Key Takeaways
- Both the market and government have failed to meet the childcare needs of American families, as the cost of childcare continues to rise.
- Employers in tight labor markets can expand their applicant pool by offering childcare benefits.
- Increased investment in childcare would afford parents a greater degree of self-determination, along with spillover benefits for children and society at large.
Even as inflation has cooled off in recent months, the cost of childcare in the US continues to exponentially increase. American families spend approximately 8.0% to 19.3% of median family income on childcare, and over half of American families live in “childcare deserts,” defined as areas with less childcare providers or available childcare slots than what is needed by the community.
Although many childcare centers pay workers below their states’ living wage, they still operate on thin margins and find it difficult to expand their services as a result. Even with some government support, current market offerings are still insufficient for many families. This market failure is partially because we fail to account for the full benefit of adequate childcare, namely the long-term effect of robust childcare services to individual children, the economy and society at large.
The state of US childcare
The COVID-19 pandemic shifted the childcare landscape, causing many childcare centers to temporarily close and many schools to shift to remote learning. The added responsibility of homeschooling older children placed an extra burden on many parents during this period. The pandemic has also, however, established a precedent of more jobs being able to be done remotely or on a flexible schedule, which is particularly useful for working parents who are able to secure part time childcare.
Still, the labor force participation rate has yet to reach its pre-pandemic peak. For many parents, lasting challenges securing childcare are holding them back from returning to work. Furthermore, parents returning to work after taking time off to be full-time caregivers face biases from employers. Historically, employers have preferred unemployed applicants over otherwise equivalent full-time caregivers attempting to return to the workforce, since opting out of the workforce sends a stronger negative signal to employers than unemployment scarring.
When families cannot secure childcare, a parent, most often the mother, needs to stay home. On average, childcare deserts have three percent lower maternal labor force participation rates compared to communities with adequate childcare supply. Of course, single-parent households don’t have the option of dividing labor in this manner, often forcing them to pay for childcare regardless of cost, even with infant care costing between 25.1% and 73.3% of median single-parent income in 2022 on a state-by-state basis.
The lack of affordable childcare in the US limits Americans’ economic freedom to choose how they might best provide for their families and themselves. Indeed, parents with a higher degree of economic freedom are ultimately able to pursue greater incomes; the average lifetime earnings lost from caregiving totals $237,000. The broader economy also stands to benefit from the higher labor force participation rate resulting from increased access to childcare.
Labor market implications
From an employer’s perspective, a lack of access to affordable childcare limits the available applicant pool. The situation could also present an opportunity to expand an applicant pool by offering robust childcare benefits. Indeed, a 2020 study found that women in peak child-bearing years preferred robust on-site childcare to the equivalent value in salary when applying to jobs, indicating that some employers could efficiently offer childcare as part of their benefits package.
Employer childcare benefits are most attractive to employers in industries with the tightest labor markets. Job seekers in these markets are more likely to secure childcare benefits, alongside high salaries, sign on bonuses and other perks. On an industry basis, childcare benefits are much more common among workers in the IT industry, at colleges or universities or in finance and insurance, with 32%, 42% and 26% of private industry workers in each respective industry receiving some childcare benefits. At the other end of the spectrum, only 5% of private industry workers in the retail industry and 9% of all private industry workers in service occupations receive some form of childcare benefits.
For businesses looking to succeed in specialized industries with tight labor markets, as well as industries that require long hours or that are looking to grow the share of women in their workforce, providing robust childcare benefits can certainly move the needle.
Privately funded childcare packages can only solve part of the problem with childcare in the US, though. To prevent labor shortages and improve quality of life across the board, government officials and policymakers should provide subsidies for employer benefits in a range of fields and allocate broader investments into childcare.
The global perspective
The US is an outlier on the global stage, with public spending on early childcare trailing far behind other countries. Nordic countries spend the most, with systems of government-run childcare centers, public funding for private centers and benefits for home-based care. Denmark, for instance, provides guaranteed day care for children between 26 weeks old and school age, with parents paying a maximum of 25% of the total cost.
French parents receive tax credits meant to allow parents to choose between sending their children to childcare centers or hiring home-based caregivers. England offers free part time public preschool for three, four and some two-year-olds.
Other OECD countries have different systems, providing varying levels of care at varying levels of investment, largely beating the US on both counts. This stands in contrast to elementary through college public spending, where the US is second only to Luxembourg among OECD countries.
The discrepancies here stem from a long history of political discourse over the role of women in the workplace. The US has actually had a robust public network of childcare centers in the past under the Lanham Act during World War II, when social expectations shifted towards women entering the workforce to support the war effort.
Other countries with other values, goals and political systems have been able to put in place longer-lasting programs. A shift in US public childcare policy would necessarily be a shift towards meeting some other policy goals such as increasing women’s participation in the workforce – not in the context of war, this time, but to ensure diversity of thought and a favorable mix of talent in the workplace.
Final Word
As the high cost of childcare can lead to delayed re-entry into the job market or reduced work hours, economic production on a macro scale falls below its potential. While it’s important to note that the work of childcare has an economic benefit even when done without pay, in an efficient market, parents would be free to specialize in a career that they would see the most benefit from and add the most value to, allowing the US to come closer to reaching its full economic potential.
At the end of the day, increased childcare investment of any sort – be it increased incentives for employers to provide childcare benefits, direct support to parents for childcare or the establishment of public childcare centers – would improve the freedom of individual Americans and improve general economic welfare.
