Employment and Social Developments in Europe (ESDE) 2023

2. Supporting labour market participation

2.2. Access and affordability of childcare services to support labour market activation

2.2.1. Net childcare costs (NCC)

The provision of childcare is one of the key elements in removing entry barriers to the labour force and tackling labour shortages. There is evidence that quality childcare provision has a positive impact on women’s participation in the labour market and on child development across age and socioeconomic groups. ⁽³⁰¹⁾ Adequate childcare supply boosts women’s employment, reduces child poverty, and provides positive fiscal returns in the longer term. ⁽³⁰²⁾ Comprehensive ECEC services affect employment from both the demand and supply sides, as they lessen parents’ (particularly mothers’) need to reduce their labour market participation ⁽³⁰³⁾ and mitigate employers’ concerns about possible reduced employee productivity on return to work after welcoming a child.

A household’s decision to use formal childcare is driven by the accessibility, affordability, and availability of ECEC services, as well as parental leave rights and cultural expectations. Women’s involvement in the labour market increases as the number of available daycare slots rises. ⁽³⁰⁴⁾ In addition, the uptake of ECEC grows as the quality of services increases and information barriers linked to access (e.g. financial and cultural barriers, regional inequalities, language) are lowered. ⁽³⁰⁵⁾ Key EU-level actions for childcare are outlined in the European Care Strategy and the Council Recommendation on early childhood education and care. New 2030 ECEC participation targets are set at 45% ⁽³⁰⁶⁾ of children aged 0-2 ⁽³⁰⁷⁾ and 96% of children from the age of three to compulsory school age, mirroring the targets set in the European Education Area initiative. In addition, the European Child Guarantee aims to guarantee free ECEC to all children at risk of poverty or social exclusion.

On average, NCC decreased between 2012 and 2019, as a proportion of women’s median full-time earnings. The highest decrease was recorded for single-parent households with median earnings and for couples with low earnings (-4.4 pp). Significant NCC declines were estimated in Czechia and Poland for the four household types considered. ⁽³⁰⁸⁾ In Latvia, the declines were significant for low-earning and median-earning single parents (Chart 3.1). The exceptions were Romania, Slovakia, Spain and Hungary, where the NCC rate increased across family types. Between 2019 and 2022, EU-level NCC indictors decreased by 1.3 pp on average across the selected household types

NCC vary considerably across the Member States. Based on 2019 data, NCC in Malta, Italy and Germany are very low or close to zero due to heavily subsidised childcare fees. Childcare costs are also comparatively low in Denmark and Sweden. Despite improvements in Czechia, NCC remain more than one-third of women’s median earnings. Even higher levels are recorded in Cyprus, where childcare is primarily provided through private facilities. The cost for median-earning couples in Ireland remains significantly high (Chart 3.1).

Lower NCC may foster higher ECEC participation and labour market participation of women. Looking at NCC rates, ECEC participation, and employment of mothers with two children over time (2012-2019), a negative relationship can be posited between NCC and ECEC participation and between NCC and employment. ⁽³⁰⁹⁾ All EU countries that reduced their NCC over the period saw a rise in ECEC participation and employment. The nature of the data analysed, varying granularity of the indicators, and the existence of other cofounding variables limit the extent to which country-level findings may be generalised.

2.2.2. Geographical inequalities in accessibility of ECEC and primary education ⁽³¹⁰⁾

Geographical accessibility of ECEC providers and primary schools influence parents’ decisions to work. Other important factors are availability (e.g. opening hours or capacity), cost, and quality issues. For parents of young children and for single parents in particular, the ease and flexibility of access to childcare determines decisions on taking up employment, as well as the amount of hours worked. Parents often need to bring young children to ECEC facilities and primary schools in the morning and pick them up in the afternoon, with long commutes likely to reduce the time available for paid work. In case of non-compulsory ECEC, long commutes may even induce parents not to use ECEC at all, severely limiting their options to combine childcare with paid work. This section presents early results on the geographical accessibility of ECEC facilities ⁽³¹¹⁾ and primary schools across small regions ⁽³¹²⁾ in a range of Member States ⁽³¹³⁾ from ongoing research by the OECD. ⁽³¹⁴⁾

In most regions, many children cannot reach a primary school within a 15-minute walk (Chart 3.2, left panel). In about one in two regions, less than half of the total population has access to a primary school within a 15-minute walk. Access tends to be lower in remote regions, particularly on islands (e.g. Euboea in Greece, Menorca in Spain) and in regions with low population density (e.g. Lapland in Finland, Evrytania in central Greece). Access by driving is far higher (Chart 3.2, right panel). Classifying regions into low (30-50% of population have access), medium (50-80% have access) and high (more than 80% have access) accessibility, around 98% of the population live in regions with high accessibility of primary schools within a 15-minute drive. Similar to walking, regions with lower access by driving are often remote or have low population density.

