The release of President Obama’s budget reignited the debate over the potential benefits of public investment in early childhood education. The centerpiece of his proposal is a $75 billion federal-state partnership to provide all low- and moderate-income four-year-olds with high-quality, full-day pre-K.[i] But equally important is what the President proposed—or, rather, didn’t propose—for the Child Care and Development Fund (CCDF), a vital child care subsidy program serving 1.7 million low-income children each month at a cost of $10 billion per annum.[ii] By comparison, Head Start spends about $7 billion on 900,000 children each year.[iii]
As I will explain below, the President’s budget is disappointing because it misses an opportunity to fix two structural flaws with the CCDF: its lack of integration with the larger early care and education system and its disproportionate emphasis on supporting parental employment.
When it was created in 1996, the CCDF was intended to help low-skilled mothers transition from welfare to work. In practice, this is accomplished in two ways. First, eligibility for child care assistance is conditioned on fulfilling a state-defined work requirement, which typically includes participation in paid employment, job training, or education. Second, the CCDF invokes the principle of “parental choice,” in which subsidized parents are allowed to purchase child care from most legally-operating providers, including those not subject to states’ child care regulations. Together, these design features underscore a longstanding tension between the dual goals of U.S. child care policy: to support parental employment and promote child development.
How has the CCDF performed in relation to these goals? There is little doubt that the child care subsidy system has been effective at increasing employment among disadvantaged mothers. Recent studies provide consistent evidence that mothers receiving subsidies are more likely to be employed, to be working without receiving welfare, and to be engaged in standard work (i.e., work performed between 8 a.m. and 6 p.m. Monday through Friday) than their unsubsidized counterparts.[iv] Importantly, the CCDF has also allowed low-skilled mothers to invest in their own human capital. A recent study finds that subsidized mothers are more likely to enroll in college-level courses and participate in job training programs.[v]
But on the second goal—enhancing child well-being—the evidence is less positive. Over the past few years, my colleague, Erdal Tekin, and I have studied the impact of CCDF-funded child care subsidies on preschool-aged children’s health and development. Our research examines over 10 dimensions of child well-being using several nationally representative datasets and a variety of methodological techniques. The results are strikingly consistent: receipt of CCDF child care subsidies is associated with worse health and developmental outcomes for low-income children. In particular, we find that children receiving subsidized care in the year before kindergarten score lower on tests of reading and math ability and display more behavior problems when they enter kindergarten than their unsubsidized counterparts.[vi] Subsidized children are also more likely to be overweight and obese.[vii] Equally troubling is that the negative effects do not stop with the child: subsidized mothers engage in lower-quality interactions with their children and are more likely to show symptoms consistent with clinical anxiety and depression.[viii]
Our results beg the obvious—and important—question: why does the CCDF fail to promote child and family well-being? Admittedly, our research is not well-equipped to provide definitive answers, but there is scattered evidence from a variety of sources that may allow policymakers to pinpoint the culprits. The three most plausible explanations are:
1. The challenges of parental choice and low-quality child care. By maximizing flexibility in the selection of child care providers, the CCDF allows low-skilled parents to move quickly into paid work or education and job training programs. But there is a downside to parental choice: parents—regardless of education or income level—often do not have enough information to distinguish between low- and high-quality providers.[ix] When parents cannot make informed decisions, child care providers have little incentive to make costly quality investments. This ultimately forces high-quality, high-cost providers out of the market, leaving only those willing to offer mediocre services. This is one explanation for the widespread quality problems plaguing the U.S. child care market,[x] and it provides context for the growing number of studies finding that non-parental child care settings are detrimental to child development.[xi] Parents receiving CCDF-funded subsidies are therefore victims of and unwitting accomplices to the information gap in the child care market: their choices are restricted primarily to low- to mediocre-quality providers, and the inability to make informed decisions only exacerbates the quality problem.
