Tuesday, July 25, 2006

In favour of $100 blanket coverage

I'm still going strong on the subject of childcare benefit cheques. Why are Canada's new child benefit cheques $100/month per child under six? Some of the criticisms have been: $100 isn't enough to make a difference in a family's life; and, the cheques should be allocated on a discriminatory basis based on need.

I'm going to adopt an argument in favor of the $100 blanket coverage.

First, women's supply of labour tends to be fairly elastic (their preferences are increasingly in favour of market work over leisure or household work). It's unlikely that a woman would decrease her hours of work after receiving a benefit cheque, but a large enough benefit cheque is believed to deter an unemployed person from offering work for a labour wage if it puts them on a high enough utility level.
If the allocation of the cheques were to be discriminatory and for a greater amount (let's say, $500), then you can make a bet that policy-makers would want to discriminate against an individual who's not earning a labour wage but is well-suited for work. After all, society may lose the individual's productivity if she decides that receiving $500 /month is more desirable than joining the labour force. Of course this type of discrimination would be disastrous for two groups: the government; and women who are actively seeking employment and cannot qualify for $500 of childcare assistance, never mind $100.

Second, studies have shown that primary caretakers who work less than 10 hours per week can pay up to three times more for childcare than those who work more than 10 hrs per week (Ehrenburg et al, 2004: p.218). This is because daycare costs are sometimes quasi-fixed. Two hours of daycare per day out of a grand total of two hours can be more costly than two hours of daycare a day out of a total of eight hours. The point is, how would we decide on the eligibility of cheque recipients?
Thirdly, for one big fat reason why policy-makers should be careful who they discriminate against, click here. I think it's self-explanatory. (h/t to STATS)
And then there are more obvious reasons to favour the somewhat modest, blanket coverage. Ie. administrative costs (Think of all the families who might appeal their decision); and, the government's spending-budget constraint.

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