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4 Reasons the U.S. Economy Needs Comprehensive Child Care
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4 Reasons the U.S. Economy Needs Comprehensive Child Care

Building the infrastructure for a robust child care system would have wide positive reverberations for the nation’s businesses and broader economic recovery and growth.

An educator reads books for children at an early learning center in Aurora, Colorado.
An educator reads books for children at an early learning center in Aurora, Colorado, July 2018. (Getty/Hyoung Chang/The Denver Post)

The past two years of the COVID-19 pandemic have made it abundantly clear that child care is the work that enables all other work. The child care sector has buckled under the pressure of the pandemic—with the economic downtown exacerbating decades of underinvestment, many providers having been forced to close, and families facing significant strain as they struggle to find care for their children.

Child care is at the core of U.S. society: Children rely on child care services for safe, enriching early learning environments; parents rely on the services of child care providers so that they can pursue work or school and build financial stability to provide for their families; and businesses rely on the child care sector to ensure a stable workforce and consumer base. Rapid turnover across sectors, which has increased during COVID-19 as parents struggle to find care for their children around work commitments, causes businesses to lose profit and productivity, and a steadily shrinking workforce hinders businesses’ long-term capacity and growth.

Child care supports children’s health and economic outcomes, providing massive returns over time. It also acts as a family stabilizer and indirect economic driver, enabling parents to work or go to school and directly employing hundreds of thousands of providers and early childhood educators. Temporary relief through the American Rescue Plan (ARP) has provided dollars for the early learning sector through 2024. When those funds run out, however, the more than 92 percent of providers who reported that ARP funding kept their programs open—and who operated with a less than 1 percent margin even before the pandemic—will face a steep cliff with no safety net to cover basic operating costs, including child care worker wages, which make up the vast majority of providers’ expenses.

Sustained investments in comprehensive child care infrastructure could serve as a critical counter-inflation measure by easing the worker crunch, while also contributing to economic growth.

Addressing the fractures in the child care system that plague families and businesses across the country will take more than a return to the pre-pandemic status quo. Child care has been underfunded far too significantly for far too long, hurting both families and businesses. Saving child care and putting the American economy back on track will take significant, sustained investment, as the sector has been unsustainable for many families for decades as well as increasingly untenable for businesses. Sustained investments in comprehensive child care infrastructure could serve as a critical counter-inflation measure by easing the worker crunch, while also contributing to economic growth—helping to support providers and early educators; putting more parents of young children, especially mothers, back to work; boosting business capacity and productivity; and supporting broader economic recovery.

This column explores four economic reasons why the United States needs to invest in its child care sector.

1. Lowering costs for families and boosting spending power

One of the primary ways that comprehensive child care would boost economic growth is through lowering families’ out-of-pocket costs. As families spend an increasing percentage of their income on child care, they have less to spend on local goods and services, meaning that businesses lose opportunities to grow and innovate. For families with low incomes, who can spend upward of 35 percent of their incomes on child care, the impact of these significant costs is even greater, often forcing them to make impossible choices about their children’s care, including cobbling together multiple providers or relying on less safe, nurturing environments for their children. Lowering family’s out-of-pocket child care costs would give them more spending power in their communities, which would in turn enhance local economic growth. The Anchorage Chamber of Commerce and Alaska Chamber of Commerce, for example, noted the lack of affordable child care as one of the biggest barriers to economic recovery from the pandemic.

92%

Share of providers whose programs were kept afloat by ARP funding during the pandemic

Regional surveys across West Virginia, Kentucky, Ohio, and Pennsylvania conducted last year showed widespread support among small-business owners for federal solutions to address the paucity and expense of child care in their states. Business owners benefit from the greater financial stability and spending power parents gain from child care. Moreover, child care deserts—areas where there are too few child care slots to meet demand—are more common in low-income areas, and the shortage of affordable child care options reinforces the cycle of poverty by limiting families’ ability to build wealth and stunting economic mobility. Intervening where inequity is most profound can have correspondingly greater positive effects for families. Families with low incomes would benefit the most from having some breathing room in their budgets and be able to spend more on their other needs, rather than dedicating a disproportionate amount of their incomes to child care alone.

2. Stabilizing businesses by reducing worker turnover

It costs businesses from one-half to two times an employee’s salary to replace a worker; this can add up to significant overall costs if a business is regularly losing workers who cannot sustain or afford care for their children. A comprehensive child care system would help to create stability so that parents can work with less turnover and fewer disruptions. When parents struggle to balance the responsibilities of care with the responsibilities of work, the demands of child rearing win out. Nearly 40 percent of small-business owners surveyed last year reported that scheduling employees’ work hours around their child care needs negatively affected workers’ ability to fulfill job-related commitments. Texas employers alone were estimated to lose almost $8 billion per year due to employee absences and turnover. And the pandemic increased the number of missed workdays due to child care conflicts by nearly 144 percent.

Nearly 40 percent of small-business owners surveyed last year reported that scheduling employees’ work hours around their child care needs negatively affected workers’ ability to fulfill job-related commitments.

These ramifications are felt across all business sectors. A recent study published in the Journal of the American Medical Association reported that turnover rates among female health care workers were 43 percent higher for workers who had children younger than age 5 than for the rest of the workforce. While many parents have regained jobs since the beginning of the pandemic, many still face the reality that leaving the workforce makes it increasingly difficult for them to reenter it.

