Elizabeth Warren unveiled a childcare proposal earlier this week. The basic idea is to charge parents a fee equal to 0 to 7 percent of their income to attend various local childcare options with the federal government making up the rest of the cost of that care via grants. I told the Washington Post’s Jeff Stein that I thought it was a good start. Below are four other notes on it based on the way I think about this issue.
It needs a home childcare allowance.
In my Family Fun Pack program, parents are given the option of sending their kids to a free public childcare center or receiving a home childcare allowance if they prefer to care for young kids in the home. Warren’s plan currently does not offer support to stay-at-home carers, though her 2006 book The Two-Income Trap acknowledges that such support has to be part of a childcare benefit system.
Home childcare allowances, which provide cash to at-home carers, make a childcare benefit system equitable to all kinds of families and are especially important to rural people and immigrants, who disproportionately do childcare in the home.
The childcare should be free.
Nominal fees are not uncommon for childcare programs in the world, but I genuinely do not understand why they are being charged at all.
In the context of health care, the theory behind charging fees — deductibles, co-pays, coinsurance — to users is to discourage people from going to the doctor all the time. But this reasoning does not make sense in the context of childcare where we want people to utilize it and where it is not really possible to overutilize it in the same way that it is possible to overutilize health care.
One goal of charging the fees might be to raise revenue to fund the childcare system, but in that case it seems like you should use broad-based taxes that apply to all households not de facto 0 to 7 percent taxes applied only to households with children in childcare. It would be trivial to raise that amount of revenue from the universe of all households and would seemingly make the program more popular and fairer.
Cost control could be an issue.
As currently written, Warren’s proposal does not appear to contain any mechanism for controlling the underlying costs of the childcare itself. It promises to cap user fees at 0 to 7 percent of income, but then appears to offer open-ended subsidies for the remaining charges of each childcare center. Unless the plan also specifically caps how much childcare centers can charge the government, there is nothing to prevent childcare centers from escalating costs at will.
The ordinary mechanism for preventing such cost escalation would be that parents would choose the lower-priced centers over the higher-priced centers. But since parents pay a fixed percent of income regardless of which center they go to, that mechanism cannot operate. The 0 to 7 percent fee thus has all the downsides of “skin in the game” (the annoyance of out-of-pocket expenses) but none of the upsides (downward price pressure).
Economic growth claims are probably overstated.
Some proponents of childcare benefits argue that it would hugely boost the output of the economy. But these claims seem a bit exaggerated.
The general idea here is that, if childcare was more affordable, the employment rate would increase because people who currently cannot afford childcare will become able to do that. And once they are able to do that, they will be able to put their kid in day care and go to work rather than care for them in the home.
The first problem with this argument is that it relies upon the fact that only market labor is counted towards the country’s economic output. Thus, shifting some childcare from nonmarket labor to market labor mechanically boosts GDP even though it does not, by itself, increase the total amount of childcare being performed and thus does not actually increase total output.
In response to this point, advocates will acknowledge that the GDP measure will overstate the gains considerably, but also point out that the stay-at-home parent who is now able to go to work might produce more in the labor market than they produce at home (i.e., the value of their market labor is higher than the value of their home-care labor).
But the issue with this move is that the people who cannot currently afford childcare are also going to be disproportionately those whose market labor is not that “valuable.” Indeed, that is sort of the crux of their conundrum: they cannot afford childcare because their market labor does not fetch high enough wages.
In response to this point, advocates will say that remaining attached to the labor force during this period will make the workers more productive later on in life because they will have more experience and more skills. That is, being locked out of the labor force for a few years in early adulthood is a long-term drag on human capital.
This point — essentially a version of the hysteresis hypothesis for unemployment — is really the key to the theory of higher productivity, but as you can see it’s quite a bit more diluted a point than the one advocates initially make.
And even this point, which seems correct to me, may end up being a smaller deal than advocates think. Treatments of this issue assume that childcare benefits will cause larger increases in women’s employment than they probably will. The reason for this error is that there is little mainstream acknowledgement of the fact that lagging women’s labor force participation appears to be heavily driven by recent increases in immigration from Latin America and Asia. These populations are much more likely to organize their families along sole-earner / male-breadwinner lines than the overall population, which appears to be at least partially be culturally driven.
All of this is to say that the case for free (or subsidized) childcare is not that it will significantly grow the economy. It is that it redistributes income to families with young children, easing their often-severe financial strain, and gives all parents the ability to work outside of the home if that is what they want to do.