The Impact of Minimum Quality Standards on Firm Entry, Exit, and Quality Choices: The Childcare Market
by
We examine the impact of minimum quality standards on the
supply side of the childcare market, using a unique panel data set merged from
the Census of Services Industries, state
regulation data, and administrative accreditation records from the National Association
of Education for Young Children. We control for state-specific and
time-specific fixed effects in order to mitigate the biases associated with
policy endogeneity. We find that the effects of
quality standards specifying labor intensiveness of childcare services are
strikingly different from those specifying staff qualifications. Higher
staff-child ratio requirements deter entry and reduce the number of operating
childcare establishments. This entry barrier appears to select establishments
with better quality into the market and alleviates competition among existing
establishments: existing establishments are more likely to receive
accreditation and less likely to exit. On the contrary, there are no entry-deterrence effects associated with higher
staff-education requirements. More stringent education requirements have the
unintended effects of discouraging accreditation, reducing owners’
profit, and driving out businesses.
JEL codes: L5 (Regulation and Industry Policy), L8 (Industry Studies: Services)