Trying to run a childcare system using market prices runs into three main problems.
- The wages for childcare 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 childcare workers and then use public money to fund the childcare 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 childcare 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 childcare system works.
The Democrats’ childcare proposal mandates higher wages for childcare workers but then does not follow through on the public subsidies for all families. The result will be a massive increase in childcare 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 childcare plan, childcare worker wages will increase to the wages currently received by elementary school teachers. The median childcare worker is currently paid $25,460 per year while the median elementary school teacher is currently paid $60,660 per year. Thus, this mandate will increase childcare worker pay by 138 percent. If we increase the salary cost from the CAP estimate above by 138 percent, the unsubsidized price of childcare 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 childcare plan subsidizes the price of childcare 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.
But in the first three years of the program, families with incomes that are just $1 over 100 percent of the median income (year one), 115 percent of the median income (year two), or 130 percent 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.
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 childcare subsidies in 2022, even as the unsubsidized price of childcare 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 childcare if both of them continue to work but could afford childcare 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 childcare. Under this plan, they would have to quit their job in order to afford childcare!
For all the talk of childcare 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 childcare 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 zero to two 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.