Employer-Sponsored Daycare Can Be Profitable, New Study Shows


Story posted January 07, 2005

When applied micro-economist Rachel Connelly began analyzing data on the economics of childcare in 1988, her peers doubted the subject would yield anything of significance. The rise in women's labor force participation that began in the 1960s had caused economists to take note, but there was no research on who was watching children so their mothers could work or a breakdown of factors influencing their employment decisions.

Connelly, a Bowdoin professor of economics, was one of the first economists to study these distinctions. In a 1992 study of U.S. workforce participation among married mothers published in the Review of Economics and Statistics, Connelly showed that the price of childcare was a primary factor in women's workforce decisions -- particularly among those with preschool-aged children.

Her study was a springboard for subsequent research on the economics of childcare, which more scholars began researching in the 1990s, as the rapid influx of women with young children into the workplace caused daycare to become a more policy-relevant concern.

The study suggests that on-site daycare is not only affordable, it is in many cases profitable.

Now, Connelly has published a book - along with colleagues Deborah DeGraff, Bowdoin associate professor economics, and Rachel Willis, University of North Carolina associate professor of American studies - that focuses specifically on childcare provided by employers in on-site centers. "Kids at Work: The Value of Employer-Sponsored On-Site Child Care Centers," published by the W.E. Upjohn Institute for Employment Research in 2004, offers new data that refutes some commonly held beliefs about employer-sponsored child care - namely, that it is cost-prohibitive and devalued by employees who don't receive direct benefit from it.

The study suggests that on-site daycare is not only affordable, it is in many cases profitable. Further, the study found that a majority of workers would be willing to contribute to the cost of employer-sponsored daycare whether or not they used the benefit.

"We decided to study on-site childcare because nowhere is the link between women's employment and childcare clearer than in the expansion of on-site childcare," noted Connelly. "This type of childcare is still rare, but a growing number of companies are offering it for their employees - Bowdoin College among them."

The book focuses on an often-overlooked segment of American workers - blue-collar workers in U.S. manufacturing companies, arguably those for whom on-site childcare would provide the most needed economic benefit.

The book focuses on an often-overlooked segment of American workers - blue-collar workers in U.S. manufacturing companies.

"There are several kinds of employers who typically have on-site childcare, such as high-tech and healthcare industries, and others who need 24-hour workers, such as airline reservation companies," notes Connelly. "The few studies that have been done on on-site childcare focused on those companies with highly educated workforces. We were particularly interested in another group of companies - those who weren't offering daycare as part of a whole package of family-friendly benefits or because of a corporate philosophy, but rather because they had done an economic analysis of their particular set of workers and had decided that on-site childcare would be economically beneficial to their company."

For their data collection, which took place from 1996 to 1998, Connelly, DeGraff and Willis turned to a manufacturing hub in the southeastern United States where approximately 60 similar companies were located. Only two of those companies provided on-site childcare and were included in their study, along with one company that did not offer childcare.

Workers in the study were predominantly females without a college education, earning roughly $10-$15 per hour. Company sizes varied from 300 to 640 employees. All employees faced similar local childcare and labor markets. Face-to-face interviews were done with over 1,000 employees of the three companies. Workers were asked about their families, their childcare arrangements, and about the value they did, or would, place on working for a company that offered on-site childcare.

They conducted their research using contingent-valuation, an analysis tool commonly used in environmental research but one that has not been applied to measuring the value of employee benefits. Contingent valuation is a strategy for asking people the value they place on something that is not bought or sold, and from which they may not even derive direct value.

They used a simple yes-no question to determine if each person would be willing to contribute a specific amount from their paycheck towards maintaining an on-site childcare. By varying contribution amounts randomly assigned to survey participants, researchers are able to get a broad sample of responses.

They then used statistical modeling techniques to estimate average willingness to pay among the whole sample, with further breakdown by employee characteristics, such as the respondent's education, family structure, and length of employment.

A majority of workers were willing to pay, on average, between $125 and $225 per year to subsidize on-site daycare - whether or not they had young children.

The results were striking, and perhaps surprising. The researchers found that a majority of workers were willing to pay, on average, between $125 and $225 per year to subsidize on-site daycare - whether or not they had young children. Strong support for on-site care was found both in the companies that already provided daycare and in the company that did not yet offer an on-site center.

Many surveyed employees viewed the childcare center as an important asset in helping the company to survive and remain profitable, by reducing turnover, absenteeism, and increasing productivity among workers.

"We conducted our study during a period when the unemployment rate was incredibly low in this region and employers industry-wide were having a hard time maintaining the workforce," says DeGraff. "For two of the companies, on-site childcare helped to attract and retain a certain subset of workers that it would have been hard for them to get otherwise. We used our estimates of the value of the on-site childcare reported by this subset as an estimate of what firms without on-site childcare would have had to pay in higher wages to all of its employees to attract and retain the workforce that it needed. It was substantial."

Connelly and her colleagues tabulated an estimated savings in wages of $150,000 and $250,000, respectively, for the two companies that provided on-site daycare.

For Connelly, the biggest finding had nothing to do with wage-bill savings, but with something less quantifiable: human caring. "I was impressed with the near universality of positive feeling workers showed about working for a company that had a childcare center," she says. "They liked the idea that their company took care of the person who worked down the row from them.

"Economists generally don't want to hear about people caring about each other. But it shouldn't be so surprising that people who work with each other for five or more years should care about each other and that that actually translates into economic behavior - if the opportunity exists, to say you are willing to pay a little something to have this benefit for all employees."

Connelly and DeGraff have been studying issues of women and work - together and separately - for nearly two decades. In 1989, they began collaborating on research on women's employment and childcare in Brazil and have co-authored several papers on the topic.

"Economists generally don't want to hear about people caring about each other. But it shouldn't be so surprising."

This recent work for The Upjohn Institute is their first opportunity to collect original research data, something DeGraff notes is "an important part of developing our skills as scholars." It was particularly challenging, she says, because they had to gain access to participants through employers, rather than through the more commonly used model of random household sampling. Willis' contacts with employers in the region aided their research considerably, she said.

The scholars said they hope the study will find a life outside of scholarly economic circles. A paper based on their research was published in October 2004 in Industrial Relations, an interdisciplinary journal of labor relations, labor economics, organizational behavior and human resource management.

"I think what we found is really important," says Connelly. "It's useful for business people, for human resource people and CEOs. We wrote it in an academic journal and in a book that will be read by policy makers, but we also would like to publish it in a place where business people will read it."

DeGraff adds that employee-sponsored daycare should not be considered as a blanket solution to labor pressures or work-family tensions, but could be more widely embraced as an economically viable benefit for some companies.

"It doesn't make sense for every company to have an on-site childcare center," she says, "but there are those who could gain the benefits and have been reluctant to consider it. That's because it has been hard to study and because it's a little bit risky. Plus, running childcare centers is not normally what companies do, so they don't know how to do it.

"That's what I think the value of our study is. It shows there are positive gains for having an on-site center and offers some models for calculating the benefits so that maybe your CEO or HR person can take a risk, be a little more open - that applies to blue collar work forces as much as others. It can be a case of, 'If you build it, they will come.' "

For an abstract of "Kids at Work: The Value of Employer-Sponsored On-Site Child Care Centers," and ordering information, visit: The Upjohn Institute.

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