How does Early Child Care affect Child Development? Learning from the Children of German Unification

This paper studies the role of early center-based child care (age 0-3) for the development of a wide range of skills. The identification strategy uses historical variation in regional child care offer rates in Germany to address selection into center based care. While differences in parenting style across Germany may be confounding the effect of center based care, our analysis indicates that such differences are largely absent among the generation raising children today. Center-based care improves language skills, every day skills, social skills, behavior but neither motor skills nor personality among 2 to 3 year old children. For 5-10 year old children, we find that children with some exposure to early formal care improve in terms of non-cognitive skills and school grades.