How does early childcare affect child development? learning from the children of german unification. Working paper, CESifo Conference on the Economics of Education

This paper analyzes the effects of early childcare on child development. Identification is based on German Unification. East Germany provided universal care whereas West Germany had no formal childcare system. Unification triggered a process of slow convergence in centerbased childcare offer rates which led to strong inter- and intra-regional variation in childcare supply. Combining information on local supply with data on infants aged 2-3 years from the German Socio-Economic Panel and data on children aged 5-10 from the German Child Panel, we can provide information on children’s full age range 2-10. Results suggest that center-based care marginally promotes child development for the average child placed in care. Interestingly, we find that the extra child, that attends childcare only once access is expanded, benefits strongly from childcare, even several years later. This difference in gains can be partly explained by differences in children’s socio-economic background; the extra child is from a low socio-economic background and thus, has high gains from childcare whereas the average child is from a high socio-economic background and thus, has low gains from childcare. The underlying mechanism is a mixture between high quality care, a relative increase in the quality of motherly care and additional labor earnings.