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Center for American Progress

Child Care Spending Generates Massive Dividends

Child Care Spending Generates Massive Dividends

Major child care investments pay for themselves through a range of benefits, including improved child and family health, bolstered educational outcomes, and economic recovery.

In this article
Playground in New York City is seen closed during the COVID-19 pandemic.
The Moira Ann Smith playground at Madison Square Park in New York City is seen closed during the COVID-19 pandemic. (Getty/Noam Galai)

Introduction and summary

Since the start of the COVID-19 pandemic, the child care industry has struggled against the threat of collapse. The cost of child care to families has risen and can now amount to thousands of dollars per month1—equal to and sometimes more than the average mortgage payment, more than twice the average car payment,2 and nearly 17 times the average electrical bill in the United States.3 Since February 2020, hundreds of thousands of jobs in the child care workforce have also been lost.4 Furthermore, the pandemic has revealed and exacerbated the deep structural instability that decades of disinvestment in this sector have created.

The price of congressional inaction on the child care and early education systems is too high; children, families, care providers, and the broader economy require bold fiscal intervention. Approximately 20 million children under the age of 6 in the United States require regular child care5—a number that is nearly double the population of Arizona.6

As the country enters the third year of the COVID-19 pandemic, parents, employers, and early education professionals are desperate to see the U.S. Congress pass comprehensive, long-term child care and pre-K legislation. The immediate benefits of such investments are manifold: They can help providers recruit, retain, and train more child care professionals; help working parents—especially mothers and caregivers of color7—rejoin the workforce after leaving work or reducing their hours to meet their child care needs; and support the health and well-being of children. Over a longer period, these investments can provide the social and educational support to prepare young children for a more globalized and competitive economy. Fortunately, the child care and universal pre-K policies that passed the U.S. House of Representatives in the Build Back Better Act are still on the table,8 and reports of ongoing negotiations seem to suggest that these investments will be integral to the next version of comprehensive legislation.

Stable long-term financial and structural supports have the potential to revolutionize how child care and educational services are delivered.

Recent actions taken by Congress, such as the American Rescue Plan Act, have provided much-needed, short-term emergency funding to address the COVID-19 pandemic-related crisis in child care. However, current federal child care policies—particularly the Child Care and Development Block Grant9—are too limited in scope and underfunded. As a result, they have failed to serve all eligible children and struggled to keep pace with the fast-rising costs of the industry.10 Stable long-term financial and structural supports have the potential to revolutionize how child care and educational services are delivered, with wide-ranging positive outcomes, particularly for marginalized communities harmed by decades of disinvestment.11 As members of Congress consider investing in early education and child care, it is worth reiterating the enormous health, educational, and economic dividends that will far outweigh the upfront costs.


Number of children under the age of 6 who require regular child care

This issue brief examines three key domains where early investments in child care would have cascading benefits: 1) family and child health; 2) children’s educational outcomes; and 3) economic growth.

Family and health benefits

Decades of academic and policy research have shown the positive impact of intensive, high-quality child care programming on a host of health benefits for children.12 Studies have connected positive outcomes to direct nutritional programming and early screenings as well as indirect relief to parents—which may help them obtain work with greater earning potential that can lead to improved health behaviors and later health outcomes for their children.13 These longer-term health benefits range from improved socioemotional and behavioral outcomes to better cardiovascular and metabolic health.14 Moreover, high-quality child care can contribute to reductions in heart disease, depression, substance abuse, and diabetes15—and can even help reverse the negative effects of adverse childhood experiences that depress cognitive development.16 Likewise, many child care programs, such as Head Start and Early Head Start, offer nutritional support programs that decrease children’s food insecurity and promote healthier eating habits and physical activity.17 They also often provide developmental assessments and connections to services that offer treatment or support for disabilities, immunizations and physical screenings, and early referrals for primary care.18

In addition, child care programs can provide indirect benefits to children through the services they offer to parents.19 Comprehensive child care can ease the burden on caregivers to balance the immediate needs of their children with the financial demands of maintaining their households and the occupational demands of their work. Policies that mitigate costs to families also support parents’ mental health by reducing the financial concerns associated with program affordability. Importantly, parents’ mental health predicts their children’s mental health, as parents who suffer from mental health challenges can struggle to provide care for their children without adequate external support.20 Moreover, persistent systemic social inequity, often through food or housing insecurity, predicts access to mental and physical health services.21 For parents who are affected by this inequity, sustained investments in child care can alleviate the burdens that contribute to toxic stress and prevent their basic needs from being met.

