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The percentage of women's participation in the labor force has risen in the past few decades, as is shown in the lower curve in Figure 1. 1 "Schooling accounts for most of the change over time," it is argued. 2 At the same time, increased "family size reduces employment rates". 3 Even so, 47 percent of married Jewish mothers with children up to one year of age participated in the labor force in 1987, as did almost 60 percent of mothers whose youngest child was between two and four years of age. 4 The inclusion of non-married mothers would almost certainly have the effect of increasing these rates. The numerical significance of these rates is that, in 1987, more than 135,000 children under compulsory education age needed care while their mothers worked outside the home.

Two-income (or single-parent) families have several child care options: a private "nanny" (Hebrew metapelet, pl. metaplot) -- sometimes a grandmother or some other relative -- a day care center, or a family-environment care facility (mishpahton). In the latter, relatively new but rapidly expanding framework, a metapelet cares for up to five children in her own home.

The metapelet market is competitive, that is, prices are set by supply and demand. Prices are not necessarily uniform; families may pay more for a metapelet if they believe she is better than others.

The private metapelet market presents two major problems:

1. Many families cannot afford a private metapelet (who usually takes care of only one child);

2. The supply of metaplot is dwindling, forcing prices even higher.

There are two markets for both types of care facilities; one is a competitive sector, the other is supervised by the Women's Employment and Status Division (hereinafter: WESD) of the Ministry of Labor and Welfare. This study will focus on day care centers. The activity of the mishpahtonim is minor (less than 5 percent of the children enrolled in facilities supervised by the authorities).

The Competitive Sector

Free compulsory education affects children from the age of five. In the first year, the child attends a kindergarten under local authority and advances to first grade the following year. If the local authority has enough vacancies in its nursery schools, it admits children between three and five years of age into nursery school programs. Parents, however, pay a tuition fee. In addition to local authority nursery schools, there are private day institutions for children under five years of age. Their operational structure is not uniform. Some are nursery schools. They dismiss the children at midday. Others continue into the afternoon, usually until four o'clock. Some children go home in the afternoon (children of teachers, of mothers who work part-time outside the home, or of housewives). The others are given lunch, take a nap and play for several more hours. Sometimes, older children who attend regular nursery school in the mornings, and even pupils in the lower elementary grades, are enrolled in these programs in the afternoon. The private sector offers quite diverse, additional programs of activity, in keeping with the demand generated by working mothers.

Private nursery schools which admit children over the age of three are regulated by the Ministry of Education and Culture. This includes the scale of tuition fees which private teachers are permitted to charge parents. Fees in private nursery schools are based on the facilities' equipment, building and grounds, and on the teacher's educational background. Day care facilities for children under the age of three are not required to operate under Ministry of Education supervision, even if they function as afternoon day care centers. Neither do institutions for children over three years old need to operate under Ministry supervision for afternoon hours. That is, a day care center for children above three years old is under Ministry supervision until midday. Activities in the afternoon hours are free of any type of supervision.

There is a law that governs the running of day care centers. However, this law is unenforced, and few people in the field -- even in the WESD -- are aware it exists. This means, anyone can start a nursery school for children under the age of three or a day care center, and only their parents need to assess staff qualifications and the suitability of the facilities, playground and equipment. But this creates a ludicrous situation: parents are deemed capable of serving as sole arbiters of the quality of care of their children under three years of age. Once children pass this age, however, parental discretion is no longer regarded as sufficient, and the Ministry of Education and Culture intervenes.

The competitive day care sector includes private centers, both those which only admit children under the age of three and those which enroll older children for morning care. However, activity from midday onwards is unsupervised. Prices are set by supply and demand in each community or neighborhood. Therefore, no data are available on the number of facilities or the number of children enrolled in them.

The Controlled Sector

The decision whether to join the controlled sector is up to the day care center's management alone. Both private day care centers and those which are public, non-profit institutions are at liberty to join the controlled sector. In practice, the vast majority of private day care centers are in the competitive sector and only a few have gone over to the controlled sector. The controlled sector is comprised mainly of facilities belonging to non-profit organizations, mostly day care centers affiliated to women's organizations, and mishpahtonim run by the local authorities and the Community Centers Corporation.

