Grants

Arizona State University

To examine how private-equity (PE) ownership of childcare providers impacts markets for labor, caregiving, and education

  • Amount $454,022
  • City Tempe, AZ
  • Investigator Chris Herbst
  • Year 2024
  • Program Research
  • Sub-program Economics

Private equity (PE) firms buy companies they can reconfigure and then sell at a profit. Across various sectors, some of these firms have a reputation for saddling the businesses they purchase with debt, replacing management, prioritizing short-term value over long-run sustainability, and then flipping what is left as soon as they can. In the U.S. childcare market, PE firms now own nine of the 11 largest for-profit chains. These have done quite well financially even as smaller community-based childcare providers have struggled in the wake of COVID-19. New research documenting higher mortality rates and lower care quality in PE-owned nursing homes raises concerns about what might be in store for the even more lightly regulated market for childcare. On the one hand, PE investment could increase quality and maintain reasonable prices that attract consumers and enhance profitability. Or PE may result in rising prices, quality reductions, and steep charges for the privilege of being managed by the firm. Without good data on childcare markets, most public discourse is based on anecdotes and speculation. Chris Herbst (Arizona State University) and Jessica Brown (University of South Carolina) will compile new data and conduct four academic studies analyzing PE’s impact on the market for childcare. Their first paper will identify PE-owned childcare facilities using business registry data and document how they compare to non-PE-owned centers. The second will examine what happens to individual enterprises after they are acquired by PE in terms of prices, wages, employment, and performance on state inspections. Using structural estimation methods, the third and fourth papers will explore how PE entry affects both local childcare centers not owned by PE as well as public early education providers like Head Start. By demonstrating the utility of new data and methods, this work will jumpstart the conversation about childcare management in academic circles and inspire other researchers to begin work on this topic as well.

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