America’s Ramshackle Childcare System – Part 1
How We Got Here, How We Compare and What We Need
This is the first essay in Civic Way’s series on childcare. In this essay, we profile the American childcare system, including relevant trends and how it compares to other systems around the world. In the next two essays, we will outline current problems and potential solutions. 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:
The childcare issue puts the myopia and idiocy of American politics on full display.
The childcare market, with 675,000 businesses (most of which are small, informal and unlicensed providers), is large but its economic impact is far greater.
After WWII, the US abandoned its publicly funded childcare system and, despite several efforts, has failed to develop a coherent, cost-effective childcare system ever since.
Compared to other developed nations, America’s parental leave practices and the quality, access and affordability of its childcare system leave much to be desired.
The US childcare system, due to demographic and economic trends, is facing increasingly acute challenges. Without childcare reform, the US’ global standing and competitiveness will be compromised.
Introduction
There are few policy issues that expose the myopia and idiocy of American politics more than childcare—what we do for families and their children from pregnancy to kindergarten.
It could not be clearer. That good childcare is vital to our future. That good childcare is the foundation for effective parenting, school readiness and a competitive economy. During WWII, childcare was deemed essential to the war effort. Today, many leaders—civic, educational, business and military—affirm its importance.
We once had a reputation for setting—and achieving—bold national goals. We have the capacity and wealth to do it again, but only with clear vision. By ignoring the distractions that divide us—phony issues like grooming, critical race theory and wokeness. By putting polarizing debates—like abortion—in the context of what children need after birth. By overcoming our differences to find common ground.
A Snapshot of the Childcare Sector
America’s childcare system relies heavily on an increasingly bifurcated private market. This market has two principal segments—informal and formal childcare. Informal childcare involves parental or home-based childcare. Formal childcare involves more structured center-based facilities.
With about 675,000 businesses and 1.5 million employees, childcare remains the province of small, informal and unlicensed providers. Nearly 90 percent are run by individuals and, of these, over 90 percent are woman-owned and over half minority-owned. Formal childcare facilities include small nonprofit centers and large for-profit chains. Many are state-licensed or accredited, and most offer better facilities and more credentialed caregivers than informal settings.
Which facilities serve the most children? It is hard to tell. Parental or home-based facilities appear to serve the most infants and toddlers. As children approach kindergarten age, they are more likely to attend formal facilities. One proxy indicator—that formal facilities account for about 70 percent of childcare revenues—suggests that formal facilities serve a substantial share of children.[i] One estimate is that at least one-third of all children in childcare arrangements attend formal childcare facilities.
The History of American Childcare Policy
Until the 1920s, Americans did not perceive a childcare issue. Married men worked outside the home and married women stayed at home. During the Great Depression, the federal government funded childcare as a job creation strategy but stopped when the public works programs ended. During WWII, the federal government funded childcare centers to aid the war effort but dismantled them at war’s end.
After WWII, more women reentered the workforce, but the federal policies struggled to keep pace. The $600 childcare tax deduction in 1954. Block grants for state-licensed childcare in 1962. Head Start in 1965 and federal childcare regulations in 1968. In 1971, Congress passed a universal childcare plan, but President Nixon vetoed it.
From 1970 to 2020, some of the most significant federal childcare initiatives involved tax credits and deductions for businesses and mid- and upper-income families. The $500 Childcare Tax Credit (CTC) was enacted in 1997. The CTC was raised to $1,000 in 2001 (made permanent in 2012). The 2017 Tax Cuts and Jobs Act (TCJA) increased CTC to $2,000. The Earned Income Tax Credit, Child and Dependent Care Tax Credit, Dependent Care Flexible Spending Account and Dependent Care Assistance programs also help subsidize some childcare costs.[ii]
In addition, the federal government created two direct funding streams for childcare—subsidies for low-income families and block grants for state childcare systems serving low-income families. For FY23, federal appropriations for these two programs are $12 billion for Head Start and $11.6 billion for the Child Care and Development Fund (CCDF).[iii] The Temporary Assistance for Needy Families (TANF) program also provides some childcare funding for eligible recipients.[iv]
States receive and administer millions in federal childcare block grants and provide matching funds. Since 2000, many states have expanded public prekindergarten offerings, increasing prekindergarten funding from $2.4 billion in FY02 to $9.4 billion in FY19[v]. Some states also offer childcare tax credits and deductions.
