Child care cliff looms as expenses increase, availability decreases

Report from Rice’s Baker Institute reviews policy strategies to mitigate US child care needs

Child care example

HOUSTON – (Jan. 31, 2024) – Millions of child care providers in the U.S. face the prospect of having to either raise tuition, cut workers’ wages and benefits or downsize their operations as funds from the American Rescue Plan Act phase out. Up to 3 million children could experience a disruption in care nationwide — a “child care cliff,” according to a new report from Rice University’s Baker Institute for Public Policy.

Not only can child care providers be difficult to find, costs tend to be high. In 34 states as well as in Washington, D.C., center-based care for an infant is more expensive than public in-state college tuition. With more than two-thirds of child care workers earning less than the national median wage, the labor-intensive jobs are difficult to fill, and few providers are willing to enter the market because of razor-thin margins.

Child care example

The report explores the current state of the U.S. child care industry and reviews solutions that other countries in the Organization for Economic Cooperation and Development (OECD) have employed to address their own child care challenges. It reviews four policy options that could be leveraged to address the child care crisis in the U.S. at the federal level — universal prekindergarten (pre-K), child care provider subsidies, expanded tax credits and subsidies for employers that offer child care as a worker benefit — and examines the benefits and downsides of each if used individually or in tandem.

“The most popular policy proposal among the experts was universal pre-K,” wrote author Joyce Beebe, fellow in public finance at the Baker Institute. “Researchers believe the policy could help achieve multiple goals: decreasing poverty, helping parents work and preparing children for kindergarten. The child tax credit came in second. Its supporters believe this option is the most flexible, since parents can use the funds provided for any expenses. Moreover, the child tax credit is the benefit that states and employers are least likely to offer, creating a gap the federal government could fill.”

Yet several indicators suggest that universal pre-K is unlikely to arrive in the near future. Universal pre-K is the most expensive of the options reviewed, and the federal government’s chronic deficit and massive debt-financed fiscal policies from the pandemic have made the current debt trajectory unsustainable, Beebe explained.

There is worry that universal pre-K could unintentionally hurt existing U.S. child care providers, according to the report. With universal pre-K targeting children ages 3–4 years old, some parents would still need to find resources for children under age 3.

“A past survey illustrated that labor makes up roughly 68% of the total cost of infant care, 62% of the cost of toddler care and 56% of the cost of care for preschoolers,” Beebe wrote. “This means that if the government began providing free or subsidized pre-K, children ages 3–4 would leave private, paid care for those providers. Existing providers would be left with infants and toddlers, the costliest groups requiring care.”

Ultimately, with the federal budget already under heavy strain, lawmakers will need to carefully consider policy goals for child care relief and look to options with a low price tag, she said.