2. An overemphasis on parental employment. For all intents and purposes, the CCDF is a labor market policy. It was created in service of welfare reform legislation aimed at solving the “problem” of low employment rates among single mothers. The law’s solution was to make eligibility for cash and child care assistance conditional on fulfilling a work requirement. In my view, child care policy should not be used to fix a labor market problem. At best, the CCDF is a blunt instrument with which to boost mothers’ employment, especially in comparison to the alternatives available to policymakers (e.g., the Earned Income Tax Credit). At worst, the CCDF may have unintended effects on the child care market that are harmful to child well-being. For example, if parents lose eligibility for subsidies whenever they become separated from a job, such instability could undermine child development by severing productive child-teacher relationships and exposing children to comparatively low-quality care while the parent is looking for work. The work requirement is also problematic for child care providers: those relying heavily on subsidized children may experience revenue shortfalls when parents lose eligibility, thereby reducing the incentive to make costly quality improvements.[xii]
3. Low reimbursement rates. The final explanation focuses on the subsidy reimbursement rate, or the maximum amount a state or local agency pays child care providers to serve subsidized children. The CCDF attempts to provide low-income families with “equal access” to high-quality care by recommending that reimbursement rates be set at the 75th percentile of the local child care price distribution. As such, the CCDF gives states substantial flexibility to establish lower rates. In fact, only one state—New York—now sets its reimbursement rate at the 75th percentile, and 18 states have not updated their reimbursement structure in at least five years.[xiii] This abysmal record not only prevents families from purchasing high-quality child care; it also reduces the resources available to child care providers to make costly quality enhancements.
Enter the President’s budget. In my view, it fails to harmonize a highly fragmented early care and education system. In fact, the proposal may ultimately exacerbate fragmentation by creating what amounts to a two-tiered system for low-income children. On the one hand, there will be a set of heavily subsidized, high-quality programs for 3- and 4-year-olds (through Head Start and the new pre-K initiative). For children ages 0 to 3, on the other hand, we will continue to have a system of low-quality child care propped up in part by an underfunded CCDF.
One of the potential implications of this bifurcated system is the following: as 4-year-olds flock to pre-K, the CCDF will serve growing numbers of children ages 0 to 3. My research (with Erdal Tekin) suggests that the young children served by the subsidy program will already be behind developmentally as they move to pre-K. So rather than preparing children for kindergarten, the new pre-K program will expend valuable resources trying to undo the effects of the low-quality care to which subsidized children were exposed during the first three years of life.
What can policymakers do to improve the child care subsidy system? I will outline a few broad principles that should be incorporated into a redesign of the CCDF. In my view, the primary problem with child care in the U.S. is the low average quality available to parents. Thus, child care policy should shift away from its current focus on increasing parental employment to one that enhances child development. It can do so in the following ways:
- Divorce the child care subsidy system from the welfare system. Employment-based child care subsidies represent a misguided approach to child care policy. By necessity, such a system places few restrictions on the quality of care that parents may purchase. And the mandated work requirement is clearly the wrong policy tool for solving the quality problem. The decoupling of child care and welfare policy will signal that the goal of the former is to neither promote nor inhibit parental employment. Doing so may also increase the odds of reform, as the subsidy program will no longer be seen as an appendage of an unpopular welfare system.
- Provide parents with strong incentives to purchase high-quality care. One way to accomplish this is through a means-tested voucher—available to working and non-working parents—whose value is increasing in the quality of care purchased. This is already happening to some extent: 32 states have higher reimbursement rates for providers meeting higher-quality standards. But even the states with the highest tiered benefit levels often do not reach the 75th percentile recommendation.[xiv] Therefore, subsidy benefits need to be increased substantially. In addition, eligibility should be expanded to reach families up to at least 200 percent of the federal poverty line.
- Inform parents about the potential benefits of high-quality care. Part of the quality problem originates with parents. Given that they are often unable to discern levels of child care quality or are unwilling to pay more high-quality services, states and the federal government should engage in an aggressive public information campaign to inform parents about the importance of early child care. The campaign should target families inside and outside the subsidy system so that the shift in demand is large enough to compel providers to invest sufficient resources into quality enhancement. Parents also need a better understanding of the accreditation system, and they should have easy access to the local child care resource and referral database.
