The government (via the WESD) sets a maximum fee for day care centers under its supervision in order to encourage the mothers of small children to work outside the home. The price constraint leads to excess demand in the controlled sector, as always occurs under such circumstances. The lack of room for all the children enrolled makes it necessary to set priorities for admission to these centers. The enrollment deadline is uniform nationwide. Only after the deadline are families classified and children admitted. Even so, distortions arise in two areas.

Let us assume, first, that the admissions criteria are correct (as they are in the eyes of those who set them). The ranking of children by the preference criteria is done for every day care center or residential area separately. No parent will take a child from Petah Tikva to Rehovot or vice versa. Even commuting across town twice a day is not always feasible. As demand and supply of places in the day care centers are not equal everywhere and are not coordinated, there may be one community in which children from families low on the scale of priorities are accepted, while in another community even children from families higher on the scale are not admitted. In other words, many families are simply fortunate that many places exist in day care centers run by women's organizations in their neighborhood.

Second, a decision based on criteria of this or some other kind indicates a centrally planned economy. Currently, preference is given to children of mothers who work in specific occupations. If these occupations are important to the economy, that is, their contribution to the national product is high, wages paid in these occupations should also be higher, particularly considering the limited supply of workers in these fields (if the supply were not small, there would be no need to encourage them). The conclusion to be make here is that the value of the output generated by workers in these occupations is low, but the government wishes to compensate them artificially beyond their contribution to the economy. If the government nevertheless favors this attitude, why should it intervene only on behalf of mothers of small children and not on behalf of all "required workers," for example, as in communist Bulgaria? There unskilled laborers earn more than engineers because demand for the unskilled is less than policy makers wish. Important to note is that, occasionally, wages in required occupations are low not because of low productivity, but due to government intervention of another kind, for example, with respect to hospital nurses. We shall not consider the ill-health of the Israeli health system here except to note that preferential treatment for nurses' children must derive from some other distortion arising from government intervention.

Central planning in Israel creates two distortions with respect to the day care center market: one by modifying the fee ratio among different sectors of the economy, and a second, within the market itself, by discriminating between mothers of small children and other workers, even if the value of production of all the workers is equal.

The only way to prevent the shortage of places in day care centers is to allow fees to be set by the market. The women's organizations, too, should participate in the free market. This would also test the efficiency of their management, and whether there are economics of scale in the management of day care centers.

The excess demand for day care centers is a worldwide problem, according to reports by the International Labor Organization:

No matter how developed its child-care system, nearly every industrialized country has reported a shortage of child-care facilities for working parents.... 11

It would seem that the problem stems from the fact that governments provide a private commodity, ignoring the value of child care, whether this is done in a day care center, by a private metapelet, or by the mother herself. 12 Reuben Gronau discusses "some methods of evaluating women's contribution in the non-market sector." He reminds us that:

When it comes to the supply of labor, economists have made intensive studies of the labor supply of women (particularly married women)....Still, though the focus is on the market sector, economics is not oblivious to changes in the non-market sector and to the interaction between these two. 13

Perhaps the economists have not forgotten the interaction between these two, but governments disregard it in many cases, either knowingly or out of ignorance. Demand for hired child care increases with the rate of women's participation in the labor force, like demand for prepared food. This notwithstanding, governments do not intervene to push down the price of TV dinners for working women. But their intervention in the day care center market is massive. The reason may be sought, perhaps, in political considerations. In any case, the result is a shortage of places in day care centers. Compare this with the adequate supply of fast food.

Child care is a private commodity, whose purpose is to replace parental care while parents are at work. Education, by contrast, is considered a public commodity. Nevertheless, High and Ellig found many advantages in having a private education system. They studied private schooling in the United Kingdom and the United States in the last century, before governments commenced their massive intervention in the field of education, and in the period immediately thereafter: "Self-interest forced private schoolmasters... to pay close attention to the demands of their customers."

