Journal Issue: Financing Child Care Volume 6 Number 2 Summer/Fall 1996
Relationships Between Child Care Quality and Costs
While a few studies have considered relationships between child care costs and quality using only structural measures of quality, 39–41 the CQO and EFCC studies examined relationships between cost and quality using measures of process quality. In both center and family child care programs, the costs of providing child care were moderately and positively related to the quality of care provided. In the family child care study, the main comparison was between mediocre and poor-quality child care homes because there were too few good-quality homes in the sample (only 11) to be able to make meaningful comparisons. Results indicated that total expended cost per child per hour was higher in mediocre homes than in poor-quality homes. In the CQO study, total labor costs were higher in better-quality centers when other center characteristics 42 were considered. This was expected because staffing ratios and staff education were associated with quality, as described earlier in this article.
To determine how much it costs to increase center quality, a cost function was estimated in the CQO study. Based on economic theory, a cost function is a mathematical expression of the relationship between the costs of a service or product and factors such as the price of labor and the quality and quantity of services provided which are thought to influence the cost. In the CQO study, the cost function related center total variable costs to wages of staff of different education levels (a high school diploma, some college, or bachelor's degree or more), hours of child care provided for each age group, child care process quality, physical size of the center, volunteer hours, region of the country, and whether the center was for-profit or nonprofit. Total variable cost includes expended costs (except for facilities cost), in-kind donations, and the extrapolated salary of owner-operators.
Results of the analyses indicated that positive, significant, but modest relationships exist between cost and quality. Specifically, the results suggest that raising quality by 25% from mediocre to good would increase total variable costs about 10%—that is, by 13 cents per child hour or about $300 per child per year. For a child care center of average size, this would mean an increase of $18,000 per year.43 This assumes that wages, hours of service provided, space, and volunteer hours remain the same. The analysis also indicated that it costs more to increase quality when a center's quality is already relatively high (for example, to increase it from good to excellent). It costs less to increase quality from poor to mediocre.
This finding that improving quality from mediocre to good would require cost increases of only about 10% seems to contradict the finding reported earlier, based on several studies, that process quality is related to staffing ratios. The cost of increasing staffing ratios enough to raise quality from mediocre to good is substantial. This suggests that at least some of the qualities or characteristics that enable centers to provide good-quality care relatively inexpensively are not included in the model. For instance, the CQO study found that a child care director's administrative experience and effectiveness positively affected quality, but this factor was not (by design) included in the cost function. Other factors, such as personality traits of staff, staff commitment to good quality, and effective teamwork, undoubtedly also contribute to overall program quality.
The CQO study also looked for differences in the cost-quality relationship by sector (for-profit versus nonprofit) and corroborated findings of earlier studies.39-41 No significant differences were seen in variable cost per child hour between the two sectors, for the same size of center, wages paid, quality, and amount of physical space. Looking within the for-profit and nonprofit sectors reveals overall similarities in cost and quality between church-affiliated and for-profit centers. Both groups of centers seem to occupy the same market niche, dependent on attracting mainly middle-income families. Average values of structural and process quality in both sectors are significantly lower than for independent non-profits and publicly operated centers. It appears that these centers face stiff competition with each other and that parents' inadequate knowledge about quality means that affordability, not quality of services, drives competition.
Overall, the results of this analysis indicate that cost and quality are related, but that it takes only a small amount of money to raise quality. As mentioned earlier, parents do not appear to differentiate among varying levels of quality of child care programs, and these data indicate that parents cannot use fees as an indicator of quality. Furthermore, there does not seem to be much consumer pressure to increase quality. In analyses not otherwise reported here, the CQO study found that the differential in fees between mediocre and good centers was smaller than the cost differential, implying that there is an economic disincentive for centers that are highly dependent on parent fees to improve quality.