Thank you, Madam Chair, for inviting me to appear before the committee.
Regarding federal spending power, I know there are many legal scholars and political scientists with much to say. However, I am neither of those. I am a professor of economics at Wilfrid Laurier University. My research has focused on Canadian labour markets and public policy, with an emphasis on retirement pension policy and understanding how men and women move differently through our labour markets.
From that perspective, I will present my general thoughts on when it appears best to use federal spending power. To fix ideas, I will focus on Canadians' need for early learning and child care services.
First, I question whether there is a problem common across provinces that cannot be solved by allowing the markets to operate freely. Here, I'm primarily looking for what economists call a market failure, which is really about identifying situations in which something is preventing the market from operating efficiently. Consequently, some resources are being wasted instead of making Canadians better off.
The market for early learning and child care services is a market that suffers from such failures. In this market, the most significant cause of market failure is information asymmetry. Put simply, parents are unable to fully observe the quality of care a child receives while they are not present, which ultimately leads to an excessive supply of lower-quality care in a free market. Credit constraints, which reflect parents' inability to borrow money to pay for care, are a second cause of market failure. As well, there are significant long-term benefits to children and society as a whole that individual parents may not consider in their decision-making, which leads to underinvestment in these services. For more details on that market, I recommend reading Elizabeth Dhuey's work published in Canadian Public Policy in 2024.
These market failures are common across provinces, and we have seen opportunities for provinces to learn from one another in designing policy for early learning and child care services. As you know, Quebec was a leader in developing affordable child care policies, from which we learned about the impact on local labour markets and the importance of managing quality of care when facing high demand for services. We continue to learn from Quebec's early experiences. Recent research has shown the importance of child care in reducing the career costs of motherhood and even grandmotherhood.
A second factor I consider when judging federal spending is whether policy has the potential to reduce frictions across regional markets. In the context of early learning and child care, one could think of the average mom deciding on whether to take a job in another region and facing the constraints associated with her need for child care. Is it available, affordable and of high quality? By having some national standards and programs, we might improve how families flow across markets, as well as women's ability to remain attached to the labour force in the long term. There's a nice parallel with the benefits of having the Canada pension plan. A family may be thinking ahead to retirement. One of the Canada pension plan's best features is its portability between jobs anywhere across the country, making it easier to make a big career move.
A third factor I consider when judging federal spending is the size of benefits that accrue to Canadians over time. This may be referred to as the marginal value of public funds. To fix ideas, we might think of a young woman who is graduating high school in Antigonish. She might want to come to Waterloo to study engineering, with the potential for working in Calgary or Montreal and then returning to Fredericton for retirement. Along the way, she'll become a mother, but her career plans will be affected by the availability of affordable, high-quality care and education for her child. Expecting to find the services she needs, she can comfortably go ahead with her plan.
Empirically, the benefits of such programs have proven sizable. Children receive high-quality care, and women can find greater continuity in their careers, ultimately earning more while children are young and over their lifetimes—and even relying less on grandparents' earlier-than-optimal retirement in order to care for their grandchildren. That better career leads to a better pension and less reliance on programs that support low-income seniors. Despite the short-term costs involved in a specific province, the benefits accrue over the course of many decades and, potentially, across many provinces.
To summarize, I see three important questions to ask regarding the use of federal spending power.
First, are there market failures shared by provinces that we can help manage?
Second, is there potential for the policy to reduce frictions across markets?
Third, what are the full benefits of a policy over time and across provinces?
With that, I thank you for your attention and would welcome questions from the committee.
