Trying to run a child care system using market prices runs into three main problems.
- The wages for child care providers wind up very low.
- The costs for parents wind up very high.
- Paying the costs out of pocket requires families to undergo major drops in their standard of living when they have a child and creates asymmetries between identical families with different numbers of children.
For a government, solving these problems is pretty simple. You can pass a law that mandates higher wages for child care workers and then use public money to fund the child care sector rather than rely upon user fees. This gets you lower (or no) costs for parents, higher pay for workers, and reduces (or eliminates) the negative shocks and horizontal asymmetries that come from funding the child care system with out-of-pocket fees.
This is how the K-12 system works and how the Democrats’ proposed pre-k system works. But it is not how the Democrats’ proposed child care system works
The Democrats’ child care proposal mandates higher wages for child care workers but then does not follow through on the public subsidies for all families. The result will be a massive increase in child care fees for families with incomes slightly above their state’s median income.
According to the Center for American Progress (CAP), the average cost of basic quality center-based infant care is $15,888, with $9,480 going to pay worker wages, $768 going to pay worker benefits, and $2,580 going to pay for administration.
Under the Democratic child care plan, child care worker wages are meant to increase to the wages currently received by elementary school teachers. The median child care worker is currently paid $25,460 per year while the median elementary school teacher is currently paid $60,660 per year. Thus, this mandate could increase child care worker pay by 138 percent. If we increase the salary cost from the CAP estimate above by 138 percent, the unsubsidized price of child care goes from $15,888 per year to $28,970, an increase of $13,082 per year. And this is not the only thing the bill does that will increase the cost of care.
The Democratic child care plan subsidizes the price of child care by replacing flat user fees with a sliding-scale income-based copayment. Costs that exceed a given family’s copayment amount will be picked up by the government.
|Income as Percent of State Median
|Copayment as Percent of Income
|Less than 75%
|75% to 100%
|0% to 2%
|100% to 125%
|2% to 4%
|125% to 150%
|4% to 7%
But in the first 3 years of the program, families with incomes that are just $1 over 100% of the median income (year one), 115% of the median income (year two), or 130% of the median income (year three) will be eligible for zero subsidies, meaning that they will be on the hook for the entire unsubsidized price, which as discussed above will now be at least $13,000 per year higher than before.
|Eligible Incomes as Percent of State Median Income
How much income is too much will depend on the state and depend on how the word “income” is defined (the bill does not define it). But for illustration purposes, note that the median household income last year in the country was $67,521. If this was your state’s median income, then having a family income just $1 higher than that would result in you being ineligible for child care subsidies in 2022 even as the unsubsidized price of child care skyrockets due to the wage and other mandates in the Democratic proposal.
This is obviously a perverse outcome and it’s not clear whether lawmakers even realize what they are about to do.
Under this scenario, there will be many dual-earning couples who cannot afford child care if both of them continue to work, but could afford child care if one of them quit their job and thereby brought their family income below the eligibility cutoff. Normally people who quit jobs to take care of their kids do so in order to save the money they’d have to spend on child care. Under this plan, they have to quit their job in order to afford child care!
For all the talk of child care benefits being a boon to women’s labor force participation, this design clearly pushes against it by making it virtually impossible for a dual-earning middle class couple to afford child care in the first three years of the program.
As with most of the goofy designs Democrats come up with, this problem is an easy one to solve. Making it so that all incomes are eligible for the income-based subsidies starting in year one would make it so that at least middle class parents are spared from this perverse outcome, though higher income parents would still be hit with it. And of course simply copying and pasting the Democrats’ pre-k proposal but applying it to ages 0 to 2 would solve the problem entirely.
As it stands now though, the Democrats are walking towards disaster, both as a policy matter and, very likely, as a political matter.