The Impact of Minimum Quality Standards on Firm Entry, Exit, and Product Quality: The Case of the Child Care Market
V. Joseph Hotz, University of California, Los Angeles
Mo Xiao, University of Rochester
We examine the impact of minimum quality standards on the supply side of the child care market, using a unique panel data set constructed from the U.S. Census of Services Industries, state regulation data, and administrative accreditation records from the National Association of Education for Young Children. We control for state- and time-specific fixed effects to mitigate the biases associated with policy endogeneity. We find that higher staff-child ratio requirements deter entry of child care centers into markets and reduce the number of operating centers. This entry barrier appears to select establishments of better quality into the market and alleviates competition among existing establishments. In contrast, higher staff-education requirements do not have entry-deterrence effects. However, they do have the unintended effects of discouraging accreditation, reducing owners’ profits, and driving firms out of businesses.
Presented in Session 165: Families and the Dynamics of Child Care