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The Impact of Minimum Quality Standards on Firm Entry, Exit and Product Quality: The Case of the Child Care Market

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Author Info
V. Joseph Hotz
Mo Xiao
Abstract

We examine the impact of minimum quality standards on the supply side of the child care 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 the labor intensiveness of child care services are strikingly different from those specifying staff qualifications. Higher staff-child ratio requirements deter entry and reduce the number of operating child care 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 higher profits, and are less likely to exit. By contrast, higher staff-education requirements do not have entry-deterrence effects. They do have the unintended effects of discouraging accreditation, reducing owners’ profits, and driving firms out of businesses.

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File URL: http://www.ces.census.gov/index.php/ces/cespapers?down_key=101738
File Format: application/pdf
File Function: First version, 2005
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Publisher Info
Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 05-28.

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Length: 55 pages
Date of creation: Dec 2005
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Handle: RePEc:cen:wpaper:05-28

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Find related papers by JEL classification:
L5 - Industrial Organization - - Regulation and Industrial Policy
L8 - Industrial Organization - - Industry Studies: Services

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    Other versions:
  2. Hotz, V.J. & Kilburn, M.R., 1995. "Regulating Child Care: The Effetcs of State Regulation on Child Care Demand and its Cost," Papers 95-03, RAND - Labor and Population Program.
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    Other versions:
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    Other versions:
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  14. Edward P. Lazear, 2001. "Educational Production," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 777-803, August. [Downloadable!] (restricted)
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  15. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January. [Downloadable!] (restricted)
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  16. Chipty, Tasneem, 1995. "Economic Effects of Quality Regulations in the Day-Care Industry," American Economic Review, American Economic Association, vol. 85(2), pages 419-24, May. [Downloadable!] (restricted)
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  19. David M. Blau & Alison P. Hagy, 1998. "The Demand for Quality in Child Care," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 104-146, February. [Downloadable!] (restricted)
  20. Currie, Janet & Hotz, V. Joseph, 2004. "Accidents will happen?: Unintentional childhood injuries and the effects of child care regulations," Journal of Health Economics, Elsevier, vol. 23(1), pages 25-59, January. [Downloadable!] (restricted)
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  21. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December. [Downloadable!] (restricted)
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