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An article from Market Watch reported last spring, “Child care costs in America have soared to nearly $10K per year … roughly double the price of a year’s tuition to an in-state public university.” This was based on data from the liberal Economic Policy Institute, which also shows that Washington DC has the highest average cost for infant care at $24,243 per year and Mississippi has the lowest at $5,436.
A family is generally considered to be low-income if their income is at or below 200 percent of the federal poverty line (FPL), roughly $50,000 per year for a family of four. A “poor” (less than 100 percent of the FPL) family of four would have an income of $25,000 or less. Compare these incomes to average infant child care costs and one wonders, how do these families afford it?
The answer: Most of them don’t pay for child care. As shown below, the majority of poor and low-income children from birth to age 3 are cared for by a parent or by an unpaid caregiver, such as a grandparent or other relative. The majority of their more affluent counterparts are in paid child care.
One explanation for these care arrangement gaps is that stay-at-home parents give up earnings from work, thus increasing the likelihood that their household’s total income is low or poor. But a larger share of poor and low-income children also receive unpaid child care compared to higher-income children, such as by a grandparent or other relative. When parental and unpaid care are combined, only 32 percent of poor children and 36 percent of low-income children receive paid child care.
Unsurprisingly, this means that the high costs of child care are mostly borne by higher-income families. What does this mean for public policy? One implication is that a universal child care program like that proposed by Senator Elizabeth Warren would benefit a number of relatively high-income families. The number of low-income families that would benefit is up for debate.
Presumably, a universal child care program would allow some stay-at-home low-income parents who would prefer to work if not for child care costs to find employment. A universal child care program would also allow some parents to switch from unpaid care to paid care if that is what they want. However, it is unclear how many parents prefer unpaid arrangements with a family member to paid center-based care. And for low-income workers in particular, many job schedules can be unpredictable and do not match up with the typical 9 to 5 center-based schedule.
Additionally, a universal child care program in Quebec, Canada found that the program shifted a number of children from parental or informal care to formal care, which ultimately hurt children and families. From an NBER digest:
The view that low-income families are burdened with high child care costs is not quite true. Most low-income families don’t pay for child care, either due to parental preference or because of the cost. And some receive government assistance to help offset the cost. Policymakers should debate the most appropriate way to help low-income parents who want to work afford child care. But they should also recognize that an expansive program like universal child care will shift many children from unpaid to paid child care, potentially introducing some children to negative outcomes. Rather than a universal program, the right balance might be to target with limited assistance those parents who want to work but cannot afford child care otherwise.
Policymakers should recognize that universal childcare will shift many children to new services, potentially introducing some children to negative outcomes.
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