Child Care Readings for this topic in Kimmel/Hoffman book: –1) Ch. 1 Blau; –2) Ch 2 Bergmann; Child care topics –1) Why economists study this topic? –2) Affordability –3) Quality –4) Quantity –5) Child care workers. –6) Welfare reform

Child Care: Intro Why economists study this topic? –1) Potential market failure: market fails to work properly, resulting in inefficient outcomes. Imperfect information Externalities –2) Equity Current living standards: child care as a barrier to economic independence for low- income families Children’s future well-being. Affordability details: –Very poor face dilemma: must work to support family but cannot afford the childcare. –Poor to middle income: Still often cannot afford stable quality care.

Affordability Concerns Low income workers: –) 1 out of 6 workers (who work at least PT) have Y at or below 2*poverty line. –2) Nearly 70% of working poor families headed by married couple. Lower income workers more likely to use unpaid child care which is less reliable and lower quality. When paying for care: –Low Y pay $220/week: 16% of their budgets. –High Y pay $320/week: 6% of their budgets. –Minimum wage workers can’t afford the low income average payment.

Involvement of Federal Govt in Child Care 1) Government-subsidized employer-provided child care (affects about 4% of workers) 2) Flexible spending accounts: –Pre-tax $$ held aside to reimburse child care expenses (up to $5,000 per year) 3) DCTC: –Dependent Care Tax Credit: credit for $2400 per kid up to 2 kids. 4)CCDF: –Child care and development fund: block grants to states 5) Head Start: never fully funded. States involved in regulation.

Child Care Subsidies Total federal and state spending: –Approximately 10.1 billion dollars. Percent of this money to low income families: about 2/3 of total. Key drawback to DCTC and flexible spending plans: dollars are not refundable so do not benefit lower income workers who incur no tax liability (so fails to affect their ability to purchase quality care). Studies show that subsidizing child care for low Y families has big effect on their employment behavior.

Child Care Availability As demand  from  female employment: market did respond with  # providers. Persistent shortages: –Low-income neighborhoods –Centers willing to accept subsidies (due to reimbursement delays) –Infant care (less than 2 years) –Off hours care (low income workers more likely to work off- hours).

Child Care Quality Factors affecting quality include –Child:staff ratio. –Staff training and turnover. –Child:staff interactions. –Physical environment Many studies of child care quality persistently find mediocre to poor quality care and shortages of quality care. Parents do not seem to be able to recognize quality care. –Even when informed, often weight factors in wrong way.

Blau versus Bergmann (in Kimmel book) Blau: –Child subsidy to replace child care subsidies; –Focus on quality and individual choice. Bergmann: –Substantial increases in child care subsidies; –Direct government involvement in provision of quality of care; –Focus on equity (redistributional aspect).

Child Care Workers An issue for this class because: –1) nearly 100% of providers are female; –2) provider quality is most important determinant of quality of care. Child care workers: –Low paid even when college-educated. –Some studies show high turnover (and turnover BIG determinant of quality). –Concern: child care not valued by society – viewed as women’s work. Elder care: a growing concern.

Child Care and Welfare Reform Child care $$ is big % of budget for welfare-to-work population. Subsidies play major role in success of welfare-to-work transition. Subsidies have grown under PRWORA. Currently, subsidies being cut due to federal state budget problems and shifting priorities.