The government agency charged with supervising the day care centers is the WESD in the Ministry of Labor and Welfare has two goals:

1. To help "welfare children," that is, children from distressed families whose family care is detrimental to their well being. These children are given top priority for placement in supervised day care centers. In most cases, their parents pay only token tuition fees.

2. To encourage mothers of small children to participate in the labor force, especially in full-time and preferred occupations, with those holding jobs in industry at the head of the list.

Preferred or special population groups as defined by the WESD benefit both from priority in admission to day care centers and from discounts. Preference is determined by the mother's occupation, the number of hours she works per week, residence in a development town, and social status, such as that of single-parent families or parents of triplets.

The management of a day care center under government supervision cannot set the tuition fees which it charges parents. These fees are subject to a scale published by the WESD. Figure 1 presents the latest published scale. The scale includes fourteen levels, based on the per capita monthly income of the child's family. Parents who belong to one of the three top income levels pay the "recognized cost," that is, the cost of operating the day care center as approved by a special committee. Members of this committee include both representatives of the government and members of the four largest women's organizations. 5 The "recognized cost" of a day care center is different from that set for mishpahtonim. The fee for infants in day care centers is higher than that of older children. (The definitions of a child and an infant are given at the bottom of Table 1.) The recognized cost for an infant in a day care center is NIS 505 per month, and for a child NIS 330. For children whose families are ranked up to the tenth level, the management of the day care centers (which are usually women's organizations), receive the "standard rate" rather than the "recognized cost." The rate for day care centers is NIS 380 per month for infants, about 75 percent of the recognized cost (NIS 505), and NIS 297 for older children, about 90 percent of the recognized cost (NIS 330).

The disparity between the recognized costs and the standard rates is accounted for by the subsidies made by women's organizations. The women's organizations receive the rates specified for children on the first ten levels, but the parents pay even less; the differences between the standard rates and parental payments represent government subsidies. For example, an infant's parents who are ranked on the third level pay NIS 141 per month, with a government subsidy of NIS 239, adding up to the standard rate of NIS 380. The share paid by the women's organizations is NIS 125, this being the difference between the recognized cost (NIS 505) and the standard rates. Parents on higher levels pay higher tuition fees. Government assistance for them is less but the share paid by the women's organizations does not change, until the tenth level. At the eleventh level, government assistance ceases, and parents pay a sum higher than the standard rate, although this is still lower than the recognized cost. As stated above, at levels 12 through 14, the parents pay the full recognized cost.

Tuition fees are determined, primarily, according to the family's per capita income, that is, the combined income of the father and mother divided by the number of persons in the family. However, the level determined by per capita income is not always that which will be fixed in practice. There are additional criteria that push the final rate up or downward. One criterion is the number of hours per week the mother works. The levels in Table 1 apply to families in which mothers work at least 40 hours a week. If we take a family whose monthly per capita income is NIS 600, it would be ranked at the seventh level in Table 1. But if the mother works 35 hours a week, the family would be on the ninth level at which, of course, the tuition fee is higher. An additional criterion is the mother's employment in preferred occupations. A family with the aforementioned income in which the mother holds a full-time job in industry (at least 40 hours per week) would be ranked on the sixth level, but if she is a hospital nurse, the family would be ranked at level five. Families in which the mother is a housewife do not receive a subsidy even if the family income is low. These are not the only criteria. The list is long and also covers the family's social status. The two lowest ranks, it should be noted, are designated for "welfare children" alone, but some "welfare children" may also be in the higher ranks.

