We estimate the model by Simulated Method of Moments on a sample of two-year old children from the 2003 Early Childhood Longitudinal Study (ECLS-B). We obtain precise point estimates that provide a good fit of the data and are comparable with previous literature. Parameter estimates imply that households value consumption less than child development and show that mother’s time has a strong positive impact (increasing in education) on child development. They also show a high degree of substitutability among time with various care providers. We allow multiple parameters to vary by household location, finding that both wage offers and costs of care are increasing in the location’s size (children’s population) and (average) income yet not at the same rate.

We simulate policies inspired by the current debate on increasing access to center-based care. We simulate subsidy-based policies (vouchers and cash transfers) and public provision. We implement both universal vouchers and vouchers with income, work, or center quality requirements. The simulations, which account for equilibrium effects in the child care market, deliver relatively large effects for universal, employment-based, and quality-based vouchers, and small effects for cash transfers, income-targeted vouchers, and public provision. All policies raise average child development relative to the baseline yet the increase is small and mostly driven by children who switch from low- to high-quality centers. The impact on mothers’ labor force participation is more substantial, and highest among those with less than a college degree. If access to center based care were subsidized, many women would choose to work even when not required to access the subsidy. Overall, effects are largest for non-college educated married mothers and single mothers.

Equilibrium effects are particularly relevant for prices. All policies, with the exception of cash transfers, lead to an average price decline in child care centers despite increasing their demand. The decline occurs because supply effects dominate: policies lead to a larger and higher-quality supply because they induce more efficient firms to supply high-quality services and expand. The results inform policymakers concerned that, while quality regulations and policy interventions could indeed raise child care quality, they might raise prices and deprive 37