Employer-provided on-site child care

Some businesses have taken steps to provide on-site child care for their employees as a recruitment and retention incentive and as a method for stabilizing their workforces and reducing pay inequality. Some research has found that on-site child care offerings attract employees, generate higher on-the-job productivity, and boost morale. Oregon, for example, is one of 20 states across the country that provides tax credits to businesses to offset operating expenses of offering on-site child care services. And Michigan’s Tri-Share Child Care Pilot Program supplements employers’ coverage of employees’ child care expenses through state funds. More than two-thirds of Wisconsin employers reported viewing child care and family-supportive policies as an avenue for retaining employees, and more than half saw child care as a significant factor in their employees’ productivity. Walmart recently announced plans to build a new on-site child care facility at its headquarters in Arkansas.

While these policies are certainly appealing, and critical for working parents, it is important to recognize on-site child care as one component of a larger child care network that includes center-based care; faith-based care; home-based family child care; and family, friend, and neighbor care. Providing child care at a company’s headquarters accounts for the child care arrangements of only a fraction of that company’s total workforce—and primarily for higher-paid, salaried employees rather than hourly workers. Additionally, large employers typically have more resources to meet the demands of on-site care than do small employers. New Mexico provides one model for a comprehensive approach to child care: In 2022, the state instituted a policy that makes child care free to residents earning up to 400 percent of the federal poverty level—more than 30,000 families across the state. Such efforts can pave the way for universal child care that reaches all families. Congress must make sustained investments in a unified child care system that draws on the strengths of many different child care arrangements to support large and small businesses, sustains child care providers, lowers costs for families, and bolsters economic recovery.

3. Encouraging labor force participation, particularly among mothers of young children

A comprehensive child care system would help keep the option of participating in the workforce available to parents—predominantly women. Even prior to the pandemic, parents’ ability to participate in the workforce was shaped by their need to secure care for their children. A 2015 report about Alaska’s workforce, for example, found that an estimated $1.1 billion in wages was added to the state’s economy thanks to child care services that enabled parents to work.

144%

Increase in number of missed workdays due to child care conflicts during the pandemic

Moreover, while many parents—particularly mothers, who increasingly serve as the breadwinners for their families—cannot afford to leave their jobs because their families depend on their earnings, others have been forced out of the labor force entirely. Even before the pandemic, as early as 2016, nearly 75 percent of mothers and half of fathers had left their jobs, or taken less-demanding ones, to provide care; in Maine, just 55 percent of women participated in the workforce in 2021, the state’s lowest rate in 30 years, and in a recent survey of Ohio parents of children younger than age 5, nearly half reported that they had to cut back on work hours to care for their children and that they would go to back to full-time work if they had affordable coverage for care. A recent report also noted that child care benefits through employers are significant factors in women’s labor force participation, job retention, and advancement at work. Maternal employment numbers have recovered to nearly 98 percent of their pre-pandemic levels, but without sustained investments in child care, mothers of young children could see those gains erased.

The negative impact of insufficient child care goes beyond individual families, hurting the broader economy. Local businesses and community leaders in rural Vermont have identified child care issues as the primary barrier to the implementation of economic recovery efforts. Income losses due to missed work and steeply rising costs can accumulate into millions of dollars in lost retirement assets, benefits, and long-term earnings.

4. Supporting parents’ mental well-being and boosting productive capacity

Parents’ on-the-job performance is also affected by the availability of reliable, affordable child care. Between juggling family expenses, job demands, child care, and virtual schooling, it is no wonder that many parents are struggling. More than two years into the pandemic, families continue to grapple with finding stable care arrangements for their children. A comprehensive child care system would alleviate this problem, helping improve working parents’ mental well-being while on the job so that they can stay focused and engaged and be more productive. A recent report from the U.S. Chamber of Commerce Foundation found that within the past three months, nearly 75 percent of Texan parents missed work due to child care issues, amounting to close to $2 billion in annual tax revenue losses. In Arizona, the economy loses more than $1.7 billion annually, of which nearly $350 million is lost tax revenue, due to parents’ difficulties securing child care. Meanwhile, New Jersey is working to introduce state legislation that would help mitigate some of these issues by expanding subsidy eligibility to more families, increasing the supply of child care slots, creating tax credits specifically for child care workers, and offering tax incentives to businesses that provide on-site child care for their employees.

Child care workers often earn poverty wages

1 in 3

Share of child care workers who go hungry

50%

Share of child care workers eligible for some form of public assistance

Boosting workforce participation, reducing the rate of turnover, and lowering costs for families could fundamentally shift the disproportionate number of women of color who make up the working poor—those whose earnings are so low that despite working full time, they still struggle to make ends meet. This is true for child care workers as well, who are disproportionately women of color and who often earn poverty wages: Nearly 1 in 3 goes hungry, and more than 50 percent are eligible for some form of public assistance.

Many child care providers, who are small-business owners, suffer from an inability to retain staff, reducing their overall capacity to provide care and increasing the burden on remaining staff, particularly those who work directly with children, to provide care with little support. They face constant financial and familial hardships that worsen their mental health and well-being, making it challenging for them to do their jobs. For parents working both in and outside the child care sector, making tough choices about whether to take a job that offers a living wage or pursue education or training for career advancement can have lifelong impacts on workers’ career trajectories, family financial stability, and capacity to build wealth.

Conclusion

Through sustained federal investments, Congress has an opportunity to establish a unified child care system for the first time in American history—creating enriching early supports for children, reducing worry for parents and enabling them to be more productive at work, and lowering costs for families to give them greater economic spending power. Comprehensive infrastructure could provide quality, accessible, and affordable child care for every family and bolster a critical sector that serves as the backbone for all other growth, supporting businesses’ hiring and retention goals, reducing worry for parents and enabling them to be more productive at work, and lowering costs for families across the country.

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Author

Hailey Gibbs

Senior Policy Analyst

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