		Children**		Infants***
Level	Monthly Income Per Person	Parental Participation	Government Participation	Parental Participation	Government Participation
1	until 200	74	223	74	306
2	200.00-314.00	89	208	89	291
3	314.01-422.00	110	187	141	239
4	422.01-471.00	137	160	175	205
5	471.01-520.00	163	134	209	171
6	520.01-569.00	187	110	239	141
7	569.01-618.00	214	83	274	106
8	618.01-667.00	241	56	308	72
9	667.01-716.00	264	33	338	42
10	716.01-767.00	285	12	365	15
11	767.01-900.00	312	-	442	-
12	900.01-1,100.00	330	-	505	-
13	1,100.01-1,300.00	330	-	505	-
14	1,300.01	+	330	-	505	-

* The representative exchange rate in December 1989 was approximately NIS 2 = $1.
** "Child" -- for the purpose of determining tuition, is any child who was 15 months old or older on September 1, 1989.
*** "Infant" -- for purposes of determining tuition, anyone not a "child."

If the management of a day care center, including private centers, wishes to allow low-income parents to benefit from government subsidies, these parents must register for government supervision. They are then obliged to follow the standard rates and recognized costs for all children, including those from affluent families.

The mishpahtonim are also divided between the competitive and the controlled sectors. The competitive sector includes widely differing types of care, based upon the number of children in a group, age composition and location. There are also mishpahtonim run in the metapelet's home with a small number of children. Recent years have seen the introduction of mishpahtonim organized by local authorities and the Community Centers Corporation with government support. In the 1988-1989 school year this framework provided care for 1,932 children and infants.

In a mishpahton, four children and one infant are cared for. The metapelet in whose home the center is located receives government assistance for purchasing the requisite equipment. The charge per child or infant in a mishpahton is equal to the recognized cost. The sum fixed, as of September 1989, is NIS 376 per month. This is higher than the standard rate and recognized cost for children in day care centers but lower than that for infants. Parents' payments are graded in these centers too, according to per capita monthly income. The government provides the difference between the prescribed fee and the parents' payments at the lower end of the scale. Because the rate is equivalent to the recognized cost, the only subsidy is provided by the government.

The Day Care Center Market

As stated, the standard rate is lower than the recognized cost. The women's organizations are willing to subsidize the difference because they too, like the WESD, wish to promote women's work outside the home and help "welfare children." The problem, according to the women's organizations, is that the recognized cost does not accurately reflect the actual cost, because the committee which sets the recognized cost does not acknowledge all the expenses incurred by the organizations in operating the centers. The result, they claim, is that the recognized cost is lower than the real cost. While it is the job of the market, to determine who is right in this dispute between the women's organizations and the government, it is clear from WESD data that the fixed cost of land and building is not taken into account in the recognized cost. This cost does not, for example, cover rental costs for the plot of land or the building where the day care center is located.

If an entrepreneur plans to build a day care center, he needs a suitable plot of land and a building. He has two options: rental or purchase. In the first case, he must add the rent to his expenses. In the second case, his expenses will increase by the depreciation of the building and the interest expenses for the loan he would take to make the purchase. In any case, disregarding all expenses of this type causes a downward bias in the calculation of real economic costs. Currently, many owners of day care centers or private nursery schools do not include the cost of fixed assets in their cost accounting.

It is quite common to hear a teacher with a private nursery school or day care center claim that her facility is more profitable than those of her competitors, because she owns the building and land on which it is located and therefore does not pay rent. Here, she fails to distinguish between her operating profits and her income as an owner of capital. This mistake is made not only by teachers who run their own private nursery schools or day care centers, but also by the women's organizations. There are those in the WESD who do not understand the meaning of return on capital either, even though the women's organizations are aware of the problem of capital financing, particularly since government participation in the establishment of new centers ceased in the late 1970s. Today, the full cost of financing is shouldered by the organizations, which must raise funds for this purpose from among their members, chiefly those abroad. Occasionally, a Jewish community abroad donates the amount needed for establishing a new day care center. In other cases, the donors are members of the organization from a city in the Diaspora who organize a campaign for this purpose, or an individual donor may be found to provide the funding in return for a plaque bearing his name at the entrance to the facility. In most cases, the land belongs to the local authority, and donations are designated for the building only. Possibly because the organizations receive the capital, they do not calculate its cost on an economic basis.