Similar conclusions can be drawn for ECEC services, ⁽³¹⁵⁾ although access seems to be somewhat greater than for primary schools (Chart 3.3). Around 80% of people live in regions with medium accessibility of an ECEC facility within a 15-minute walk, while around 98% of the population live in regions with high accessibility within a 15-minute drive.

The share of people living close to an ECEC facility or primary school is far higher in metropolitan than non-metropolitan regions. ⁽³¹⁶⁾ The accessibility of ECEC and primary education tends to be highest in capital regions. For example, in Paris (France), 99% of people live within a 15-minute walk of an ECEC facility, while in Brussels (Belgium), 88% of people live within a 15-minute walk of a primary school. Regions with lower access tend to have lower population density, such as Haute-Vienne in France, where only 47% of people live within a 15-minute walk of an ECEC facility, or Pirkanmaa in Finland, where only 46% of people live within a 15-minute walk of the closest primary school.

Access can vary greatly between metropolitan regions for both primary schools and ECEC facilities, with some regions having low access and others almost perfect access (Chart 3.4, left panel and Chart 3.4, right panel, respectively). Even among metropolitan regions, comparisons across countries can be difficult because of differences in country size, share of population living in metropolitan regions, and types of institutions covered (i.e. kindergarten only, or including early childcare). This makes it useful to focus only on countries that are somewhat comparable, such as France and Spain (Box 3.3), two large countries for which the available ECEC data currently cover institutions at ISCED-02 (kindergarten) level only.

In most countries considered, the share of the population able to access a primary school or an ECEC provider within a 15-minute walk is higher in regions where children ⁽³¹⁷⁾ account for a larger population share Further analysis is needed to determine the extent to which this finding reflects the response to local demand, i.e. the deliberate placing of ECEC facilities or primary schools in regions with many young children. An alternative explanation could be that the population share of children is greater in regions with high population density, where the coverage by ECEC services and primary schools is also higher.

2.2.3. Effects of improving accessibility of childcare services

The Council Recommendation establishing a European Child Guarantee points to high ECEC costs as a barrier to participation, especially for children from low-income families. The Council Recommendation on the revision of the Barcelona targets identifies low-income mothers as particularly receptive to financial incentives. As education is a major factor in intergenerational income mobility, improving access to ECEC for these children is essential. ⁽³¹⁸⁾ The Recommendation sets a new ECEC participation target of 45% for children below three years of age. ⁽³¹⁹⁾

An increase in formal childcare provision to reach the targeted 45% ECEC participation rate would significantly increase the participation of mothers from low-income families in the labour market. The expected changes in labour participation rates of mothers living in households in the lower half of the income distribution is assessed using an extension of the combined EUROMOD-EUROLAB behavioural microsimulation model that accounts for childcare options. The model simulates the impact of additional (fully taken) childcare slots to achieve 45%, 50% and 55% ECEC participation targets, while keeping the childcare fees per child unchanged, in Austria, Hungary, and Italy (Table 3.3). In these simulations, the decision of work or stay out of the labour market is endogenous. The availability of additional child-care slots impacts the budget constraint of the relevant households, thereby influencing mothers’ labour supply. The methodology is described in Box 3.4. Reaching the target of 45% is expected to increase participation of mothers living in households in the lower half of the income distribution by between 5 pp (Italy) and 17 pp (Austria) (see the second row of Table 3.3). The impact on labour supply is smaller in Italy, where formal childcare take-up and labour participation of mothers are already relatively high. ⁽³²⁰⁾ Reaching a more ambitious target of 55% would have a stronger impact on labour participation rates, particularly in Austria (25 pp). ⁽³²¹⁾

The budgetary costs of additional childcare placements required to reach the new target of formal childcare coverage are mitigated by the additional PIT and social security contributions from the increase in women’s participation in the labour market. The static budgetary costs of additional childcare placements range between 0.018% of GDP (Italy) and 0.135% (Hungary). Reaching a target of 55% of ECEC participation would require one-and-a-half or two times more investment (Table 3.3, second row). ⁽³²²⁾ However, these costs are mitigated by the government revenue generated by the increased employment of mothers. ⁽³²³⁾ The net budgetary effects – which also take into account the second-round budgetary impacts triggered by substantial increases in participation and working hours of mothers ‒ range from 0.006% of GDP (Italy) to 0.025% (Austria) and 0.015% (Hungary).