Reducing Inequalities by Investing in Early Childhood Education and Care

Effective investments in ECEC participation and quality are critical for child outcomes. Public interest in the early years has increased in recent decades, and ECEC policies in many OECD countries have led to rising participation in ECEC, more attention to combining care and education, enhanced spending, and more regulation to ensure quality. Expanding ECEC participation (see Chapter 5) and ensuring the quality of provision for all children (see Chapters 6 and 7) hinge on making more effective, efficient and equitable early investments. In addition, ECEC policies need to be co-ordinated with other policies and sectors to address the compounding sources of opportunity gaps in early childhood and make early investments last (see Chapters 4 and 10), which requires sufficient and sustained funding, with an adequate share of public financing.

This chapter examines how OECD countries can design ECEC funding policies that support more equitable and inclusive ECEC for sustained benefits over children’s life course. The overarching questions addressed in this chapter are:

• How much do countries spend on the early years and how are resources spent?

• What funding mechanisms can support equity and quality in ECEC systems and make ECEC investments last?

The chapter builds on data evidence on ECEC funding to set the stage for discussing how countries can ensure more efficient and equal ECEC investments. It explores how funding mechanisms can intensify or mitigate inequalities in participation and quality of ECEC (Chapter 5 complements this by focusing on policies to ensure affordable ECEC access for families). The analysis in this chapter pays attention to features of ECEC systems that can lead to different challenges and approaches, such as the size of the private sector and the allocation of responsibilities across levels of government. The chapter also discusses strategies to design smarter ECEC systems and make early years investment last.

This section examines overall levels of investments in ECEC and variations within ECEC funding systems (e.g. across age groups or types of provision), based on data evidence regarding how much countries spend on the early years and how they spend. It pays attention to the sources of ECEC funding (private and public; central and sub-central) and their implications for equity and quality.

OECD countries display large variability in total ECEC spending (public and private) (Figure 9.1). Total annual spending per child in pre-primary education ranges from USD 3 930 in Türkiye to over USD 25 300 in Luxembourg. It reflects a range of policy choices related to teachers’ salaries and available staff for children, cost of materials, opening hours of ECEC settings and number of hours per child – all of which have implications for the quality of ECEC provision. Early childhood educational development (corresponding to the International Standard Classification of Education (ISCED) Level 01) displays higher expenditure per child than pre-primary in most OECD countries with available data, often due to smaller child-to-staff ratios at this level.

Expenditure on pre-primary education per child has increased on average in OECD countries between 2015 and 2021, but changes are highly variable across countries. Lithuania and Romania experienced the largest increases throughout the period, though in both countries expenditure per child remains below the OECD average. In contrast, expenditure per child decreased in several countries due to a drop in total expenditure (e.g. Mexico, the United Kingdom) or an insufficient rise relative to the rise in the number of children (e.g. Türkiye).

Total expenditure (public and private) on educational institutions presented above includes only spending for children enrolled in educational programmes. However, expenditure on early childhood education and care services is not uniquely devoted to educational programmes, and a range of programmes in OECD countries do not fulfil all ISCED Level 0 criteria to qualify as educational programmes. Data on public spending for both formal programmes targeting children under the age of three and pre-primary education services (whether they include an educational component or not) provide a similar picture of a risk of under-investment in ECEC systems as do data focused on total expenditure on ECEC educational institutions (OECD, n.d.[1]). OECD countries display significant variation in ECEC spending, with low average public spending on ECEC as a percentage of gross domestic produc (GDP). Only countries with relatively high investment levels in ECEC manage to balance financing across programmes targeting children under the age of three and pre-primary education (Dougherty and Morabito, 2023[2]).

However, these data (like data on educational institutions’ expenditure) do not account for investments in early childhood from other sectors. For example, home visiting programmes or parenting interventions may not be funded through ECEC programmes. As such, the data do not reflect a complete picture of investments that may be especially relevant at ISCED Level 01.

Private expenditure continues to play a stronger role in funding the early years (26% of total expenditure – ISCED Level 01) relative to pre-primary education (14%) (see Figure 9.2), which are both higher than in primary education (5%). At ISCED Level 01, private expenditure accounts for a large share of funding (more than 70%) in Colombia, Israel and the United Kingdom. When public funding is insufficient, families’ contributions shape ECEC participation to a greater extent and can translate into large inequalities in children’s access to ECEC and quality of their ECEC experience (OECD, 2017[3]).

