Biden’s Child-Care Plan Might Only Raise Parents’ Costs

(Bloomberg Opinion) -- Making child care more affordable is a laudable goal of President Joe Biden’s $3.5 trillion spending plan, which would expand and create an array of new social programs. But the approach Democrats are likely to take will perversely increase its price, in much the same way student loan programs do. Rather than subsidizing the demand for child care, Congress should focus on increasing its supply.

Getting the policy right is important because it would ease the financial burden on working parents and help non-working parents to enter the labor force if they want to.

Women bear the brunt of costly child care. A 2013 Pew Research Center poll found, among mothers, 42% had reduced work hours, 39% had taken significant amounts of time off work, and 27% had quit their jobs to care for a child or family member. Among men, these shares are 28%, 24% and 10%, respectively. In other words, nearly three times as many mothers quit their jobs to care for relatives than fathers did.

This is occurring at a time when workforce participation is dropping. The rates for men in their prime working years (ages 25 to 54) have declined from around 97% in July 1951 to 88% in July 2021. For their part, prime-working-age women were participating in the workforce at a growing rate from the late 1940s (at around one-third) until the mid-1990s; participation leveled off in 2000 at 77%.

Expensive child care is keeping people — particularly women — from working more. And that in turn is pushing down the economy’s overall growth rate, and depriving society of the contributions these women could make.

Of course, not everyone wants to work. That’s fine. But policy makers should help those who do want to get a job but find it difficult because caring for their children is so expensive. And anyone receiving a child-care subsidy from the government should be required to work in exchange.

Congressional Democrats and the president have decided to make this a priority. An analysis by Moody’s Analytics estimates that the $3.5 trillion reconciliation package under consideration in Congress would devote $225 billion over 10 years to affordable child care.

The details are still a long way from being worked out. But Biden’s American Families Plan calls for the government to pick up part of the child-care tab for most working families. Households earning up to 1.5 times their state’s median income would pay no more than 7% of their income for care for all kids under age 5. The Child Care and Working Families Act, a proposal by congressional Democrats, would have the government pay the full cost for households earning below 75% of their state’s median income.

Biden would also institute a $15 per hour minimum wage for staffers at child-care centers, and ensure their access to professional development. Workers with qualifications similar to kindergarten teachers would receive comparable pay and benefits.

This is the wrong approach. As demand for commercial child care increased, the cost would go up as well. And increasing the cost of employing workers by stipulating that they receive higher pay would boost prices even further.

When government subsidizes the demand for something, more people want to buy it, leading to higher prices. That’s what happened in higher education and health care. The rising costs intensify calls for even more generous subsidies, which in turn boost prices even further. Congress should not want to make the same mistake with child care.

One better solution would be to give parents additional cash through a more generous child-tax credit. Those who wish to use it on child care could do so. But because households wouldn’t be required to spend the money on commercial care, it would have less of a detrimental effect on the price.

Biden and congressional Democrats already want to boost the tax credit for children by over $500 billion over the next five years. They should not be seeking both that and the spending specifically on child care.

Instead of subsidizing demand, Congress should try to boost the supply of providers. This would reduce — not raise — the cost of care.

One way to do this would be to reduce regulation around child-staff ratios. A 2017 paper by economists Devon Gorry and Diana W. Thomas found that increasing the ratio by one infant reduces the cost of care by between 9% and 20%, saving families between $850 and $1,890 per year.

Other regulations to consider loosening are minimum qualifications for workers and size limits on classrooms.

Another way to help families afford care without boosting its price is to make sure that any subsidies can be used to compensate grandparents, aunts and uncles, neighbors and other care providers in informal networks. The focus shouldn’t exclusively be on getting more kids into commercial centers.

The school day should also be lengthened so that it better aligns with the work day. This would help more parents to work, while also improving the quality of education.

Congress and the president are right to want to help parents work by reducing the cost of child care. But they should avoid solutions that require more and more infusions of taxpayer money while only making the problem worse.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”

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