Financial support for the child care sector can also benefit the health of early educators and other child care professionals, many of whom were leaving the field at an alarming rate even before the COVID-19 pandemic, citing low wages as the main reason for resigning.22 Providers who reported difficulties making ends meet also reported higher generalized depressive symptoms, anxiety, and stress—all of which can contribute to more negative caregiver-child interactions,23 which are critical for children’s social and cognitive development.24

Since the start of the pandemic, the rate of job losses has only escalated. Of the child care workers who have remained in their roles, many have been asked to take on additional responsibilities amid changes to their job descriptions and schedules as well as decreases in their pay and benefits.25 In many states, the shortage of qualified workers has become so pronounced that others outside the profession have been forced to step in to take up the mantle. In one notable example, New Mexico Gov. Michelle Lujan Grisham even signed up as a substitute teacher for kindergarten classes.26 In the same state, some members of the National Guard have also taken on the role of educator.27

Given the historically poor compensation in the industry, this shortage should come as no surprise. In a prominent 2021 survey, the Rapid Assessment of Pandemic Impact on Development-Early Childhood, 25 percent of child care workers reported needing another job—which ultimately accounted for more than half of their income—to afford basic needs such as food, housing, and utilities.28 Many child care workers report food insecurity29 and concerns about making ends meet.


Share of child care workers who, in 2021, reported needing another job to afford basic needs

Investing in the child care industry requires increasing workers’ wages. Raising pay for child care workers will not only help with recruitment and retention but, critically, also promote employees’ health and well-being, empowering them to provide nurturing early experiences to the children in their care.

Children's educational benefits

During the first five years of life, children’s brains are developing at a rate of more than 1 million neural connections per second—the fastest period of cerebral growth at any point in development. This early cognitive maturation sets the foundation for later learning and skill development, ranging from academic learning to memory, decision-making, and emotion regulation.30 High-quality child care and early education programs show documented benefits for children’s development and learning,31 even more so than informal care settings such as family, friend, and neighbor care—a popular, although typically unlicensed, arrangement because of its reduced cost and the involvement of a caregiver who may be familiar to the child already.32 Therefore, sustained investments in enriching, intensive child care—both in formal and informal settings—could professionalize the industry and support the early educational experiences that best prepare children for school and life success.

Previous child care research interventions

Studies on early child care and education—including the Abecedarian Project,33 the Perry Preschool Project,34 and the Boston Preschool Project35—show the widespread positive outcomes of child care research interventions for children, even decades later. On the other hand, one study, the Tennessee Pre-K study—which examined the effect of a state-run pre-K program on children’s academic achievement up to the sixth grade—found adverse outcomes for children.36 Critics of this study, however, point to variations in quality across the state programming as the likely cause for the children’s poorer outcomes compared with the control group’s. In the case of the Abecedarian Project—a preschool research intervention that centered program quality—child participants tested again at age 35 were more likely than the control group to hold a higher education degree, have stable employment, delay parenthood for financial security, and even enjoy better physical health.37

Decades of research have found that rigorous, high-quality child care programs promote children’s school readiness, in addition to providing other cascading benefits such as higher educational attainment and adult earnings.38 These effects are most pronounced for low-income students,39 and while there is significant variation in immediate outcomes—often attributed to children’s subsequent educational experiences—many child care programs show lasting educational, economic,40 and even intergenerational benefits.41 Accordingly, child care investments generate long-term savings in child wellness, such as increases in high school graduation rates and lower rates of grade retention—which currently costs the United States nearly $20 billion every year and is negatively associated with metrics of academic success, such as reading achievement.42 Moreover, these investments can result in decreases in special education placement, which also has significant associated economic costs.43