The share of public investment in ECEC has evolved only moderately on average across the OECD between 2015 and 2021. At the ISCED 01 Level, in Hungary and particularly in the United Kingdom, the share of private spending on ECEC has increased since 2018 (returning to 2015 levels), while most other countries, and especially Spain and Chile, have witnessed decreases. In pre-primary education, the share of private spending dropped by three percentage points on average across OECD countries between 2018 and 2021. The fall is particularly large in Chile, Japan and the United Kingdom. In Japan, private spending has fallen significantly as a result of free pre-primary education starting in 2019. However, in a few OECD countries (e.g. Hungary, Latvia and the Netherlands), the share of private expenditure has moderately increased in for pre-primary education since 2015.

Low public spending in many countries translates into a need for parents and families to contribute to provision costs. In the early years, affordability of childcare remains a challenge for many disadvantaged families in OECD countries, although their children would tend to gain the most from ECEC participation (see Chapters 5 and 8). Affordability of ECEC tends to be a challenge in several countries that rely extensively on private provision (e.g. New Zealand, the United Kingdom and the United States). Especially for children under age 3, ECEC costs are also a heavy financial burden for families with weak labour market attachment in several EU countries with available data (Rastragina and Pearsall, 2023[4]).

Rising interest of families in ECEC, partly driven by the rise in female labour market participation and the increasingly recognised economic and social benefits of ECEC, has enhanced demand for ECEC. Some countries have relied on private provision to expand the ECEC sector. Overall, in several countries, a mixed economy of ECEC in which public, private-for-profit and private not-for-profit providers operate together has developed.

Competition in provision could foster quality and enable faster adaptation to demand. At the same time, for-profit private centres may prioritise profits to the improvement of services or the provision of quality ECEC to children from socio-economically disadvantaged backgrounds, mainly if quality assurance regulations are weak. Evidence from several market-based ECEC systems (e.g. Ireland, the Netherlands, and the United Kingdom) suggests that private provision with private funding has led to high costs to parents and possibly low quality, as funding has partly gone into excessive profits (Brogaard and Helby Petersen, 2022[5]). Fees charged to parents have yet to be reflected in higher salaries or staff professional development for ECEC staff, resulting in high staff turnover and lower pay (for instance, relative to the non-for-profit sector). Private for-profit providers are also likely to face high debt levels and lower solvency rates, while not-for-profit ones display high levels of trustee participation in ensuring the stability of financial accounts (Van Eijkel et al., 2023[6]; Simon et al., 2022[7]).

Variability in the quality of private services is a concern and disadvantaged families – due to limited financial resources, lack of information or insufficient ECEC coverage in their areas – might be forced to resort to lower-quality ECEC options (see Chapter 6). If private provision is not of high quality, the efficiency of public investment for private programmes might be low, and private investment (particularly from parents) is likely to be made for services that might not bring benefits to their children.

In OECD countries, enrolment in private institutions tends to be higher at lower levels of ECEC. For the early years, private ECEC provision tends to relate positively to private spending on ECEC (Figure 9.3). Israel, the United Kingdom (at ISCED Level 01) and Australia, Chile, Japan, Portugal, Türkiye, the United Kingdom and the United States (at ISCED Level 02) couple above-average shares of private expenditure and enrolment rates in private provision of ECEC. Households primarily fund private ECEC in these countries, with a risk for lower-income families to be excluded from ECEC participation due to low affordability of ECEC (e.g. the United Kingdom and the United States). In contrast, Austria, Germany and Norway combine high enrolment rates in private institutions with high shares of public funding devoted to ECEC in the early years (ISCED Level 01).

Ensuring quality and equal access to ECEC in the presence of private provision requires comprehensive policy levers, strong strategic co-ordination at the government level (see below on the role of central and sub-central authorities) and adequate enforcement. While differences in quality between public and private settings often result from different investment and human resource management choices, a clear monitoring framework aligned with standards and that accounts for structural and process quality aspects can help foster similar quality across the two types of settings (OECD, 2019[8]). Beyond quality monitoring, support for improvement and incentives for quality provision (see Chapter 6), a range of funding mechanisms can help mitigate the risks associated with marketised systems. Prioritising public funds for public provision (e.g. in Germany) and private non-profits (e.g. in Canada, Luxembourg) and regulating large for-profit players recognises the marked differences between how private for-profit and private not-for-profit providers impact the quality and accessibility of ECEC (Center for the Study of Child Care Employment, 2021[9]). Funding conditionality that ties resources to compliance with quality standards and measures to promote equity in access can equally steer funding recipients towards investments that support quality improvements and increased ECEC access for disadvantaged children. Public management and central steering of ECEC sector development can help mitigate inequalities in service coverage in market-based systems, since publicly managed-centres tend to enrol larger shares of children from socio-economically disadvantaged backgrounds or be situated in more rural areas than privately-managed ones (see Chapter 5).