They quote historian R.F. Seybold:

'In the hands of private schoolmasters, the curriculum expanded rapidly. Their schools were commercial ventures and, consequently, competition was keen....Popular demand and the element of competition forced them not only to add new courses of instruction, but to constantly improve their methods and technique of instruction....Private schoolmasters had to offer instruction at hours convenient to their customers.... They also had to be willing to offer not just the elements of a standard classical education, but also instruction in more advanced or practical subjects.' 14

I emphasize the question of hours of instruction to show a parallel between the flexibility of the private education system mentioned by High and Ellig and what exists in the private sector of day care centers and other forms of care for children of working mothers. For example, in the local newspaper of Rishon Lezion (population 126,000), one issue, in August 1989, ran 13 advertisements for day care centers, family environment centers, and similar facilities offering a large variety of operating hours, ages of children admitted and group size. This, of course, is in addition to an unknown number of private institutions which did not advertise in this newspaper.

In early 1989, it was decided to shift the entire Israeli economy over to a five-day work week. Following this decision a dispute developed in the controlled sector of day care centers. One side favored a cutback in the work week in these establishments as well, and the other side maintained that the centers should continue offering their services six days a week. These services would be for mothers who work on Friday, such as those employed in restaurants or shops, as physicians or nurses or in other such occupations, and also to facilitate housework and the arrangement of personal business by mothers for whom Friday is the only free day of the week. In the meantime, it was decided to maintain the six-day week in the controlled sector, but the fundamental question is why there should be uniformity in hours of operation. This rigidity is a conspicuous drawback compared with the flexibility of the private sector. There is probably no need to operate all day care centers for six days a week when most mothers work only five days. Different situations may exist in different areas, and it may be worthwhile to operate only some of the classes in each center, rather than the entire facility (most centers run by women's organizations have more than one class).

An example of the serious consequences of this rigidity was publicized in the Israeli press in late August, 1989. Together with the scale of tuition fees, at the beginning of the school year, the WESD publishes a table of vacations in day care centers under its supervision and the number of work hours per day. As stated, the hours and vacations are uniform for all controlled day care centers, and in all of them the year ends in mid-August. In the second half of that month, the centers are closed and their workers are sent on collective vacation. This is typical of many work places in Israel. The problem is: life does not totally stop during that period. The leisure services market is in full swing (hotels, beaches, water parks, restaurants, cinemas, theaters), but mothers employed in these branches are not made allowance for. A small storm broke out when it was found that operating theaters were shut down in Sheba Hospital in Tel Hashomer, one of Israel's largest medical facilities, and only the most urgent surgery was performed. Any patient whose life was not in immediate danger was turned away. The reason was that a large proportion of the operating theater nurses went on vacation because day care centers were shut down at that time. The nurses' reaction to the unfavorable press coverage was not to the point. Rather than concerning themselves with having the day care centers open throughout the year, or at least for some of the centers in question, the nurses argued that the doctors were also taking vacations and no one was complaining about it. Had anyone challenged the basic right of women employees to take vacations? But why should a collective vacation be taken in such a sensitive area of employment? After all, nursing is a preferred occupation according to WESD criteria. Even if questions of life and death are not involved, why place this burden on a mother who has to work in the second half of August? The need to renovate the day care centers and prepare them for the new school year, which begins on September 1, is not relevant. Do banks shut down for renovations? And what about hospitals and supermarkets? Another prime example is work on major highways, such as that performed by the Electric Corporation, at night in order not to disrupt daytime traffic.

As for the government's rules for operating day care centers, many countries have reported to the International Labor Organization about the standards required for those operating these centers, but they have not reported with respect to their success in enforcing these standards. In the United States there is controversy over the enforcement of federal rules applying to day care centers. Cathy Trost presents various views on this subject. The state of Ohio instituted a set of rules, which Trost reports have been a success. She quotes Thalia Johanson, co-owner of the Fundamentals Learning Center in Ohio: "Despite some added costs, the changes have been 'good for kids' without hurting business."

Trost presents a counter-claim: "More federal regulation would only add to enforcement problems in many states."

Even some of those favoring government supervision see reality for what it is. For example, Jack Brozman, president of La-Petite Academy Inc., the second-largest U.S. operator of day care centers says:

'Everyone thinks the solution is "let's pass more regulations".... What they don't understand is, states don't have the resources and the manpower to enforce what they have now.' 15

His remarks bring to mind the situation in Israel, where even centers under government supervision, as well as private centers, are really only monitored by the parents.

