America’s Ramshackle Childcare System – Part 2
How the Childcare System is Failing our Children and our Nation
This is the second essay in Civic Way’s series on childcare. In this essay, we examine the deficiencies of the US childcare system and their impact. In the next essay, we will offer some potential solutions to these problems. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving public agencies.
Highlights:
US childcare, with its disconnected markets and programs, is more patchwork than system.
While large for-profit childcare chains are expanding, most childcare providers are small, private family- or home-based entities. Providers are unevenly distributed and competition is limited.
The 35 federal childcare programs, multiple childcare tax credits and funding sources, and scores of state and local programs, are rarely leveraged to improve childcare coordination and quality.
America’s childcare quality pales in comparison to the childcare quality of other developed nations, varies widely across states, and is not effectively monitored.
Childcare is increasingly unaffordable, not because it costs too much but because we ask too much of families (and too little of government), and we treat childcare as a private luxury more than a public good.
Our childcare and parental leave policies are bad for the economy, business, families and children.
A Tale of Two Childcare Markets
Treasury Secretary Janet Yellen has called US childcare “a textbook example of a broken market.” She is partly right. Our childcare depends far too much on private markets unable to meet the needs of many families, especially those of modest means. In many areas, however, there are emerging markets in which large for-profit providers are poised to serve affluent families.
Most low- and moderate-income families turn to informal childcare providers or small nonprofit centers to serve their children during working hours. And these providers are struggling. Their labor-intensive operating costs and inability to raise wages make it difficult to curb high caregiver turnover. Their tight margins[i], shallow reserves and limited revenue options keep many on insolvency’s edge.
In contrast, the large for-profit chains—many backed by private equity—target affluent, private pay families. They typically realize higher profits than nonprofit providers, probably due—at least in part—to economies of scale. However, profit pressures may force some for-profit providers to cut corners, hire less credentialed staff and compromise key performance metrics.
An Unwieldy Mishmash of Public Childcare Programs
Most childcare advocates urge a larger federal investment in childcare. Current funding levels are indeed insufficient, but more money, in and of itself, will not give us the childcare system we need.
Why not? Federal and state governments don’t fund and organize childcare programs in a coordinated manner. Federalism impedes the effective coordination of state programs. Tax credits are poorly synchronized with direct funding streams. Subsidies may help private providers stay afloat, but they are rarely used to improve overarching childcare standards or more effectively deploy childcare resources.
Federal childcare funding is scattered. Childcare tax credits and direct funding programs are poorly integrated. Other credits and funding sources—those offering broader benefits for children like the Earned Income Tax Credit and Temporary Assistance for Needy Families program (TANF)—support children writ large but are not effectively leveraged to build a cohesive national childcare system.
The US Department of Education (ED) and Department of Health and Human Services (HHS)[ii] are the leading federal childcare entities, but not the only ones. According to the General Accounting Office, the federal government administers 35 different programs for early learning and childcare. Head Start. Child Care and Development Fund (CCDF). Child Care and Development Block Grant (CCDBG). A host of smaller programs.[iii] Even the Defense Department has a program.[iv]
The 50 states, plus DC and Puerto Rico, also oversee childcare programs. And within those states, there may be multiple childcare agencies. In addition, many local governments run programs (e.g., New York City). All states administer federal and state subsidies and many offer tax credits and deductions. Few states have taken advantage of federal relief aid to reinvent their childcare systems.
The Random Distribution of Childcare Resources
US has many choices for those seeking childcare. Home-based and family providers, small nonprofit centers and large, for-profit enterprises, among others. Unfortunately, such options are not evenly distributed to every community and provider competition is often limited.
Due to the fragmented childcare markets and programs, the provider supply is inadequate. According to the Bipartisan Policy Center, the US has too few childcare providers and slots to meet current childcare needs[v]. According to the Center for American Progress, at least half of us inhabit “childcare deserts[vi].” And resource deployment is uneven, with too few slots in urban areas and too few providers in rural areas.
Even in areas where enough providers exist, certain types of providers are scarce. For instance, quality nonprofit centers may be limited in affluent areas and large corporate chains in low-income areas. This lack of diversity can make it difficult to accommodate families with special needs. For example, families with irregular working hours may be unable to meet those needs in areas with too few family providers.
The need for flexible childcare is acute. Over 30 million children need care during nonroutine hours, but only about a third of family providers and less than ten percent of centers offer it. Employer-based childcare will not likely expand quickly enough to meet this need. Only seven percent of employers offer on-site or near-site childcare, and even fewer defray childcare costs or offer emergency backup care[vii].