In addition, financial measures (e.g. fee caps, dividend standards and solvency requirements) are effective ways to foster affordability and equitable access to ECEC, although they may limit the diversity of providers (Hoefsloot et al., 2023[10]). However, such measures may lead to protracted tensions between the government and the private-for-profit sector (Carlbaum and Rönnberg, 2024[11]; Trætteberg et al., 2021[12]). OECD countries can utilise a range of policy approaches to contain the effects of increased marketisation of the ECEC sector, as suggested by the example of Ireland (see Box 9.1).

ECEC systems are often decentralised, with shared responsibilities between national and sub-central authorities (e.g. at the state/regional, local level) in terms of funding, setting standards and monitoring quality (Dougherty and Morabito, 2023[2]). In many OECD countries, public expenditure on ECEC is funded through local or regional revenues, with only a handful of countries relying solely on central funds (Figure 9.4 and Figure 9.5). Some EU-OECD countries have also relied on international funds for their ECEC sector, mainly to support capital investments. While the share of international funding remained relatively limited until 2020 (Eurostat, 2024[17]), several EU countries (such as Italy and Romania) devoted substantial shares of funding from the National Recovery and Resilience Plans to the ECEC sector.

Sub-central governments and authorities’ involvement in raising resources for ECEC can support better adaptation of ECEC services to local needs and demands (see Chapter 10). At the same time, strong reliance on sub-central revenues can amplify existing geographic inequalities and gaps in access and quality of ECEC. Wealthier localities are more likely to be able to generate more funding for ECEC or top-up funding received from the central level. Approaches to ECEC funding may also vary across jurisdictions, particularly when sub-central authorities enjoy high autonomy in designing their funding approaches and there is limited sharing of expertise across authorities (OECD, 2017[18]).

Fiscal transfers can mitigate inequalities between sub-central authorities’ revenues for ECEC. OECD countries display large variations in the extent of inter-governmental transfers to sub-central authorities for early childhood educational development (ISCED 01) and pre-primary education (ISCED 02) (Figure 9.4 and Figure 9.5). However, data on transfers between government levels capture only earmarked funds for education, and therefore do not account for cases where general central transfers enable the equalisation of revenue levels across sub-central authorities. For instance, Denmark and Norway finance their ECEC sectors through local funds (as shown by these data), but also through general transfers from the central government to mitigate inequalities between municipalities. In Norway, differences in municipalities’ income and expenditure are compensated through the General Grant Scheme – a lump sum transfer that is redistributed as a per-capita grant according to localities’ expenditure needs, regional and urban policy criteria (Eurydice, 2023[19]). In Denmark, ECEC institutions are financed primarily through subsidies from municipalities, which benefit in turn from state block grants (Eurydice, 2024[20]).

Sub-central authorities play a strong role in executing spending programmes in many OECD countries and in some countries, their spending role is more pronounced than their contribution to funding public expenditure (Figure 9.4 and Figure 9.5); (Dougherty and Montes, 2023[21]). Yet, spending patterns for ECEC may vary across jurisdictions. The design of funding allocation mechanisms is key for levelling revenues across sub-central authorities, reducing geographic inequalities and steering spending authorities towards specific objectives.

Mitigating inequalities in participation and quality of ECEC requires funding allocation mechanisms that ensure resources reach the children most in need. How resources are distributed and to whom matters for providing accessible, affordable and high-quality ECEC to all. OECD countries have recognised children’s different needs through targeted programmes (e.g. in the United States) – typically restricted to children from disadvantaged backgrounds, and universal programmes (e.g. in France, Germany, Norway and Québec (Canada)) (Duncan et al., 2023[22]). This section focuses on mechanisms to ensure that ECEC investments translate into enhanced ECEC participation and quality for all within both types of approaches.

Disadvantage can be tackled through a range of funding allocation approaches, depending on the share of funding distributed through main allocations or through targeted funding, on the conditions set for funding allocation, and whether resources are received in kind or through additional funds. How much public funding is distributed via main allocation mechanisms and how much through external ones (e.g. targeted funding) requires a balance between ensuring efficiency, reducing monitoring burden, and underpinning the capacity of governments to set objectives and deliver support (Paull and Wilson, 2021[23]; OECD, 2017[18]). While main allocation mechanisms can ensure efficiency, targeted funding provides flexibility, can enable easier adaptation to local needs and pursuit of more specific equity objectives.