The government intervenes (and causes distortions) in the free activity of the day care center market with the intention of encouraging mothers to work outside the home, particularly in full-time positions and in industry. To what extent are these goals attained? It would seem that the aim of full-time work has been attained; about 50 percent of the mothers in the controlled sector work for at least 40 hours per week, and this rate resembles that for the population as a whole, according to Central Bureau of Statistics (CBS) data. The CBS figures, however, refer to women working for 35 or more hours per week, and the percentage of those working for at least 40 hours per week is therefore less than 50 percent of all working women. Furthermore, it should be remembered, in the total population of women there are many without small children. Isolating the statistic for mothers of children from that for all working women would, therefore, reduce the proportion of those working full-time.

A breakdown by occupation of mothers in the controlled sector is shown in Figure 4 (which includes only working mothers and not mothers of "welfare children"); only 10 percent work in industry. There are no corresponding figures for comparing this rate with the population at large. In any case, 75 percent of women work in the services, mostly in clerical occupations. Everyone agrees that this rate is high.

The Investment Problem

Establishing and operating day care centers is worthwhile for as long as the value of the mothers' productivity is higher than the cost (both operating and fixed costs) of care in the centers. If this condition is not met, it would be better for the economy if the mother were to remain a full-time housewife and the resources invested in the day care centers (manpower, land, buildings) were reallocated to other branches of the economy. Assuming that the labor market operates under conditions of perfect competition, the mothers' income represents the value of their marginal production. If, in addition, day care tuition fees are not lower than the real cost of care by the centers, the imputed gain by the family would be equal to the imputed gain to the economy as a whole.

Indeed, it has been shown that women receive on average, lower wages than men for the same work. However, among those receiving a subsidy for day care are mothers who earn the minimum wage, meaning that the value of their output is lower, in many cases, than the wages they receive. This subsidy adds insult to injury. If it were not enough that the mother receives a wage higher than its economic value, she also pays less for child care than its real cost. In such a case, the individual cost-benefit analysis indicates that it is worthwhile for the mother to work outside the home, while economic analysis shows it as a loss.

The current system of day care subsidies leads to economically inefficient decisions, not only on the level of the children's families and the allocation of factors of production to the day care centers, but also by reason of a broader range of criteria. The funding of subsidies and the accompanying government administrative activity pushes taxes higher throughout the economy. This case is typical of many sectors of the Israeli economy: subsidies require high taxes. Thus it becomes part of the general Israeli problem of heavy-handed government intervention along with high tax rates, leading to economic inefficiency.

There are two major arguments in favor of government intervention in the day care center market. First, low-income families need the mother's wage because the father's wage is not enough to meet the family's needs. If the belief is that low-income families should be helped, direct subsidization is cheaper for the economy than the indirect channel of day care centers. Help via the day care system means, on the one hand, that the mother must go out to work to increase family income, even if she prefers to raise her own children. On the other hand, for the economy as a whole, there is no economic gain. Apart from discriminating against low-income families who prefer to care for their own children, the subsidy system discriminates against mothers whose children are cared for by grandparents, other relatives or neighbors. To benefit from the government subsidy, one must also refrain from enrolling one's children in a private center, even if it is better located or has more convenient hours. Another severe form of discrimination is that against self-employed women in services, such as domestics and metaplot, who receive no pay slip and have no file with the income tax authorities. Another point, connected with any set of government subsidies, is cheating. In our case, it takes the form of presenting pay slips which do not reflect the total income. It is difficult to estimate the volume of cheating, but it is reasonable to assume that it increases as the subsidy system becomes more extensive.

The controversy in the United States over the rules for operating day care centers, mentioned above, is part of a wider debate on this issue. The Democratic Party program, ABC (Act for Better Child Care) includes extensive government support for day care centers. President Bush's counter proposal was:

...to provide low-income parents a tax credit (refundable) of up to $1,000 a year for each child under the age of four. The parents could use the money for whatever purpose they choose. 16

Robert Rector 17 presents the drawbacks of the Democrats' proposal. Some of his criticisms also apply to Israel: discrimination against parents who prefer to raise their children themselves, which forces parents to choose only subsidized day care centers; and, most of all, an increase in the tax burden.

