National childcare policy is pro-entrepreneurship and pro-growth
Since the 2008 financial crisis, the Federal Reserve has used “stress tests” to ensure that the nation’s largest banks can weather a “severely adverse scenario” and to identify areas of weakness or vulnerability. The COVID-19 pandemic has been a major stress-test for America itself, subjecting every aspect of our economy and society to a severely adverse scenario. And, indeed, the test has highlighted a number of socio-economic deficiencies that we as a nation now must address, as we continue on our quest toward “a more perfect union.”
One of the most serious national deficiencies revealed by the crisis is the lack of affordable, reliable, quality childcare. Unlike many developed countries where childcare and early education are heavily subsidized, the United States has no national childcare policy. Much has been written — and with good reason — about the disproportionate impact of the pandemic on women and the resulting “shecession” that has set women’s workforce participation back by decades, largely due to childcare difficulties.
In a remarkable Twitter thread on March 31, Treasury Secretary Janet Yellen pointed out that when she first arrived in Washington in the early 1990s, the United States ranked 6th of the 22 wealthiest nations in terms of women’s participation in the workforce. By 2010, she went on, the United States had fallen to 17th place. A decade later, COVID has pushed women’s participation to a 33-year low.
But the economic costs of the childcare issue reach far beyond workforce participation among women. Quality and reliable childcare allows parents to enter and remain in the labor force, promotes the healthy development of young children, and supports families at a critical stage in ways that research shows pay significant societal dividends in subsequent years. Increasingly, however, the rising cost of childcare is undermining the financial security of American households, the health and development of the nation’s children, economic mobility and vitality, socio-economic equity and inclusion, and American entrepreneurship.
In 2019, American families spent an average of $9,100 to $9,600 annually for one child’s care, or 14 percent of median family income — surpassing the cost of housing, college tuition, transportation, food, and health care. Indeed, all 50 states and the District of Columbia fail by a wide margin the definition of affordability, established in 2016 by the Department of Health and Human Services’ Office of Child Care, that childcare costs should not exceed 7 percent of a family’s annual income. Young adults have identified childcare costs as the top reason they are having fewer children at a time when the U.S. fertility rate has fallen to a record low, threatening the nation’s demographic and economic future.
Roundtables that the Center for American Entrepreneurship conducts regularly with entrepreneurs from all across the nation reveal that the high cost of reliable childcare is a major obstacle to thriving entrepreneurship, particularly among women. A lack of access to affordable childcare prevents many would-be entrepreneurs from pursuing their new business idea, and can significantly complicate the entrepreneurial experience, increasing the chances of failure.
This matters because recent research has demonstrated that new businesses – “startups” – are responsible for an outsized share of the innovations that drive productivity growth and economic expansion, and account for virtually all net new job creation.
Expanded access to affordable and reliable childcare, therefore, is a profoundly pro-entrepreneurship, pro-innovation, pro-growth policy imperative.
The American Rescue Plan Act, signed in law by President Biden on March 11, 2021, provides a child tax credit of $3,600 for children under six and $3,000 for children six to 17 to all single-parent households with annual income below $112,500 and married-parent households with annual income under $150,000. The credit will improve childcare circumstances, as families can use the funds for whatever purpose they deem most important. But even if the entire credit is put toward childcare, it would only cover a third of the annual cost of care. Other solutions proposed to date include universal pre-K, the Child Care for Working Families Act, and universal childcare and early education. Each would significantly improve national childcare circumstances, each would entail significant costs, and each — along with other alternatives — is worthy of vigorous debate among policymakers.
As policymakers consider various options, the key parameters to meaningful reform include: 1) making quality child care truly affordable, especially for low-income families; 2) ensuring high-quality and reliable care; 3) increasing the supply and range of childcare alternatives by incentivizing the development of new and innovative childcare solutions; and, 4) improving the economic circumstances of childcare workers, many of whom are women of color who make less than the minimum wage.
By increasing the supply of labor and talent in the economy, better preparing children for school and productive careers, and dismantling a major obstacle to economic mobility and thriving entrepreneurship, policies that deliver portable and affordable childcare would be an economic boon, likely paying for themselves over the longer run. Moreover, many of the benefits of effective and equitable national childcare policies would accrue to women, middle-class families, and families of color, who have disproportionately shouldered the cost and burdens of policy inaction for decades.