The choice of specific funding allocation mechanisms can enable central governments or sub-central authorities to steer funding recipients towards enhanced quality and equity in ECEC. Conditions can be set when transferring funds from the central level to sub-central authorities or from sub-central authorities to ECEC settings. Earmarked grants for quality enhancements were common in 13 OECD jurisdictions with available data in 2012-2013 (OECD, 2015[24]). Conditional additional funding can be provided for vulnerable children on the condition of meeting a range of quality standards (see Box 9.2). Conditional funding has resulted in improved ECEC quality for disadvantaged children in some OECD countries, though evaluations remain limited (Paull and Wilson, 2021[23]).

Sub-central authorities and ECEC settings can benefit from varying degrees of flexibility in how they spend resources. Apart from earmarked grants that involve more restrictions on their use, OECD countries also rely on block grants. Central authorities provide funding through the latter to lower levels of government, allowing them flexibility in how they distribute these resources (OECD, 2015[24]). Such flexibility may enable better accounting for ECEC settings or local needs, but it can also trigger variation in resource spending. Decisions to invest in ECEC may depend on political priorities and local demand. Local authorities may put different priorities on ECEC depending on the interest in and awareness of ECEC benefits of their populations (see Chapter 5), translating into variations in ECEC spending across jurisdictions. In addition, over-reliance on inter-jurisdictional grants or transfers may disincentive prioritising ECEC spending through local funds instead of other expenditures, or encourage overspending (particularly when there is significant misalignment between financing and spending responsibilities) (OECD, 2017[18]). When local entities have a significant spending role and part of the funding comes from the government without being earmarked, there is a risk of lack of accountability or no mechanisms to link decisions and outcomes to funding. Evidence on the role of flexible additional funding to support quality enhancement for disadvantaged children has thus been mixed. In some OECD countries, ECEC settings that enjoyed discretion in using additional funding for children from socio-economically disadvantaged backgrounds have tended to direct it at covering expenses and enhancing access rather than investing in quality enhancements (Paull and Wilson, 2021[23]). This illustrates the need to guarantee sufficient funding for providers to cover costs and design fee control mechanisms that ensure provision remains financially sustainable without detrimental effects on quality (see Chapter 5).

When sub-central authorities or ECEC settings benefit from considerable discretion in the use of funding, efforts to build their capacity for the optimal use of resources must go hand in hand with efficient accountability mechanisms. Small or less affluent jurisdictions are more likely to face capacity issues in seizing the potential of funding opportunities for ECEC (e.g. applying for central-level additional funding), managing resources effectively and making investment decisions for building or renovating ECEC infrastructure (see Chapter 5). Recipients of additional funding (whether flexible or conditional) require support and guidance on using targeted funding to meet policy objectives. Building the capacity of ECEC settings when they benefit from equity funding (e.g. grants and additional funding) also matters. Providing guidance and external support to ECEC leaders for budget management, ensuring sufficient administrative staff to support funding management and developing cross-centre collaboration can foster ECEC centres’ capacity to make the most of funding opportunities (see Chapter 10). In the case of conditional funding, monitoring mechanisms are equally critical to ensure that funding recipients (whether local authorities or ECEC settings) reach their objectives. A combination of quality standards, financial incentives and capacity-building support can thus steer improvements in programme quality (see Box 9.2).

While multiple funding streams can enable providers to access more resources, information and support to enhance quality, they can also trigger inefficiencies (Duer and Jenkins, 2023[25]). Monitoring resource use and how different funding streams support outcomes and achieve expected results can be challenging when funding originates from various sources, particularly if levels of government or programmes are uncoordinated. Communication between ECEC settings and funding authorities (e.g. to identify and indicate needs, to report on programme outcomes or challenges) may also be more demanding and time-consuming, and increase the administrative burden for centre leaders (Duer and Jenkins, 2023[25]). The mix of central and sub-central funding thus requires coherent standards and co-ordination between different funding sources to ensure quality ECEC across the territory. Besides making public funding conditional on reaching specific quality standards, co-ordination and better alignment between different funding sources can also enhance programme quality.