The Biden Administration has made childcare one of its top priorities. The 2021 American Rescue Plan (ARP) invested $39 billion in childcare[vi] and raised the CTC and made it fully refundable (i.e., reimburse low-income families for childcare costs even if ineligible for credits). However, such pandemic relief packages will lapse in 2024. Biden’s failed Build Back Better plan would have instituted a universal pre-kindergarten program, increased caregiver compensation, and reduced childcare costs for most families.
How US Compares to the World
At least two organizations, the United Nations Children's Fund (UNICEF) and the Organization for Economic Co-operation and Development (OECD), conduct comparative assessments of national childcare systems for the world’s 40 or so wealthiest countries (America’s peers).
While such global comparisons can be misleading, the UNICEF and OECD reports provide a reasonable basis for some preliminary observations, including the following:
Unlike most peer nations, US lacks coherent leave policies and a well-organized public childcare system
Measured against access, quality and affordability metrics, the US childcare system compares poorly while nations like Iceland and Sweden lead the pack[vii]
Quality indicators for US childhood facilities suffer in comparison to those of most other developed nations (e.g., caregiver qualifications and staffing ratios)
At $500 per child per year, US public childcare spending is a mere fraction of the OECD peer nation average ($14,436) and the OECD’s top spenders (Norway $29,726, Finland $23,353 and Germany $18,656)[viii]
The US spends considerably less on early childhood education than the OECD national average (0.3 percent of GDP versus 0.7 percent of GDP)
US residents spend more on childcare as a percent of income than residents of its peer nations (the US ranks last in affordability among peer nations)[ix]
The US is the only wealthy country without nationwide parental leave policies at any stage (maternity, parental and paternal)[x]
While it is hard to import specific policies and programs from one nation to another, it would be prudent for US policymakers to learn from other nations as it reinvents its childcare system. National childcare leaders like Canada (the Quebec model), Germany (Kita), Iceland, New Zealand and the Nordic nations. Best practices like generous parental leave policies, credentialed caregivers, reasonable staffing ratios, well-resourced facilities and affordable fees.
The Future Outlook for US Childcare
The US childcare system faces a precarious future. Demographic changes, such as more females in the labor force and more single-parent families, will likely increase childcare demands.
The nation’s childcare needs are already acute. There are over 23 million children aged 5 or under, of which at least 60 percent require childcare. The Brookings Institution reports that parents with minor children constitute nearly one-third of the total workforce. According to the Pew Research Center, the US has the world’s highest incidence of children in single-parent households.
In contrast, the number of childcare providers (mostly small providers) has been declining for years[xi] with the pandemic bringing 16,000 more facility closures[xii]. From 2005 to 2017, according to US DHHS, family childcare homes fell by 44 percent (220,969 to 123,837). The number of formal childcare centers rose slightly from 107,138 in 2005 to 109,414 in 2017. Since centers offer more slots than home-based facilities, formal centers are serving an increasingly large share of children.
Private equity is pushing corporate for-profit childcare chains like Bright Horizons and Lightbridge to merge and expand, especially in more affluent markets. During 2020 and 2021, the largest chains grew by nearly ten percent. In 2022, the largest chains opened or acquired over 500 new centers. In addition, private employers face competitive pressures to provide on-site day care. Federal pandemic relief funds are helping many nonprofit centers, especially those in underserved markets, survive.
Regardless of the shifting provider mix, our national childcare needs exceed capacity. In 2021, the advocacy group, Child Care Aware of America, reported a childcare supply gap of 3.6 million licensed childcare slots[xiii]. In 2019, the Bipartisan Policy Center issued similar findings[xiv]. The actual gap, especially for rural and low-income areas, could be far greater, and with even more profound implications for the nation’s children and economy.
The US desperately needs a new childcare system. One that treats childcare as a public good not a private luxury. One that fully integrates childcare with K-12 education. One that stops confusing childcare with babysitting. One that promotes competition but doesn’t ask too much of the private market. One that will be recognized as the best in the world.