Annual cost of grade retention in the United States

Families from higher socioeconomic backgrounds have more disposable income to invest in enriching early educational experiences for their children, and child care expenses account for a greater proportion of spending for families with low incomes than for those with higher incomes.44 By the time children enter kindergarten, these opportunity gaps based on race or income—which often coincide because of the historical disinvestment in nonwhite communities—begin to yield measurable achievement gaps among students.45

These widening gaps in spending and outcomes create enormous inequity—with damaging consequences for children, parents, and the economy—and maintaining the current infrastructure will only exacerbate this problem. Evidence suggests that broad overhauls to the child care sector, such as establishing universal child care and preschool options with expanded affordability, can support all children—particularly those from low-income households—and mitigate these negative consequences.46

Economic benefits

In 2019, two-thirds of American children had all available parents or other primary caregivers in the workforce, meaning that they relied on professionals, family members, friends, neighbors, or others for care.47 Yet the COVID-19 pandemic has revealed deep instability in these child care networks. The child care sector has cracked under the pressure of quarantines among both providers and children, insufficient funding and staffing, and increased demand for affordability as more families struggled to make ends meet. Although child care services are critical American infrastructure, child care spending accounted for only 0.5 percent48 of the U.S. gross domestic product (GDP) in 2021. Meanwhile, in 2020, health spending accounted for almost 20 percent—suggesting that U.S. priority on this essential sector is minimal, even when compared with other service-oriented industries.49

The Center for the Study of Child Care Employment reports that more than 131,200 child care jobs have been lost since February 2020,50 and the impact of these losses is most profoundly felt by Black and Latina families and families with low incomes.51 Meanwhile, the responsibility of supplying child care when services are unavailable or unaffordable falls disproportionately on women,52 especially on women of color and mothers of young infants.53 Indeed, while their children are in infancy, women’s workforce participation falls to less than 60 percent. McKinsey & Company also reports that it will take longer for women, compared with men, to return to pre-pandemic employment levels. The loss of women in the workforce has contributed to more than $35 billion in annual income losses—about $110 per person in the United States—which has cascading consequences for families’ abilities to afford household essentials or to build wealth over time.54

The child tax credit

The child tax credit (CTC) provides federal tax refunds to families with low and middle incomes to help them afford necessities, including housing, utilities, food, and school supplies. The expanded CTC under the 2021 American Rescue Plan Act (ARPA)—which reached more than 60 million children by December 2021—extended the benefit to more households with young children.55 The ARPA doubled the number of recipients and reduced childhood poverty by more than 40 percent56 while also increasing the amount families received—especially low-income families with young children—and changing the disbursement of the credit to a monthly schedule. This kind of boost to families can lead to significant direct57 and indirect benefits in their children’s development. For instance, a recent landmark Columbia University study58 found that monthly financial support to caregivers has measurable positive impacts on their infants’ neurological development and functioning.59 However, the CTC expansion expired at the end of 2021, plunging many of the families who benefited back into poverty.60

Investments in the child care sector both create and enable jobs. A recent pilot initiative in Michigan, for instance, matches eligible employee spending with employer contributions and state funding to cover the cost of child care. One participating organization, TentCraft, has even begun offering a workplace program that enables new parents to bring their infants to an on-site care facility, embracing the initiative as good for company profit since it reduces pressure on employees to arrange for external child care services.61 This initiative supports entry-level workers who may not otherwise be able to afford child care at all, while also providing a recruitment incentive to new employees. However, the availability and coverage of such programs will vary significantly by state. Ultimately, scaling up the child care services through sustained federal investments that offset the cost to states and private organizations could generate job growth among child care professionals. These investments could also help parents rejoin the workforce, or even pursue a higher education degree that makes them more competitive for jobs with greater earning potential.62