Beyond current expenditure, how capital investments are allocated in the system also matters for equity. Investment in ECEC infrastructure and material underpins the development of environments that are supportive of children’s learning, development and well-being. The configuration, space planning and materials of ECEC settings matter for children’s motor skills, language and social development (Chazan-Cohen et al., 2017[29]). The quality of ECEC facilities can also influence parents’ decisions to enrol children in ECEC and staff retention in specific centres or programmes (NASEM, 2018[30]).

A mix of ad hoc grants, investment programmes and international funding (mostly in the case of EU countries) have supported ECEC capital funding in OECD countries. In 2020, on average across OECD countries, 93% of total expenditure on educational institutions in ECEC (ISCED 0) was devoted to current expenditure and the rest to capital expenditure (OECD, 2023[31]). Among OECD countries, Japan devoted the highest proportion of total expenditure to capital investments (13%), reflecting potential expansion efforts of the ECEC sector, whereas Ireland devoted only 0.2% to capital expenditure. On average across OECD countries, public and private ECEC institutions allocate their spending between current and capital expenditure in a similar manner, despite some cross-country variations.

Physical infrastructure improvements require effective financing mechanisms, particularly if countries seek to expand their ECEC sectors. Private providers may need support in gathering funds for developing or rehabilitating facilities when public ECEC funding only covers delivery costs or when the extent to which they can raise private funding is limited (e.g. through fee caps). Accessing loans for such investments requires sufficient financial ability to apply and take on debt, which may limit providers’ incentives or capacity (particularly of not-for-profit ones) to unfold major physical infrastructure projects (NASEM, 2018[30]). Grant programmes, state loans and public subsidies can underpin providers’ ability to make capital investments, particularly for small providers or in areas with limited ECEC coverage (Sussman and Gillman, 2007[32]). In the EU, the Recovery and Resilience Facility has supported capital investments in the expansion of ECEC infrastructure and some countries (such as Italy) have targeted such investments to areas most in need of increasing ECEC participation (Dougherty and Morabito, 2023[2]). To be effective and ensure that ECEC facilities are operational, capital investments must be complemented with funding that covers current expenditure (e.g. staff costs) for new facilities. Efforts to build providers’ or local authorities’ capacity to apply for such grants are also needed (see Chapter 5). In addition, when governments support ECEC providers for infrastructure investments, such support should also address the needs of home-based providers and non-profit providers who may face more difficulties accessing standard infrastructure financing options.

Countries also need to consider whether the distribution of ECEC services across their territory meets the needs of the most vulnerable children. Children in more isolated or in low socio-economic areas are less likely to be covered by ECEC provision (see Chapter 5). Infrastructure needs assessment and feasibility studies can back the development and location of new ECEC settings when they are coupled with effective targeting strategies. Regular surveys and innovative uses of government data to analyse geographic inequalities in access (see Chapter 5, (Almeida et al., 2024[33]; Hurley, Tham and Nguyen, 2024[34]) can also inform rehabilitation needs and ensure that new settings reach children or areas most in need of new constructions (OECD, 2018[35]). In addition, co-ordination mechanisms in planning the ECEC network, particularly in decentralised ECEC systems, help address potential misallocations of resources or under-investments across the territory, and better match supply and demand for ECEC provision (see Chapter 5).

OECD countries have relied on a range of support types for families (Chapter 5 includes a more detailed discussion on mechanisms and tools to support the affordability of ECEC). Such measures have included support directed at parents (e.g. tax credits and fee caps), support provided to settings but following the child (e.g. fee control policies based on family income), support provided to settings based on settings’ composition (e.g. additional staff for settings with a high concentration of disadvantaged children) or support provided to settings based on their geographic location (Paull and Wilson, 2020[36]).

While targeting is more effective and responsive to children’s and families’ needs when it focuses on parents or children, support targeting settings can be more beneficial depending on the settings’ needs. Administrative burden for settings or parents may also be lower for some forms of targeting, e.g. if information regarding parents’ situation is taken from administrative data rather than collected at the setting level or reported by parents (Paull and Wilson, 2020[36]). Similarly, when carefully designed, geographic-area targeting can be more effective in addressing geographic concentration of disadvantages. In systems where local authorities play a leading role in funding and managing ECEC settings and there are limited or no equalisation mechanisms between authorities, geographic-area targeting can effectively reach most vulnerable children. Geographic-area targeting requires precise needs identification to ensure large shares of vulnerable children are not excluded (e.g. because they are outside the target zone while less vulnerable families within the catchment areas benefit from support), and attention to minimising risks related to stigmatisation and the flight of children from socio-economically advantaged backgrounds.