Enacting these proposals will certainly increase the price tag of the President’s early education plan. But the U.S. has already tried to do child care policy on the cheap, and the results are not positive. It is time to get the CCDF on the right track by focusing on quality.
[i] The projected 10-year cost of the President’s Preschool for All proposal is $75 billion. It would begin in FY 2014 with a bit more than a $2 billion expenditure.
[iv] Herbst, C.M. (2010). The Labor Supply Effects of Child Care Costs and Wages in the Presence of Subsidies and the Earned Income Tax Credit. Review of Economics of the Household, 8(2), 199-230. Available here.
Herbst, C.M. (2008). Do Social Policy Reforms Have Different Impacts on Employment and Welfare Use As Economic Conditions Change? Journal of Policy Analysis and Management, 27(4), 867-894. Available here.
Tekin, E. (2007). Single Mothers Working at Night: Child Care Subsidies and Standard Employment with Implications for Welfare Reform. Economic Inquiry, 45(2), 233-250. Available here.
[v] Herbst, C.M. & Tekin, Erdal. (2011). Do Child Care Subsidies Influence Single Mothers’ Decision to Invest in Human Capital? Economics of Education Review, 30(5), 901-912. Available here.
[vi] Herbst, C.M. & Tekin, E. (2010). Child Care Subsidies and Child Development. (2010). Economics of Education Review, 29(4), 618-638. Available here.
Herbst, C.M. & Tekin, E. (2010). The Impact of Child Care Subsidies on Child Well-Being: Evidence from
Geographic Variation in the Distance to Social Service Agencies. National Bureau of Economic Research Working Paper No. 16250. Available here.
[vii] Herbst, C.M. & Tekin, E. (2011). Child Care Subsidies and Childhood Obesity. Review of Economics of the Household, 9(3), 349-378. Available here.
Herbst, C.M. & Tekin, E. (2012). The Geographic Accessibility of Child Care Subsidies and Evidence on the Impact of Subsidy Receipt on Childhood Obesity. Journal of Urban Economics, 71(1), 37-52. Available here.
[viii] Herbst, C.M. & Tekin, E. (2012). Child Care Subsidies, Maternal Well-Being, and Child-Parent Interactions: Evidence from Three Nationally Representative Datasets. National Bureau of Economic Research Working Paper No. 17774. Available here.
[ix] Mocan, N. (2007). Can Consumers Detect Lemons? An Empirical analysis of Information Asymmetry in the Market for Child Care. Journal of Population Economics, 20, 743-780. Available here.
[x] National Research Council and Institute of Medicine. (2000). From neurons to neighborhoods:
the science of early child development. Committee on Integrating the Science of Early Childhood Development. Jack P. Shonkoff and Deborah A. Phillips (Eds.). Washington, DC. National Academies Press.
National Institute of Child Health and Human Development (NICHD). (2000). Characteristics and quality of child
care for toddlers and preschoolers. Applied Developmental Science, 4, 116-141.
National Association of Child Care Resource and Referral Agencies. (2013). We Can Do Better: NACCRRA’s
Ranking of State Child Care Center Regulations and Oversight. Available here.
[xi] Bernal, R. & Keane, M. (2011). Child care choices and children’s cognitive achievement: The case of single mothers. Journal of Labor Economics, 29, 459-512. Available here.
Herbst, C.M. (2012). The Impact of Non-Parental Child Care on Child Development: Evidence from the Summer Participation “Dip.” Discussion Paper No. 7039. Bonn, Germany: Institute for the Study of Labor (IZA). Available here.
[xii] This article from The Washington Post describes the financial pressure child care providers face when they locate in low-income communities and serve subsidized children.
[xiii] Schulman, K. & Blank, H. (2012). Downward Slide: State Child Care Assistance Policies 2012. Washington, DC: National Women’s Law Center. Available here.