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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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  • 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: ftp://ftp2.census.gov/ces/wp/2005/CES-WP-05-28.pdf
File Function: First version, 2005
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Bibliographic 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
Date of revision:
Handle: RePEc:cen:wpaper:05-28

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Cited by:
  1. Haizhen Lin, 2010. "Do Minimum Quality Standards Improve Quality? A Case Study of the Nursing Home Industry," Working Papers 2010-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Xiao, Mo, 2010. "Is quality accreditation effective? Evidence from the childcare market," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 708-721, November.

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