Effectively targeting children and settings in need depends upon quality data to design effective allocation mechanisms. When support is targeted to children or settings, ECEC settings need the capacity to collect and report data accurately. Limited data literacy of ECEC staff, few administrative staff, or heavy overall administrative burden can reduce ECEC settings’ capacity to collect data effectively. Incentives may also exist for settings or institutions to alter data on the concentration of vulnerable children to benefit from more support when the latter is targeted based on setting composition. Conversely, stigmatisation risks may translate into an under-reporting of disadvantage if parents want to avoid any potential stigma when reporting their situation to the ECEC centres. OECD school systems have aimed to strike a balance between the use of census-based data (which reduces the reporting burden for education institutions, reduces risks that education institutions alter numbers, and addresses potentially low capacity at the institution level) and educational institution-based data (OECD, 2021[37]). The type of indicators that define vulnerability and socio-economic disadvantage and their regular update or review matter. Complex indicators may effectively target the settings or children most in need. However, they also entail more administrative work and higher risks of misunderstanding from their users (whether these are administrations or ECEC settings) (OECD, 2021[37]).

Achieving equity in ECEC systems requires effective monitoring of the impact of funding policies, particularly given the decentralised governance of ECEC systems. When sub-central authorities have autonomy in resource decisions, monitoring processes must ensure that equity funding reaches its target groups. Setting objectives for equity and quality at the system level need to be combined with the development of indicators to track the progress and achievement of such objectives (OECD, 2017[18]). At the same time, transparency in funding allocation and use must be balanced with managing the reporting burden on sub-central authorities and ECEC providers. Such efforts also require building the capacity of actors to collect and use sufficiently disaggregated data for decision making. Funding mechanisms need therefore to recognise the cost implications for ECEC settings or funding recipients of collecting and reporting data for targeting and monitoring purposes (see Chapter 5).

This section examines how countries can design smarter ECEC funding systems to ensure investments result in lasting impacts for children (see Chapter 8) and reconcile equity and efficiency. It investigates funding strategies that enable combining universal and targeted approaches given countries’ resource constraints and finance policies put forward in other chapters. In particular, the section focuses on approaches to financing workforce quality as critical levers for reducing turnover, addressing staff shortages and raising the quality of professional practices. The section then focuses on strategies to optimise investment profiles across their life cycles to support the co-ordination of ECEC investments with other policies and make early investments last.

Quality ECEC provision for all children requires a qualified workforce (see Chapters 6 and 7). Sufficient funding for ECEC systems is essential to ensure adequate staff compensation. Expenditure for the compensation of ECEC staff in pre-primary education constituted the largest share of current expenditure on average across OECD countries in 2020 (OECD, 2023[31]). Attracting, training and retaining high-quality ECEC staff is the cornerstone for an ECEC system that delivers quality outcomes for all children. However, many OECD countries experience marked ECEC staff shortages, and evidence from the Teaching and Learning International Survey (TALIS) Starting Strong 2018 shows that human resource shortages are more pronounced in centres with a higher concentration of children from socio-economically disadvantaged families (González-Sancho et al., 2023[38]). The combination of low wages, limited career progression opportunities and high job demands (such as stress from working with children and administrative workload) deter candidates from joining the profession and can push ECEC professionals outside of the sector; they are also unfavourable to quality professional practices (OECD, 2020[39]).

OECD countries tend to hold similar requirements (often a bachelor’s degree) for staff qualifications at pre-primary and primary education levels, and requirements have increased both to raise the quality of the ECEC profession and its status. Starting salary levels of pre-primary and primary education teachers are similar in many OECD countries, but actual salaries remain well below those of workers with similar educational attainment in OECD countries with available data (Figure 9.6). At ISCED Level 01, staff’s educational attainment tends to remain lower than in pre-primary education and more variable across provision types (e.g. lower in home-based relative to centre-based settings), translating into even lower compensation levels (OECD, 2020[40]; OECD, 2019[41]). Data on salaries of staff working with children under 3 are, however, lacking at the international level.

A range of factors can drive low wages in the ECEC sector. These can include low skill requirements for some ECEC positions associated with low status of the profession, as well as monopsonistic wage setting practices due to the presence of large childcare chains or limited provider competition in some areas (Cunha and Lee, 2023[42]).

