Episode 1: What’s the real economic impact of child care? Episode 1: What’s the real economic impact of child care?

Runtime: 14:26 — Child care follows a familiar storyline in the U.S.: Crisis comes, people act. Then momentum fades, and the system limps ahead. What’s preventing lasting reform? Advocates say many underestimate the sector’s broad impacts on the economy and the future.

Overview Overview

There’s widespread agreement that the U.S. child care system is broken. But what does “broken” mean? It has a lot to do with structural flaws that reinforce each other:

  • Child care is costly, and parents can’t afford higher fees, which means providers can’t charge more.
  • Providers often operate on thin profit margins. If they can’t charge more, they also can’t increase worker pay.
  • Child care workers often don’t make much more than minimum wage. Without higher pay, many can’t stay in the field, and the high turnover erodes quality.

So, what’s the answer? In this episode, we’ll discuss reform and continued skepticism from the public about the investment. We’ll also hear from advocates who say child care reform really matters – whether you’re a parent of small children or not.

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Transcript Transcript


There’s nothing like a national crisis to get the country thinking about child care.

An obvious and recent example is the response to the COVID-19 pandemic.

In March, lawmakers approved the largest-ever one-time allotment for child care – $40 billion to stabilize the battered industry.

The massive spending bill the money was included in was controversial, but the child care funding itself was not. Congresswoman Rosa DeLauro of Connecticut says the need for aid was obvious.


We are not going to get an economy that will recover without the strengthening of the child care industry. And I think that’s clear as day.


The country has had similar moments of clarity in the past.

An Emergency Nursery School program was created during the Great Depression to employ jobless teachers, and it included 3,000 schools at its peak. But the funding was discontinued in a decade.

Then, in World War 2, the Lanham Act established a nationwide child care program to allow mothers to go to work in place of the men who’d left for war. It was the country’s first and only experiment in universal child care, and it was essential to the war effort.

But the program ended a year after the war ended. The men returned to their jobs, and the women returned home.

That’s a big storyline for child care in the U.S.:

Crisis comes, and people act. But then momentum fades, and a flawed child care system limps toward the next crisis.

Will things be any different this time?

This is Six Hundred Atlantic, a podcast produced by the Federal Reserve Bank of Boston.

I’m your host, Jay Lindsay.

This season, we’re going to look at child care in the U.S., and by that, we mean the care and education of children ages zero to five, before they’re public-school eligible. It’s an issue the Boston Fed researches as part of our mission to promote full employment.

We’re calling the season, “A Private Crisis.” That’s partly because the child care market in the U.S. is mainly private, with relatively little public funding.

But it’s also because – as we’ve noted – the industry has often been left to handle its chronic problems in “private,” if you will. Widespread concern or attention comes only when things are at their worst. Like during a pandemic.

The virus has shown us that workers, business – and the overall economy – simply can’t function at full capacity without accessible, high-quality child care.

But experts say the problems illuminated by the virus long precede it. And a true fix is deeper – and more expensive – than policymakers have been willing to consider. Here’s Eric Rosengren, president of the Boston Fed:


We already had a system that was fragile and, for many individuals, broken. What the pandemic has highlighted is just how broken it was.


But what does “broken” mean? The short answer revolves around a series of structural flaws in the child care system that reinforce each other.

Here’s how it plays out:

Child care is costly, and parents can’t afford to pay higher fees. So, providers can’t charge more.
But even though fees are high, providers are often operating on thin profit margins. If they can’t charge more, they also can’t increase worker pay.

That leaves the child care worker in a tough spot. They make notoriously little – often not much more than minimum wage. Without higher pay, many can’t afford to stay in the field, and the high turnover erodes quality.

The Boston Fed’s Beth Mattingly, an assistant vice president and child-care expert, recalls a conversation she had that captured the industry’s challenges.


I once said to my daughter's child care provider, “I pay way too much, and you charge way too little.” And that, to me, sums up the problem with our system: An excellent quality center cannot charge what that quality really costs because then parents could not afford to go.


So, what’s the answer?

Over five episodes, we’ll explore the sector’s challenging present and uncertain future. We’ll interview parents, teachers, and providers. We’ll talk to policy experts and industry advocates, politicians and psychotherapists.

We’ll also dive into possible solutions. For most advocates, it starts with more taxpayer dollars, since a lack of money is behind a lot of the system’s problems.

But the costs of comprehensive child care reform are enormous, in the hundreds of billions of dollars. And questions about where the money should go are complex and fraught with a familiar tension about who, exactly, should get the chance to spend it?

For instance, does the money go to government agencies, like it would with an extension of our current K-through-12 public system? Or would new dollars head to parents, say with a stipend that allows a mother or father to stay home with kids rather than work?

We need to figure something out quickly, says U.S. Census Bureau economist Misty Heggeness, who studies the economics of child care.


I think as a society we really need to be thinking about child care differently and we need to be not kind of shooting ourselves in the foot all the time.

Because we've historically, for centuries in the U.S., thought of child care as a private issue that people just need to handle independently by themselves within their household. And I think that what we're doing when we do that is we're not truly allowing ourselves as a society to be our best self, because we're not making the right investments in children when they're younger, we're not helping to support families who are struggling with a market that doesn't work for them, and we're making everybody worse off.


Polling consistently shows solid support for increasing public funding for child care.

Last year, for instance, a poll commissioned by the First Five Years Fund and the Center for American Progress found nearly 8 in 10 voters – across party lines – backed increasing funding for quality early child care.

Still, the message from the public isn’t always so clear. Take a 2019 poll by Hill-HarrisX that asked specifically who should pay for what the pollsters called “day care.”

