child care

The Trumps’ Mistargeted Child Care Proposal

Sadly, there’s a growing bipartisan consensus for more extensive federal involvement in child care policy. Recently, presidential candidate Elizabeth Warren proposed extensive new demand-side subsidies. Now today’s Budget from President Trump proposes additional resources for the Child Care and Develop Block Grant program to “increase the supply of child care to underserved populations.” Ivanka Trump is championing this new proposal.

Child care can be extraordinarily expensive. There are big problems with lack of availability in poorer neighborhoods. Ivanka Trump is to be commended for recognizing this is a supply-side problem, rather than just proposing throwing money at it. But that problem is generated in large part by misguided regulations in the form of staff-child ratios and occupational licensing requirements at state level that make it more expensive to provide care. Efforts to formalize the sector as more educational raises costs and so increases prices, with the inevitable regressive consequences. The Trump budget plan only works at the margins to improve affordability and availability, with big potential drawbacks. It is mistargeted.

Under Trump’s proposal, $1 billion extra would be temporarily put into the Child Care and Development Block Grant program. States could apply for funding to be used to encourage employers to invest in child care as they saw fit. But the quid pro quo is that to get the extra money, states would have to show commitments to reducing regulation or requirements that raise the cost of care.

Could Inefficiency Balance Out Overregulation?

The top left-hand story on the front page of the Metro section of today’s Washington Post:

Lawyers for the District argued Wednesday for the dismissal of a lawsuit that challenges city regulations requiring some child-care workers to obtain associate degrees or risk losing their jobs….

Paid Leave Means Women Pay

Who pays for women’s mandated paid leave and other women-centric labor policies? At a superficial level, it depends on who you ask. Proposals for federal mandated paid leave and child care laws run the gamut, and advocates identify government, taxpayers, or private companies as backers. Unfortunately, those answers reveal a glaring oversight: directly or indirectly, women will pay.

Economists of a variety of ideological persuasions agree, including Larry Summers, former Director of the National Economic Council for President Obama. In 1989, Summers wrote “Some Simple Economics of Mandated Benefits” where he asserted that “The expected cost of mandated benefits is greater for women than it is for men.”

What does that mean? In his paper, Summers concludes that women will be paid less or not hired as a result of mandated benefits. In his words, “If wages could freely adjust, these differences in expected benefit costs would be offset by differences in wages.” And if not? “[T]here will be efficiency consequences as employers seek to hire workers with lower benefit costs.”

Liberalized Immigration Will Help Mothers More than Trump’s Child Care Plan

Donald Trump recently unveiled a new child care plan whereby the government will force employers to give time off to new mothers in exchange for some shuffling of the tax code.  Mothers do tend to benefit from such schemes but they also end up paying for their time off in other, indirect ways like lower wages.  Forcing employers to pay their female employees to take time off decreases the labor demand for child-bearing age women and increases their supply, thus lowering their wages.  Economist Larry Summers, former Director of the National Economic Council during President Obama’s first administration, wrote a fantastic paper explaining this effect.

Many firms have maternity leave policies that balance an implicit decrease in wages or compensation for working-age mothers with time off to care for a newborn.  The important point about these firm-specific policies is that they are flexible.  Some women want a lot of time off and aren’t as sensitive to the impact of their careers while others want to return to work immediately.  A one-size fits all government policy will remove this flexibility.    

Regardless of the merits or demerits of Trump’s plan, economists Patricia Cortes and Jose Tessada discovered an easier and cheaper way to help women transition from being workers to being mothers who work: allow more low-skilled immigration.  In a 2008 paper, they found:

Exploiting cross-city variation in immigrant concentration, we find that low-skilled immigration increases average hours of market work and the probability of working long hours of women at the top quartile of the wage distribution.  Consistently, we find that women in this group decrease the time they spend in household work and increase expenditures on housekeeping services.

The effect wasn’t huge but skilled women did spend less time on housework and more time working at their job.    

Younger women with higher educations and young children would be the biggest beneficiaries from an expansion of childcare services provided by low-skilled immigrants.  There are about 5.4 million working-age women with a college degree or higher that also have at least one child who is under the age of 8 (Table 1).  Almost 78 percent of them are employed, 2 percent are unemployed looking for work, and 21 percent are not in the labor force.    

Head Start Fraud

It’s been a tough week for the Department of Health and Human Services. As I discussed earlier, the Government Accountability Office reported on fraud problems with the Child Care and Development Fund program. Another new report from the GAO finds fraud problems with HHS’s Head Start program.

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