America’s childcare system is broken
The end of pandemic-era childcare subsidies drives home the need for a new form of provision
Rana Foroohar
© Ann KiernanA big part of President Joe Biden’s 2024 re-election campaign will be about his administration passing the biggest fiscal stimulus programme since the Eisenhower era, with money flowing to infrastructure, chips and clean technology.
But Biden’s Build Back Better agenda always had two prongs — rebuilding America’s industrial economy, and rebuilding its care economy.
The latter goal is still in danger, and that has potentially big implications for labour markets and inflation.
The share of American women in the workforce is currently at record highs in part because the White House pushed through childcare subsidies in response to the closure of 16,000 childcare centres during the pandemic.
Day care centres operate on paper-thin margins at the best of times and now, as the final subsidies have been phased out, some are beginning to close.
This comes at a time when the cost of care is rocketing: a Bank of America Institute report released in October 2023 showed that childcare payments were up more than 30 per cent from 2019.
What is behind that juxtaposition?
Why should care centres be closing even as prices are soaring?
In short, US childcare is a broken industry.
“You can’t really make the private sector business model work unless you serve mainly elites,” says Heather Boushey, who serves on the president’s Council of Economic Advisers, and has written extensively about the care economy and struggles of working families.
To make the maths work with a one-to-four childcare ratio for children under age three, including healthcare benefits, decent pay and comfortable facilities, most care centres simply have to charge more than the average family can pay.
According to a Care.com survey, two-thirds of families who pay for childcare are spending 20 per cent or more of their income on such services, which are increasingly targeted to the luxury market.
The BoA study notes that families making between $100,000 and $250,000 a year are using more childcare, while those with less are cutting back, in part because of inflation driven by more affluent users.
Richer families are also spending less on other goods and services to meet their remaining care payments.
BofA believes care inflation will rise further now that the government’s Child Care Stabilisation programme has run out.
The Biden administration has doubled down on its care commitments, proposing even more ambitious outlays for the 2024 federal budget.
But there’s almost no chance that the proposed $400bn in increased payments to caregivers and working families over the course of 10 years will pass.
As a result, many families will either be tapping into savings, or women with preschoolers who managed to stay in work throughout Covid may now have to leave.
That would put pressure on a labour market that the Federal Reserve believes will remain relatively tight into the next year.
So, what is the solution for America’s broken childcare system?
Some measure of continued and increased state support seems necessary.
A 2023 Bipartisan Policy Centre study noted that a lack of access to formal childcare for 3.4mn children in 35 states cost the country between $142bn and $217bn in lost economic productivity.
The entire basket of pandemic-related American Rescue Plan childcare subsidies came to $78bn.
Even without the additional consumer spending that comes from a dual working-parent household, or the inflation and labour market effects of having more women in work, that seems like a bargain to me.
Conservatives typically argue against subsidising childcare for reasons that range from economic libertarianism to the notion that mothers should look after their own small children.
But even stay-at-home parents would benefit from family income credits and reformed social security benefits that recognise that looking after children is work — indeed, in my experience, the hardest kind there is.
It is a travesty that stay-at-home parents end up with lower Medicare and state pension support because they aren’t considered workers.
That said, the reality is that most women need and want to work, and the US desperately needs a system that considers the lack of access to childcare to be more than just a negative economic externality that the market will somehow deal with on its own.
Taking the “market knows best” approach to this issue is going to raise inflation, increase inequality and put more women back on the mommy track.
Should Biden be re-elected, I hope that shoring up the care economy will be the work of his second term.
But in lieu of that, business needs to play a bigger role in solving the problem, as well.
Commerce secretary Gina Raimondo believes that the provision of care is key in deciding which businesses get access to ARP stimulus funds.
I hope this yields some ideas for how to create a better system at scale.
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