Ensuring salaries are in line with ECEC staff’s roles and responsibilities can enhance retention and make the profession more attractive. Evidence from a range of OECD ECEC systems shows that wage scale conditions for broader public funding or direct wage enhancements only seem to impact workforce quality if they translate into meaningful pay level increases (Lauderdale and Paull, 2021[43]). In the context of low retention rates in ECEC sectors, incremental changes in compensation appear insufficient to attract and retain a qualified workforce (Cunha and Lee, 2023[42]). In addition, when costs for providers rise, ECEC providers tend to react by reducing or freezing pay, hiring less-skilled staff, or investing less in staff professional development (Lauderdale and Paull, 2021[43]). For instance, evidence from the United States shows that wage increases can translate into higher ECEC staff earnings, increased teacher qualifications and better teacher-child interactions, together with a decline in turnover. However, ECEC providers also reacted to minimum wage reforms by increasing prices, accepting fewer children from disadvantaged families, and increasing child-staff ratios (Brown and Herbst, 2023[44]).

Resource constraints due to overall limited funding for ECEC limit many ECEC systems’ capacity to significantly raise staff pay for all ECEC staff. Additional funding could support attracting and retaining staff in more disadvantaged areas, through increased compensation that is better aligned with staff’s roles and responsibilities in more challenging settings. Some ECEC systems have relied on financial incentives (e.g. wage supplements, tax credits) to generally stimulate ECEC compensation for staff with specific qualifications or skills and reduce turnover. Additional funding to raise the quality of teaching staff can target ECEC centres (e.g. supporting centres’ additional costs involved with hiring more qualified staff) or ECEC staff directly (Box 9.3). Wage supplements have also been used to attract teaching staff to ECEC settings in disadvantaged areas.

The design and size of such financial incentives, together with the general framework for teaching staff employment and career progression shape their effectiveness in reducing turnover and addressing inequities in the distribution of teaching staff (OECD, 2022[45]) (Box 9.3). Compensating staff non-contact time can also better recognise staff responsibilities and more challenging working conditions in disadvantaged areas. Staff working in settings with a high concentration of vulnerable children may devote more time outside direct work with children to prepare activities, engage with parents and carry out administrative work. However, paid non-contact time for staff is not recurrent in many ECEC systems (Paull, Van Der Linden and Wilson, 2020[46]).

ECEC settings serving more disadvantaged children can also benefit from additional resources provided in-kind through additional staff positions or hours and training. In a range of OECD countries, central or sub-central authorities provide additional staff to schools in disadvantaged areas or with a high concentration of disadvantaged children (Paull and Wilson, 2021[23]). This is particularly the case in countries where hiring responsibilities lie at the central government level. Providing additional staff is, however, insufficient to raise quality if staff quality is not considered (Box 9.4). Comprehensive policy approaches that bring together the provision of additional staff, financial incentives for staff and enhanced professional development opportunities can be more effective at attracting teaching staff and ensuring quality in ECEC settings in disadvantaged areas.

Central authorities may have more limited leverage over staff compensation and allocation in privately-managed centres if contracts and salaries are negotiated at the provider level. In addition, high staff turnover may also disincentivise providers from investing in workforce professional development. In the absence of regulations or requirements on professional development participation or career progression pathways, ECEC staff may be less likely to engage in professional development activities if they receive no support or incentives from employers. Evidence from TALIS Starting Strong 2018 shows that the cost of professional development is a common barrier to ECEC staff participation in training (OECD, 2019[53]). Funding conditionality can help ensure dedicated grants are used to enhance workforce quality (e.g. by hiring more qualified staff, increasing compensation and providing professional development opportunities). Some OECD countries tie the provision of additional public funding to the establishment of collective agreements between ECEC employers and trade unions that set working conditions (e.g. salaries, in-service training) for the sector (Box 9.1) (OECD, 2021[54]; Ministère du Travail, de la Santé et des Solidarités, 2024[55]). Funding can also be targeted to increase diversity in the workforce by directly supporting staff with a diverse background to enhance their qualifications (NASEM, 2018[30]).

Public spending profiles over childhood years Expanding ECEC access and providing quality ECEC provision for all children that translates into long-term returns (see Chapter 8) requires adequate ECEC spending. ECEC policies are part of a wider landscape of policies that aim to mitigate inequalities and need to operate in co-ordination with other relevant policies and sectors (see Chapters 4 and 10). This calls for long-term funding efforts and ensuring funding remains stable in the early parts of childhood.