The second argument in favor of subsidies is that they encourage mothers to work outside the home. Many studies have shown that the major factor motivating women to work outside the home is their personal set of priorities. We have seen that education plays a major role in setting these priorities. "Women who truly want to go out to work manage to solve this problem [that is, child care] and go out to work". 18 However, child care should not be disregarded as an important factor in a mother's decision to work outside the home.

The child care problem has two aspects: the mother's attitude toward hired care for her children, and the economic aspect. According to Kirschenbaum and Merl, attitudes about day care centers are important aspects in a mother's decision to go to work.

The sample used by Kirschenbaum and Merl was based on mothers with at least a high school education. 19 And what can be said about low-income, poorly educated women, precisely those members of the labor force who are encouraged to go out to work by day care subsidies? Can they too afford to weigh their attitude toward day care centers? After all, even if their attitude is negative, they have no choice. To avail themselves of help, they must go out to work. Is this fair to them? Tamar Avidar describes the problem well (although with different intention).

Terrible noise, work in waterlogged quarters, standing for hours at a time. And when the plant goes to the trouble of subsidizing meals (NIS 2 for breakfast, NIS 5 for lunch), many cannot even afford it, since who among them can spend one-eighth of their salary to eat out? The laborer who scrimps for every shekel would rather bring a sandwich from home. Many women who "benefit" from the minimum wage have children in the army. They come home with swollen legs to an untended household, with which they get no help. 20

Is it the goal of the women's organizations and the WESD to encourage this kind of work? Perhaps the word "benefit" is important. The authorities concerned with these workers' well-being consider them to be benefitting, but what is the reality? Some of the workers who benefit are mothers of infants and young children; the work waiting for them when they come home is twice that of a mother whose children have grown up. Would they not really benefit if they could stay at home all day and supplement their husband's income without going out to work? It would seem that the authorities' real concern is not for the woman worker, but rather for the economy which needs her as a productive worker (and we have seen that in economic terms too, this calculation is wrong).

The subsidy for low-income parents also decreases motivation for advancement. A wage increase does not have full practical significance, because it is partially offset by higher day care tuition as the parent enters a higher income bracket.

Summary and Conclusion

Day care centers are a private commodity, like thousands of other commodities, many of which make housework easier and encourage women to go out and work. The government does not intervene to reduce the prices of vacuum cleaners, dishwashers, washing machines, prepared food or even restaurant meals, and, due to its lack of government intervention, none of these are in short supply. In the day care center market, by contrast, government intervention causes inefficient utilization of resources, which reaches absurd levels in some cases. One example is encouraging women to take on simple, low-wage jobs in industry. It is not clear who benefits from the attainment of this goal, whether the economy or the working women? Neither, it would seem. Another result, perhaps the most obvious, is the shortage of places in controlled day care centers. The womens' organizations blame the government, from which they expect extra funding, although they are also aware of the need to charge high-income parents realistic fees. In any case, the solution lies in reducing, not expanding, subsidies and government intervention.

Factors of production,(such as land, buildings manpower) are needed to build and run day care centers. These economic resources which are in limited supply. Utilizing these production factors for day care centers is justified if the contribution of the centers today is greater than the real cost of the factors of production. Production factors channeled to day care can serve to generate output in other industries, and the real cost of the centers reflects the loss of this alternative output.

The contribution of day care centers is measured by families' willingness to pay for their services. It is clear that this willingness grows in direct proportion to the mother's wage. Mothers' wages are directly related to the value of their output, that is, their contribution to the economy. This analysis indicates that utilization of the centers (or the factors of production invested in them) is more efficient the more that higher-income, more highly educated mothers use them. The subsidization of low-income, poorly educated mothers is tantamount to a loss in the social cost-benefit analysis. However, social goals, such as assisting "welfare children," also have economic value, and there are those who regard women's work outside the home as a value in itself.

The main problem with the day care center market in Israel today, or, more accurately, the government-regulated sector, is the mixture of means and procedures. The government mixes its diverse goals (welfare children, women's participation in the labor force). The result of this massive government intervention is economic and social distortions. The following are the major steps required for overhauling the industry:

The separation of the two goals of assisting "welfare children" and encouraging women to work. The first is a welfare issue, the second a labor one. Even though both issues are presently dealt with by a single government ministry , 21 the connection between the two goals is no closer than that between nourishing meals for "welfare children" and food. Food, of course, is the domain of the Ministries of Agriculture or Industry and Trade. If the government wishes to refer "welfare children" to day care centers, it should buy this service at the market price. This would reflect the real cost of welfare activities, which is not the case today.