Finally, childcare facilities are neglected. Government assumes responsibility for planning, financing and developing other public infrastructure—like schools—but not childcare facilities. Most federal childcare funds for low-income families cannot be used for childcare facilities. Providers often defer facility repairs or find bank loans elusive. And new facilities are slowed by NIMBYism and elaborate zoning and permitting rules.
What About the Quality of US Childcare?
According to international ratings, the quality of America’s childcare pales in comparison to the quality of childcare in other developed nations. And, within the US, childcare quality varies widely among the many state and local government programs.
It gets worse. Domestically, we don’t fully understand how good or bad our childcare is. There are a few quality metrics like the children-to-staff ratio and caregiver qualifications. However, we lack a national system for tracking quality and best practices across the states and communities. At the federal level, even the Head Start Collaboration offices lack complete data for all sites.
There have been some signs of progress. Some states have developed quality rating and improvement systems. In 2018, the federal government awarded grant funds to 46 states to assess state childcare needs. Still, the fragmentation of state data systems makes it virtually impossible to compare quality across states.
Perhaps the most critical threat to childcare quality involves caregivers. For many reasons, the childcare sector is plagued by caregiver shortages. Every year, at least 20 percent of childcare workers leave their jobs. During the pandemic, the entire sector lost well over five percent of its workers[viii]. The impact on quality is incalculable.
And, given low caregiver compensation levels, the worker shortage could worsen. Childcare is one of the lowest paid occupations requiring a high school diploma. According to the Bureau of Labor Statistics, the 2021 median pay for childcare workers was only $13.22 per hour. Many caregivers, 80 percent of whom have higher education, receive public aid[ix]. Even those who love childcare are too often forced to leave the sector.
The Unbearable Fiscal Burden of Childcare
One of the favorite hobbyhorses of many politicians and pundits is the so-called tax burden, the money we pay for public services. However, childcare burden is far worse for a growing number of young American families. According to the US government, childcare has risen over 25 percent in ten years (and over 200 percent in 30 years). Regrettably, the childcare burden receives far less attention.
In the US, most childcare costs are borne by families and employers. Tax credits lessen the load for many employers and mid- and upper-income families, and government programs help many low-income families. Nevertheless, childcare has become increasingly unaffordable—if not prohibitive—for many families.
While the full costs of childcare are difficult to ascertain, the annual average cost of full-time childcare is estimated to range from $9,000 to $10,000 per child. Average annual costs are roughly $3,000 higher for infants and toddlers than for three- and four-year-olds. Average annual costs are about $2,600 higher for center-based care than home-based care. And costs vary dramatically by location[x].
More and more families are forced to spend an astonishing share of their income on childcare. The average cost of full-time center-based childcare is approaching 20 percent of the median household income, well over twice what the federal government deems affordable[xi]. And the fiscal burden is nearly twice as painful for lower-income families as affluent families (depending on subsidies).
There are more opinions about the causes of childcare costs than facts. Some point to inefficiencies and overly prescriptive regulations. Others blame excessive credentialing requirements for caregivers. Of course, any unnecessary regulations and licensing requirements—as well as other inefficiencies—should be eliminated wherever possible. But, make no mistake, such measures won’t solve the affordability problem.
What is the problem? It is not that childcare costs the country too much but rather that it costs families too much. We ask too much of individual families and not enough of government. We put parents at the mercy of a broken childcare market. We treat childcare as a private luxury rather than a public good. And, on top of everything else, we lack nationwide parental leave policies.
The Impact of Inadequate Childcare and Parental Leave
Our failure to develop a coherent childcare-parental leave system costs us dearly. Our economy loses over $120 billion in annual activity and earnings[xii]. According to the US Chamber of Commerce Foundation, “the lack of childcare” imposes serious costs on businesses in terms of “missed shifts [and] lost productivity.” Inadequate childcare is one of the major reasons US firms struggle to find workers and maintain operations.
Families face long wait lists for scarce childcare slots. Hundreds of thousands defer careers, leave or lose jobs, sacrifice income and incur debt. Inadequate childcare forces many parents, especially women,[xiii] to start work late or leave work. The lack of parental leave policies means that too many parents will lose a unique opportunity to forge a vital bond with their children.
The gravest impact is on our children. While the long-term impact is by no means fully understood, children deprived of quality childcare are more likely to be left behind. They will face a lifetime of catching up—or falling further behind—their peers. In school, on the job and in life. And if we think that leaving children behind will not affect our nation’s global competitiveness, we would be delusional.