The Economic Rationale for Investing in Children: A Focus on Child Care. Segmented Markets Rationales

12/01/2001

In the human capital rationales for employment and training investments, it is assumed that the investment results in increased productivity of the worker due to greater skill accumulation, i.e., more human capital. Now we turn to a set of rationales that lead to arguments for public sector investments in training and employment even when those investments do not necessarily lead to greater human capital.

In some situations there may fail to be movement of workers out of labor surplus markets into labor shortage market. In the classical model of labor markets this sort of disequilibrium between markets should not persist over time. Labor surplus markets should exert downward pressure on wages and labor shortage markets should exert upward pressure on wages and workers should move across the markets from surplus to shortage markets in order to take advantage of the wage differential. Situations in which such movements do not occur and disequilibrium persists are sometime referred to as "segmentation of markets."

The segmentation of markets could arise from a variety of barriers to workers' cross-market mobility(8). The lack of mobility could be geographical, with the barrier to mobility due to the lack of information about better opportunities in other areas, the costs of movement or the cultural attachment to a given area. In other cases, discrimination, either in employment or through residential segregation, could limit movement across markets. Inability to move wages downward in the labor surplus market has often been hypothesized as a reason for persistence of unemployment in labor surplus situations(9).

Public sector intervention can be formulated to enhance movement of workers across the boundaries of segmented markets. These could be programs that promote geographic mobility by providing information about distant job opportunities or by subsidizing some of the moving costs. Or they could be wage subsidies that increase labor demand in the labor surplus markets where rigidities have prevented downward movement in the nominal wage. The subsidies effectively lower the wage rate as the employer perceives it. They could be skills training programs which essentially relabel workers  even if they don't really increase inherent productivity  so they can qualify for the jobs in the markets with excess demand.

Public sector investment in training and employment in these cases is justified on the grounds that there are social gains from the reallocation of workers across the segmented markets and individual workers either do not perceive the gains to be made from switching markets or the institutional or social barriers prevent them from doing so.

Applications to Child Care of Segmented Market Rationales

The lack of child care availability may constitute a barrier which makes it difficult for workers to move across segmented markets. We often hear of the problems of workers who may want to take advantage of higher wages for second or third shift work but cannot find arrangements for child care that will fit with those schedules.

There may be some analogy as well in terms of segmentation of the child care market itself. The child care market could be thought of as segmented along several lines: relative care, unlicensed care, family day care and center-based care. More thought needs to be given to the question of whether this analogy can be pushed further in terms of sustained disequilibrium across these market segments.

Segmented market rationales may apply more to quality than quantity of child care since higher quality child care facilities are perhaps less likely to be located in low income neighborhoods. Public investment to make such quality more readily available in low income neighborhoods might free workers to more readily move across segmented markets.