How America Should Spend on Child Care
UMOST LIKE wealthy European countries, America lacks a coherent public child care system. But it’s surprisingly close to having one. During World War II, Congress established federal day care centers to encourage women to work in factories; these were then dismantled. In 1971, Congress adopted a comprehensive child care plan. But President Richard Nixon vetoed the bill, calling it the âmost radical piece of legislationâ to have passed through his office, and arguing that âgood public policy requires that we both improve rather than reduce both ‘parental authority and parental involvement with children’. Today, Democrats in Congress are trying again to create a child care system as part of a massive social spending program. It should consist of a universal preschool program for three and four year olds and free or heavily subsidized child care for most Americans. The potential gains from more systematic support are significant. But there are also tradeoffs around its design.
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The case of some kind of state intervention is simple. As any new parent will easily confirm, child care in the rich world is extremely expensive. Women are disproportionately likely to stay at home to care for their children, so encouraging them to work in the formal sector could increase gender equality. For some children, formal care is coupled with education, helping to overcome disadvantages linked to their family situation. Some public spending on child care has such significant benefits later in life that it is basically an investment that pays itself off. Research by James Heckman of the University of Chicago, for example, found that spending on certain high-quality programs for children from birth to their fifth year generated an internal rate of return of 14%.
Once convinced that action is needed, governments need to think about how to design their programs: who should be eligible and what type of care to provide. The system should not only free parents to work and be good for the children; the benefits must also outweigh the costs to the public purse. It is clear that mothers are benefiting from the childcare policy. Numerous studies find that universal schemes (that is, those which apply to families of all incomes) stimulate participation in the labor market. In 1997, the Canadian province of Quebec implemented a full-time universal program, which costs parents only CAN $ 5 (and later CAN $ 7, $ 4 to $ 5.50) per day. This increased the participation rates of mothers by almost eight percentage points.
When it comes to children’s results, however, the results are mixed. The research available on existing regimes is often patchy. The big returns on investment identified by Heckman and colleagues, for example, are in targeted programs for poor families. The results of universal diets, however, are less brilliant. A meta-analysis published in 2018 by Thomas van Huizen and Janneke Plantenga of the University of Utrecht examined 30 studies of these programs. Only a third found a positive effect of the programs on children’s outcomes, and a fifth found negative effects. Although the program in Quebec has significantly increased the participation of mothers, a study by Michael Baker of the University of Toronto, Jonathan Gruber of the Massachusetts Institute of Technology and Kevin Milligan of the University of British Columbia found that children suffered from worse cognitive and health outcomes.
The literature review also found that poor children benefited the most from universal programs. A study oft-cited by Tarjei Havnes, then at the University of Oslo, and Magne Mogstad of the University of Chicago examined what happened to Norwegian children born in the late 1960s and early 1970s, then that a heavily subsidized child care program was beginning to develop. They found strong positive effects on the future incomes of poor children, but negative effects on the rich, whose parents would otherwise have provided better child care than the state. The researchers conclude “that the benefits of providing subsidized child care to middle and upper class children are unlikely to outweigh the costs.”
Added to that, universal support could be regressive. In wealthy European countries, low-income families are one-third less likely to use childcare programs than wealthier ones. In the United States, the poorest families are more likely to say in surveys that they prefer informal and family child care to formal child care. This suggests that a one-size-fits-all supply would direct public funds to those who don’t need them, and that means testing is a more effective way to target aid.
After deciding who should receive help, the next question is how to provide it. Here, the evidence suggests that quality is very important for children’s outcomes. Full-time programs do not necessarily work better than part-time programs. Quebec’s disappointing results are often attributed to very disparate standards. In contrast, a study by M. Havnes and Nina Drange of Statistics Norway on a lottery to enroll toddlers in a child care program in Oslo – where quality is tightly regulated by the state – found great improvements in standardized tests performed at the age of seven.
Left-wing American politicians like Elizabeth Warren tend to speak of “underinvestment” and “child care deserts”. But if existing child care arrangements are of poor quality, then spending alone will not improve outcomes for children. A framework that assesses the benefits of spending on child care to families and compares them to the costs is essential if policy is to help those most in need. Without it, childcare in America is also at risk of becoming subject to an inappropriate mess of regulations: the same tangle of subsidies, supply restrictions, and shoddy quality that plagues higher education and health care.
As America attempts to Europeanize its safety nets, the question is not whether a more cohesive child care regime should exist, but how it should be designed. Fifty years after Nixon vetoed universal child care, the search for a truly effective US state is still ongoing. â
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This article appeared in the Finance & economics section of the print edition under the title “Nanny state”