Only 43 percent of respondents thought the government should pay all or some portion. The rest, 57 percent, said it should all be on the parents.

It’s worth noting how wildly the poll results diverged by age.

Seventy-two percent of respondents aged 50 or older thought parents should be solely responsible for paying for child care.

But the results were flipped around for the youngest group. Seventy-one percent of respondents aged 18 to 34 said the government should pay some or all child care costs.

The youngest people, of course, are also more likely to be parents of small children. And the gap between the oldest and youngest respondents speaks to an obstacle child care advocates face: Convincing people that child care matters, even if they aren’t a parent.

Without support from people who aren’t using the child care system, major reform – with its high price tag – simply can’t happen.

Economists and child care experts say there are numerous compelling cases to make.

Boston Fed researcher Sarah Savage, a child care expert, points to the straight-up economic benefits of a system that enables the maximum number of people to work.

And she says there’s a huge cost to society if people who want to work – especially lower income people – can’t because they can’t find affordable care for their children.

That kind of barrier to work makes it even harder for people to improve their financial situations, and that has ripple effects throughout the economy. Savage says that’s something all taxpayers should care about.


Of course, not all workers are parents, but lacking child care can have that effect of blocking or limiting access to lifelines that people need.


Heggeness says the child care system needs to be considered part of the nation’s economic infrastructure. Because just like our air, rail, and road systems, a lot of work can’t happen without it.


The idea here is just like we need roads and bridges, we need affordable and accessible child care. I mean, if you think about it, if there was no child care, about a 10th at a minimum of our labor force would have to exit and detach from the labor force and not be able to work. And that's a problem for all of us.


University of Arizona public policy researcher Chris Herbst says child care is more than a work enabler. He says an underappreciated reality is that it’s also a major employer.

Herbst and a co-author released a paper this year on how the business cycle affects the child care industry. He says they were both surprised when, as part of that work, their calculations showed that 2 percent of working age women are employed in the child care industry.

For context, about 0.9 percent of working-age women work in retail clothing stores, and about 5 percent work in restaurants.


So, clearly, the child care industry is an important source of employment for individuals. That, in and of itself, sort of stresses the importance of the child care industry, both to folks with and without kids.


The children, of course, are a huge part of the case advocates make for broader societal support for child care.

There’s copious research on the benefits of quality early child care on everything, from brain development as an infant to that baby’s upward mobility in the job market decades down the road.
University of Chicago professor James Heckman points to lifelong benefits of quality early child care. Those include better health and jobs, lower incidence of crime, and overall stronger families.

Heckman and his colleagues estimate a 13 percent return on investment annually on high-quality early childhood programs aimed at disadvantaged families.

And the earlier learning and intervention starts, the better, said Jennifer Ng’Andu of the Robert Wood Foundation, a philanthropic organization focused on health and health care.


Babies’ and toddlers’ brains make hundreds of neuroconnections a second. And while we don't know everything about what shapes their brain, we know that from the start, babies begin to make associations with the positive and negative experiences that they have. And enriching early learning and child care environments give babies just that, the diverse experiences that support language development, their emotional well-being, their cognitive function.

And when babies and toddlers are in group settings, it also gives them the socialization and the teamwork that helps with other important life skills, anything from sharing and cooperation, to navigating baby conflict and stress in safe environments.


Still, for all the reasons economists and researchers can come up for a massive investment in child care, the fact is that none of them have been compelling enough to move the public – or lawmakers – to get it done.


But advocates see opportunity now. The pandemic, they say, has highlighted how badly our economy needs a stronger child care system – both for our present and our future. They say it’s shown that its deficiencies aren’t an individual issue – they’re a societal issue.

Here’s historian Nancy Cohen.


People need to be on fire about this. What I'm hopeful about is I think men under the age of 50 or 40 care about this a lot more than their counterparts did 10, 20, 30 years ago. So, I think there's a real potential for a broad-based movement in support of this that's kind of like motherhood and apple pie. You can see a campaign forming around this. The problem is we don't have that campaign yet.


When we ask questions about why things are the way they are in the child care industry, history offers some interesting answers.

That history also presses several cultural hot buttons. Like the role of women in the family, and the workplace. Views about and treatment of the poor, the marginalized, and people of color. And the competence and purpose of government.

As Americans, our thoughts about many of these things fall into deep cultural grooves.

But has that made us unwilling to adjust the child care system to changed norms about the family that are no longer controversial? Like, for instance, the rise of the two-earner households?

How is the past affecting the industry’s ability to take on the future?

And how is the most monumental development in child care in decades – the COVID-19 pandemic – going to affect a weakened industry in which providers like Jennifer Washburn are barely surviving?


Without the state stipends, without the PPP dollars, both rounds, we wouldn't be here. It's just that simple. We would not be here.


That’s next time on Six Hundred Atlantic.


Thanks for listening to Six Hundred Atlantic. Please check out all five episodes of our second season. You can find our first two seasons and subscribe to our mailing list at bostonfed.org/six-hundred-atlantic. Listen and subscribe to Six Hundred Atlantic on Apple Podcasts, Spotify, Stitcher, and TuneIn.

The producers would like to thank our contributors for their time and insights. They are Nancy Cohen, Rosa DeLauro, Misty Heggeness, Chris Herbst, Beth Mattingly, Jennifer Ng’andu, Eric Rosengren, Sarah Savage, and Jennifer Washburn.

This had been “A Private Crisis,” the second season of the Boston Fed’s Six Hundred Atlantic podcast.