Spending on family benefits and education is still geared toward middle and late childhood in OECD countries. Increases in overall spending for families and children have been associated with limited reallocation across the lifecycle (Figure 9.7). Less than one-third of public expenditure (28%) on family benefits and education is targeted to the early years (0-5), with more than 35% going to children aged 6-11 and the remainder to children aged 12-17 years old. For children aged 0-5, cash benefits (e.g. maternity, paternity and parental leave), tax breaks and childcare are critical components in per-capita social expenditure (OECD, 2022[57]). On average across OECD countries, spending per child tends to be lowest around the age of 2, coinciding with the end of parental leave benefits (UNICEF, 2023[58]). Starting with middle childhood, education spending dominates public spending allocated to children.

Most OECD countries target investments towards middle and late childhood, with a drop in investment in subsequent years (after children turn 18). The average spending profile in OECD countries – lower average early investments, followed by higher middle and late childhood spending – can propel inequalities (UNICEF, 2023[58]). Spending favours older children, despite evidence that early childhood is a critical development period and that inequalities emerge early between children from different socio-economic backgrounds (see Chapter 3). In 2020, OECD countries allocated the largest share of GDP to secondary education relative to higher education levels (OECD, 2023[31]). Investments in older children and education reward longer participation in the education system, which disproportionately benefits children from higher socio-economic backgrounds (UNICEF, 2023[58]; OECD, 2018[59]). In many OECD countries, spending per child peaks in middle childhood, meaning resources for compulsory education benefit those who succeeded earlier. In countries with high rates of school drop-out, children from socio-economically disadvantaged backgrounds are thus likely to benefit from relatively fewer investments. While governments can design policy interventions to address disadvantage at later ages, these may yield lower returns than early investments or require much higher expenditure to make a difference. Catching up on the lack of early investments requires effective targeting strategies in school education to ensure that resources are invested where they matter most for vulnerable children.

Only a few OECD countries display age-spending profiles geared towards early investments or balancing spending across childhood (Figure 9.7). Iceland, Estonia, Hungary and Lithuania invest more in the early years (0-5) than in middle or late childhood, though only in Iceland is public spending similar for children aged 0-2 and 3-5. In Estonia and Lithuania, cash benefits and tax breaks (including maternity and parental leave benefits) during the first year of the child constitute the largest amount of public spending on children under age 2. France, Luxembourg and Norway maintain balanced spending between the early childhood years (0-5), middle and late childhood, and provide both cash benefits and childcare support beginning at the first year of life. However, these investment patterns are based on 2019 data and hence, may fail to account for possible changes in ECEC and family policies in the past years.

Spending estimates at the international level suggest that closing equity gaps in ECEC participation would require substantial financial investments, but would also translate into large economic and societal gains that extend beyond children’s development and long-term outcomes (e.g. job creation in the ECEC and non-care sector, greater gender equality through increased women’s employment rates) (Box 9.5). The experience of OECD countries that have substantially raised participation in the sector show that adequate funding and broad political consensus are critical to substantially expand provision. However, increases in funding need associated mechanisms (e.g. conditional funding and monitoring, as discussed previously) to guarantee that investments reach their intended targets.

While early interventions such as high-quality ECEC can be highly cost effective, this may also apply to later interventions (see Chapter 8, (Rea and Burton, 2020[65])). OECD countries could reallocate spending from higher education levels towards the early years. Yet, sustaining investments in compulsory education is needed to ensure that vulnerable children are not left behind. Sustaining funding over the lifecycle matters thanks to the dynamic complementarity between ECEC and school education funding (Johnson and Jackson, 2019[66]) (see Chapter 8). The long-run benefits of increased ECEC spending for children from disadvantaged socio-economic backgrounds depend on the resources available in school years. Increases in school education spending amplify long-term effects of increases in ECEC spending, particularly for vulnerable children. In fact, the combined effects of ECEC and school spending increases on adult outcomes are more significant than the addition of effects derived from isolated investments (Johnson and Jackson, 2019[66]). Likewise, expansion in ECEC access translates into substantial gains for socio-economically disadvantaged students’ academic achievement, and these gains persist longer when per-child spending in primary education is higher (Johnson, 2024[67]).

A shared vision at the government level for children’s learning, development and well-being can support better alignment of funding strategies with policy objectives. Spending timing, type and target population matter for making investments last (UNICEF, 2023[58]). Co-ordinating policies and objectives at the government level (see Chapter 10) is necessary to ensure public spending is well targeted and to avoid funding inefficiencies through potentially overlapping or insufficiently funded separate programmes.

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