Wage determination and the relationship between wages, nonwage compensation, and firm and worker characteristics in child day care centers

Public policy controversy surrounding the relationship between center-based day care and child outcomes often exploits the linkages between low wages and poor staff benefits with poor child outcomes. However, there has yet to be a definitive wage determination study within this industry that goes beyond answering the question: why do intra-industry wage differentials exist? Further, this research seeks to improve the understanding of behavioral differences between for-profit and nonprofit firms in general. This extension becomes significant when one considers that increasing numbers of our very young and elderly populations are cared for in organized centers (day care and nursing homes), characterized by for-profit and nonprofit firms. Does the behavior of nonprofit child day care centers lead to nonprofit wage premiums? If so, are nonprofit centers inherently less efficient or are they signaling quality differentials that demand a premium? Using a rich, new data set obtained from child day care centers in California, Colorado, Connecticut and North Carolina, wage equations were estimated separately for teachers and teacher-aides, controlling for human capital variables, firm characteristics and nonwage compensation.The results suggest fairly competitive wage determination in the industry. There is no evidence of profit sharing, although the outcomes differ for the macro- versus micro-level analysis when one considers the impact of ownership, discrimination, and unemployment factors. However, profit status (for-profit versus nonprofit) is never significant. On balance, union membership may be the only consistent and significant explanation for why any non-competitive wage differential exists at all.Child day care workers are not of low quality, despite wages, and teachers (and teacher-aides in nonprofit centers) actually have admirable levels of job tenure given that young children change classrooms each September. Workers do realize lower returns to human capital on average than the labor force in general however, there is some compensation for additional job responsibilities or job difficulty, as a result of low staff-child ratios, larger group size or special programs. In addition, there are a decent complement of fringe benefits that accompany this apparently lower wage. Further, no strong link could be made between center average quality and wages.