The women's organizations' argument that the recognized cost is lower than the real cost does not result from adding the cost of capital to their own, as opposed to the government's calculations. Rather, it is due to a dispute over the variable costs. Even without taking fixed costs into account, the women's organizations argue that they are forced to double their subsidy: once because of the difference between recognized cost and standard tuition fee, and again because of the difference between real cost and recognized cost. This disparity, according to the large organizations, fluctuates between ten and fifteen percent of the real cost.

An interesting additional point is that the parents in the three highest levels on the scale of tuition fees pay the recognized cost, but the women's organizations receive only the standard rate. The difference is diverted to a "day care center development fund." Eighty percent of the money in this fund is placed at the disposal of the organizations after the expense is approved by the Ministry of Labor and Welfare. The remaining twenty percent is a shared source of funding for all the centers under supervision and is allocated by the WESD as it sees fit. 6 To sum up, the women's organizations receive the standard rate for all children and part of the money in the day care center development fund. 7

A day care center run for profit would be shut down under these conditions or would lower the level of care. Indeed, the few private centers which have placed themselves under official supervision are located in areas where many parents are low-income, and where "welfare children" represent a large proportion of the demand for their service.

The women's organizations finance the difference between real cost and standard rate via membership dues and donations by their members in Israel and, mainly, overseas. These sums, however, are not unlimited. As a result, a larger subsidy for operating expenses restricts the opportunities for building new day care centers. Since building and equipping a day care center costs about $350,000, 8 in addition to subsidizing operating costs, the organizations currently operate fewer centers than they wish. Furthermore, the organizations find it difficult to meet operating costs in the existing centers. On March 13, 1989, Yehudit Knoler wrote in Ha'aretz under the headline "Is the Day Care Center System Collapsing?":

It was recently decided to shut down four nursery school classes for children in the three Na'amat day care centers in Tel Aviv. In the opinion of the secretary of Na'amat in Tel Aviv, this is a warning of imminent collapse.

The decision to close down, if it is made, will not be for lack of demand but because of the organizations' swelling operating deficits. Demand which is not met by the organizations can be taken up by private centers.

Currently, the division of the market between the supervised womens organization day care centers and the private, uncontrolled sector is expressed primarily in tuition payments. In the controlled sector, parental payments are lower (standard rate or even less) than real cost, and lower than fees in the private sector. 9 This creates a shortage in the controlled sector whereby in the last school year, the women's organizations turned away some 15,000 children, or about one-third of all children of working mothers in the controlled day care centers. Although this has not yet happened, the organizations fear that their centers will become second-class establishments. Yehudit Knoler quotes Ada Rabon, Na'amat's secretary in Tel Aviv:

'Due to lack of space, affluent parents apply to private centers, and thus two parallel systems are liable to evolve, one for the poor and one for the rich, as happened in the health system and other social services.'

Nevertheless, the proportion of affluent families in the controlled sector is still high. Figure 2 shows that the fourteenth level includes almost one quarter of all children in the controlled centers. If we add to these, children in levels 12 and 13, who also come from high income families, 10 we find that the proportion of the affluent is more than one third of the total number of children. To complete the picture, we should subtract those in the two lowest ranks (at least) from the total number of children in the organizations' centers, because these two levels include "welfare children" only. There is no connection between the welfare children and their mothers working outside the home. Figure 3 makes this necessary omission, and shows the children in the three highest ranks account for almost 40 percent of all children in the organizations' facilities. Because there are also "welfare children" in levels higher than the lowest two, the proportion of the affluent among all children of working mothers is over forty percent.

To summarize, the day care market can be divided between centers operated by the womens' organizations, under government supervision, and the private, unsupervised sector. In the first sector, there is an excess of demand because tuition fees are set at a level below that of actual costs, while in the uncontrolled sector, fees are determined by supply and demand, and are higher than in the organizations' centers. The structure of the market creates distortions which are generally of no importance either to the womens' organizations or to the WESD, because these bodies concentrate on the goal of promoting work by women outside the home and do not examine the implications of their activity on a broader scale. The problems can be divided into two categories: allocation and investment. The first is centered on price constraint, the second on subsidies.

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