The abolition of maximum fees in the controlled sector and integration of the womens' organizations into the free market. The first result would be the payment of real tuition fees which would reflect fixed costs as well as operating costs. This would enable the organizations' networks of day care centers to expand and increase supply. Turning the entire day care branch over to the free market would wipe out the shortage of places and eliminate the need for establishing scales of preference in enrollment. An additional result would be to expose the womens' organizations day care centers to the test of the market place. If there are economies of scale, and the organizations are more efficient than the private sector in running day care centers, these will be less expensive and of higher quality even after they are exposed to the free market. The organizations would, of course, reserve the right to give discounts on tuition fees as they see fit, just as the owners of private centers. The organizations, for example, operate day care centers in development towns and small, remote communities, which are not economically viable. The organizations' raison d'etre is built on enterprises of this type.

Differentiating between subsidization and supervision of the centers. This is within the realm of welfare, while supervision, if it exists, should also extend to the centers catering for children of the affluent. Supervision poses two problems: the manpower required to apply it, and the impossibility in practice of supervising every woman who cares for one child or only a few children. Experience in this country proves that there is no active supervision by the WESD, even with respect to the large centers run by the women's organizations. Maintaining supervision which exists only on paper is worse than eliminating it formally. Parents rely on the authorities. In fact there is no supervision. 22 Therefore, the correct approach would be participation in a system of elective supervision. A day care center wishing to display a certificate attesting to its being under government supervision would sign up with the supervision system for a fee, the imposition of which would serve as an official seal of approval. The government could advise parents (by a special publication, for example) who start out to look for child care to seek out supervised centers. Parents should also, however, feel free to visit and themselves select day care centers.

Differentiating between subsidization and the goal of women's participation in the labor force. Subsidies are an artificial incentive for mothers to work outside of the home. They cause many women to take hard, low-paying jobs which they dislike. Any consequent benefit to the economy is offset by the loss it causes. Furthermore, subsidies discriminate against low-income women whose children are cared for by neighbors, grandparents or other relatives. Domestics, (who are also working women), are similarly effected because they cannot present a pay slip. The effort of the womens organizations' efforts should be redirected to the advancement of women by right, not by charity. Efforts should be directed not at hard work by women on two shifts, one at home and one outside the home (which is not motivated by workaholism), but rather at vocational training and education, in order to increase both womens contribution to the economy and their wages.

The referral of "welfare children" and subsidy recipients to private day care centers. This last proposal follows on from the previous ones which are effectively aimed at abolishing the division of the day care market into two sectors. The subsidies should be linked to the family's social status, rather than to the mother's work. One category of subsidy recipients is "welfare children" who benefit from the highest subsidies; help can also be given to needy families whose children are not harmed by family care, such as single-parent families or others. In any case, the subsidy component which is not allocated to "welfare children" should be greatly reduced.

Consolidation of the day care center branch provides the opportunity of referring subsidy recipients to private centers, where most children are from affluent families. There is no need to dwell on the inherent advantages of such a move.

Finally, reduction of subsidies and of government intervention would help reduce government spending and lower taxes -- two measures which are sorely needed by the Israeli economy.

Irit Malka is a Ph.D. candidate in the Department of Economics and Business Administration at Bar-Ilan University, Ramat Gan, Israel.

NOTES

IASPS Policy Studies are published by the Institute for Advanced Strategic and Political Studies, Jerusalem. Nothing written here is to be taken as necessarily representing the views of IASPS or as an attempt to aid or hinder legislation in Israel or the U.S.

Research and printing costs of "Day Care Centers and Working Mothers" have been paid by a gift from Mr. Ivan Novick.

Translation costs for this publication have been paid by a gift from Mr. Morton Kornreich.

Contact IASPS for reprint permission. Additional copies of IASPS Policy Studies can be obtained from IASPS head office in Jerusalem at $2.00 each (plus postage).

In the United States, for further information about this paper or the Institute, please contact Alvin Rabushka or Steve Hanke at the addresses and numbers given on the front page. If you travel to Israel, please feel free to contact IASPS.

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