The increased earnings for parents enabled through employer-supported child care programs in the Michigan pilot study can also be generated across the country through federal investments targeting child care as a key tool for workforce development. This workforce development promises to boost the United States’ GDP by approximately $210.2 billion63—greater than the annual GDP of Iceland, Croatia, and Ukraine combined—and a corresponding $70 billion annual increase in federal tax revenue64—roughly equal to the annual GDP of Bulgaria. As it stands, the United States loses approximately $57 billion annually in lost revenue, wages, and productivity related to persistent child care issues.65 The effects are felt even outside the child care community: While parents experience a total of $37 billion in economic burden related to insufficient child care, companies see $13 billion, and taxpayers at large see almost $7 billion. Early investments in children also show immense returns on investment—between 7 and 13 percent per year on every child care dollar spent.66


Amount of revenue the United States loses each year due to child care issues

Support for these early investments goes beyond child care advocate circles. In September 2021, dozens of economic and public policy leaders penned an open letter that urged Congress to pursue legislative action that generates affordable, quality child care, citing maternal workforce participation, family economic participation, and the historic disinvestment in the industry as pressure points.67

See also


While several ongoing research interventions point to the systematic and long-term cognitive, academic, and occupational advantages of a comprehensive child care system, the benefits of federal investments in child care go beyond educational preparation and school readiness. Child care programs create healthy, safe environments where parents can be assured that their children are well cared for; they generate fiscal growth in a core societal sector; and they create equitable opportunities for working Americans and their children to take part in a developing and increasingly globalized economy.

Investing early in quality child care is a bipartisan issue, as the policies that promote these programs receive support from nearly two-thirds of registered American voters.68 Researchers and policy experts agree that with broad, sustained early investment, comprehensive child care can promote positive health, educational, and economic outcomes.69 Congressional leaders can pass family-friendly legislation that expands and strengthens an enriching, culturally responsive, and equitable child care sector. They must not pass up this vital opportunity.


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  61. Lindsay Moore, “44% of Michigan families live in a child care desert. State pilot program addresses accessible care,” MLive, January 27, 2022, available at https://www.mlive.com/public-interest/2022/01/44-of-michigan-families-live-in-a-child-care-desert-state-pilot-program-addresses-accessible-care.html.
  62. Clive Belfield and Julie Kashen, “Families with Young Children Are Losing $13 Billion a Year While the Child Care Sector Struggles during the Pandemic,” The Century Foundation, February 2, 2022, available at https://tcf.org/content/commentary/families-with-young-children-are-losing-13-billion-a-year-while-child-care-sector-struggles-during-the-pandemic/.
  63. Bivens and others, “It’s time for an ambitious national investment in America’s children.”
  64. Ibid.
  65. Sandra Bishop-Josef and others, “Want to Grow the Economy? Fix the Child Care Crisis: Workers and employers feel pain in pocketbooks and productivity” (Washington: Council For A Strong America, 2019), available at https://strongnation.s3.amazonaws.com/documents/602/83bb2275-ce07-4d74-bcee-ff6178daf6bd.pdf.
  66. James J. Heckman, “Invest in early childhood development: Reduce deficits, strengthen the economy” (Chicago: The Heckman Equation, 2012), available at https://heckmanequation.org/www/assets/2013/07/F_HeckmanDeficitPieceCUSTOM-Generic_052714-3-1.pdf.
  67. The CAP Early Childhood Policy Team, “More Than 125 Economists and Public Policy Scholars Agree That Investing in Child Care is Necessary for Children, Families, and the Economy” (Washington: Center for American Progress, 2021), available at https://americanprogress.org/article/125-economists-public-policy-scholars-agree-investing-child-care-necessary-children-families-economy/.
  68. Morning Consult and Politico, “National Tracking Poll #2104156” (Washington: 2021), available at https://assets.morningconsult.com/wp-uploads/2021/05/05062006/2104156_crosstabs_POLITICO_RVs_v1_SH.pdf.
  69. Julie Kashen and Halley Potter, “The Case for Child Care and Early Learning for All: Healthy Child Development and School Readiness,” The Century Foundation, September 2, 2021, available at https://tcf.org/content/commentary/case-child-care-early-learning-healthy-child-development-school-readiness/.

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Hailey Gibbs

Senior Policy Analyst

Rasheed Malik

In Memoriam

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