The economic benefits of universal childcare

This was going to be childcare’s moment in the sun. Parent fees would be sliced, spaces bloom, educators finally paid a living wage. Then, 50 years to the month after President Nixon vetoed the Comprehensive Child Development Act, Senator Joe Manchin—citing costs—put the kibosh on the House version of the Build Back Better Act. An accurate reading of the Act’s childcare provisions, however, shows they would be investments that quickly pay for themselves, and that the consequences of inaction is a tremendous economic slowdown.

Childcare programs are in a dire state. The sector is still missing 1 in 10 employees, the result of programs’ inability to raise compensation to keep pace with major retailers like Amazon and Target. Since programs must adhere to low child-to-adult ratios, the staffing crisis is leading to a wave of closures and reduced capacity and parent choices in every state.

How bad is it? A first-of-its-kind study of Louisiana childcare programs found that, as of this summer, “84% of site leaders reported asking staff to work more hours or take on additional roles to make up for staffing shortages. Three-quarters worried that staffing issues negatively affected children at their site. Almost half indicated that they served fewer children or turned away families due to staffing challenges, and nearly two-thirds indicated they currently had a waitlist.” These results are likely generalizable nationwide—and over the past six months, have likely grown even worse.

The economic ramifications are massive, and one reason why, after the Manchin news broke, Goldman Sachs downgraded the U.S. GDP forecast. The U.S. Chamber of Commerce Foundation recently analyzed five states and found that, when you add up the productivity losses from parents leaving or not taking jobs, reducing hours, or having persistent absences due to childcare breakdowns, businesses and states—and, by extension, the federal government—are pouring money down the drain. The Chamber concluded that Arizona, for example, loses $1.77 billion every year due to inadequate childcare, while Texas loses nearly $10 billion.

In fact, for those concerned about costs, childcare is one of the best public investments we can make. There is a threefold reason for that: not just increases in productivity, but also increases in maternal labor-force participation, and increases in the economic output of the childcare sector itself. None of this is theoretical, and none of it is a vague long-term benefit: these are concrete, immediate returns on investment.

Essentially every jurisdiction that has instituted any form of free or very low-cost childcare has seen an immediate spike in maternal labor-force participation. These increases have been huge: 7.7% in Quebec, 8.1% in Israel, 6.5% in Germany. Allowing women a real choice about their working hours leads to a major expansion of the tax base. In Quebec, economists concluded that “the tax-transfer return the federal and Quebec governments get from the program significantly exceeds the cost.”

We’ve seen this happen domestically as well. When Washington, D.C., rolled out universal pre-K for four- and three-year-olds, the labor force participation of mothers with preschoolers jumped 10% within a matter of years, and has now equalized with mothers who have school-age children. Notably, childcare is also important for school-age children: Even under the current weak system, hundreds of thousands of families rely on childcare programs for their elementary schooler’s before- and after-school care. The Build Back Better package would shift further billions toward school-age care subsidies.

The overall economic gains for the U.S. would be staggering. Heidi Shierholz, the former chief economist for the U.S. Department of Labor, has written that if the U.S. maternal employment rate was equivalent to Canada’s or Germany’s, that would single-handedly raise the nation’s GDP by 3.5%, generating over $500 billion annually.

Then there is the question of the childcare sector itself. Childcare is a large industry; it employs more than 2 million individuals, putting it at the same occupational level as truckers. Most practitioners currently make poverty or near-poverty wages; with a median wage of $12.26 an hour, fully half make so little, they are eligible for public assistance. The programs themselves are mainly an array of (mostly women-owned) small businesses struggling to keep the lights on.

Solidifying the sector means generating enormous new economic output. Educators’ households would be raised toward the middle class, further growing disposable income and the tax base. New programs would open or expand, meaning the occupancy of commercial real estate and the purchase of furniture and materials. One report from the UC-Berkeley Labor Center concluded every dollar invested in California’s childcare system would generate $1.88 just from the sector’s output before even touching the benefits for parents and children. There is, again, every reason to think the finding applies nationwide.

It is perplexing, as Utah children’s advocate Moe Hickey has mused, that we speak of funding for roads and bridges as “investments” but funding children and families as “spending.” This is not merely semantics—an investment, by its nature, is money you outlay with the expectation of making more money as a result. While a healthy, high-quality childcare system will certainly reap social benefits for the current and future generations, it is also in a literal sense a wise investment. The problem is that the Congressional Budget Office does not take into account this return on investment. That omission does not mean lawmakers should ignore reality.

And the reality is that the childcare sector is not merely teetering at the edge of a cliff; it is in free fall. There is still a chance to rescue the Build Back Better plan in some form or fashion. Senator Manchin and anyone else concerned about the state of the U.S. economy should recognize that letting childcare splinter against the rocks will not only slow economic growth, but shatter so much economic potential. Childcare, it turns out, pays for itself today, and pays dividends for tomorrow.

Elliot Haspel is a childcare policy expert and author of the book Crawling Behind: America’s Childcare Crisis and How to Fix It.