The Regressive Effects of Child-Care Regulations: More strenuous requirements raise child-care prices but have little apparent effect on quality.

• Author: Bourne, Ryan
• Position: LABOR

Child care in the United States is expensive, but its cost varies greatly by region. Data from Child Care Aware of America, a nonprofit that works in child-care policy, indicate the average annual cost for full-time care of an infant at a child-care center in 2016 ranged from $5,178 in Mississippi to $23,089 in the District of Columbia. Even if we account for different income levels by state, these costs are very high. In Mississippi that infant's child care is 24% of median income for a single-parent household, while in D.C. it is a staggering 89.1%. For households with two young children, the combined burden is higher still.

Child-care policy is left to state governments and wide variation exists regarding policies and subsidies to assist poorer families with these costs. Overall, data from the Organization for Economic Cooperation and Development (OECD) suggest U.S. out-of-pocket child-care costs for a lone parent working full-time are higher as a percentage of earnings than in any other OECD country. And there is less taxpayer support for U.S. child care than in other OECD countries.

This high cost can have a large negative effect on the poor and can fuel political demands for increased government intervention and spending on child care. Empirical research indicates that parents (poorer single mothers especially) are particularly sensitive to child-care prices when making decisions about entering the labor market. Evidence from a range of studies suggests mothers from poorer families and those with low levels of educational attainment are least likely to be working.

High prices for formal care also lead poorer parents to rely on informal care arrangements such as assistance from extended family. U.S. Census Bureau data show that among children with employed mothers, those living in poverty are more than twice as likely to be cared for by an unlicensed relative.

The long-term trend is for more mothers of young children to opt for work. According to data from the U.S. Bureau of Labor Statistics, in 1975 28.3% of mothers with a child under the age of 3 and 33.2% of mothers with a child under the age of 6 were employed; in 2016 those numbers were 59.4% and 61.5%, respectively. As a result, the high cost of child care is becoming a particularly salient issue, with pressure building for government to "do more" to support it, not least as a means of helping poor families.

WHY IS CHILD CARE SO EXPENSIVE?

Before adopting new subsidies or beginning direct government provision of child care, it is worth assessing the underlying causes of high child-care prices. There are good reasons to think these prices would be high naturally in a free market. Formal child care is a labor-intensive, personalized service entailing the care of something many parents regard as the most valuable aspect of their lives. There is a strong correlation between areas with the highest absolute money cost of child care and the cost of child care as a proportion of income. This suggests that child care is strongly "income-elastic," meaning that as people get richer they become willing to spend relatively more of their income on it.

Yet economic evidence also suggests that child-care prices are driven up by existing variable state-level regulations and policies introduced to achieve other objectives. Input regulations designed to improve the "quality" of care, including requirements on the qualification levels of staff and/or the ratio of staff per child...