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Aleksi Karhula, Jani Erola and Elina Kilpi-Jakonen

The Finnish day care system is considered to be one of the most universalistic in the world. Day care is heavily subsidized by the state and completely free for low-income families. Yet compared to other Nordic countries a substantially higher number, 40 per cent of children aged one to five, are taken care of at home. In this chapter we show that day care is positively associated with later educational outcomes in the Finnish context. Half or more of this advantage is explained by the positive selection into day care of children with highly educated parents. Further analysis indicates that the remaining association is either due to selection on other family background factors, or is mediated by lower family income and weaker labour market ties of the parents. Although some previous studies have found heterogeneous effects, we find them to be similar for all levels of parental education.