Who’s Caring for the Kids? The Earned Income Tax Credit and Childcare Arrangements

• Published date: 01 March 2023
• DOI: http://doi.org/10.1177/00027162231197051
• Author: Natasha V. Pilkauskas,Katherine Michelmore
• Date: 01 March 2023

ANNALS, AAPSS, 706, March 2023 37

DOI: 10.1177/00027162231197051

Who’s Caring

for the Kids?

The Earned

Income Tax

Credit and

Childcare

Arrangements

By

NATASHA V. PILKAUSKAS

and

KATHERINE MICHELMORE

1197051ANN THE ANNALS OF THE AMERICAN ACADEMYTHE EFFECT OF THE EITC ON CHILDCARE USE

research-article2023

Labor force participation among mothers in the U.S.

has increased dramatically over the past several dec-

ades, driven in part by social policies that provide ben-

efits that are contingent upon paid work. Little is

known, however, about how these work-contingent

social policies affect childcare arrangements. We study

the effect of the Earned Income Tax Credit (EITC)—

one of the largest work-contingent cash transfer pro-

grams in the U.S.—on childcare arrangements, using

data from the Survey of Income and Program

Participation. Our findings suggest that, for children

under three, the EITC increased the use of childcare,

the number of hours children spent in care, the likeli-

hood of parents paying for care, and the use of multiple

care arrangements. It seems to have little effect on

childcare arrangements for older children.

Keywords: EITC; childcare; low-income families;

maternal employment; refundable tax

credits

Maternal labor force participation in the

U.S. has increased dramatically over the

past 40 years. In 1975, 47 percent of mothers

were in the labor force; by 2019, that figure had

increased to 72 percent. Rates of maternal

Correspondence: kmichelm@umich.edu

Natasha V. Pilkauskas is an associate professor at the

Gerald R. Ford School of Public Policy at the University

of Michigan. Pilkauskas’s research focuses on children’s

shared living arrangements, the U.S. social safety net,

economic security, and the effects of cash transfers/

refundable tax credits on the well-being of low-income

families.

Katherine Michelmore is an associate professor of pub-

lic policy at the University of Michigan’s Gerald R.

Ford School of Public Policy and a research associate at

the National Bureau of Economic Research (NBER).

Michelmore is a leading scholar and educator on the

social safety net, education policy, and labor economics.

NOTE: The authors thank Richard Rodems for his

assistance with the data.

38 THE ANNALS OF THE AMERICAN ACADEMY

employment increased especially dramatically among mothers with children

under the age of six (Women’s Bureau 2022). Some of this increase was driven by

changes in the social safety net, which shifted away from the provision of benefits

in the form of direct cash assistance to an increasing reliance on benefits that

were contingent upon paid work. Research suggests that much of the increase in

maternal employment during the 1990s was driven by greater reliance on refund-

able tax credit policies to provide support to families with low incomes—policies

like the Earned Income Tax Credit (EITC [Meyer and Rosenbaum 2001]).

Additionally, these work-contingent tax credits are especially likely to increase

the labor supply of unmarried mothers with very young children (Michelmore

and Pilkauskas 2021). These patterns—the large increase in maternal labor sup-

ply among mothers with young children and the shift to work-contingent benefits

over the past several decades—raise important questions about who cares for

these young children when their parents go to work.

In contrast to many other economically developed countries, the U.S. has no

federal paid parental leave program and relatively few childcare subsidies, leav-

ing parents with low incomes few resources to combine work and childcare.

Additionally, the high cost of formal childcare in the U.S. creates substantial

disparities in the care arrangements of children according to their family’s socio-

economic background. Children from more economically advantaged back-

grounds spend more time in center-based care arrangements, which are typically

considered of higher quality than other types of arrangements; while children

from more disadvantaged backgrounds spend more time in less formal care

arrangements, like family day care, where, compared with center-based care,

caretakers often have less training and experience in child development, or may

not be licensed (Flood et al. 2022). This raises the question, do refundable tax

credits that subsidize work also influence family childcare choices?

In this article, we investigate how the EITC, one of the largest work-contin-

gent cash transfer programs in the U.S., affects the childcare choices of families

with low incomes. Given the importance of childcare for children’s development

and recent policy discussions around imposing work requirements on social ben-

efits, it is important to understand how current policies—like the EITC—impact

the childcare arrangements of families with low incomes. Using a parameterized

difference-in-differences approach that exploits federal and state variation in the

EITC over time, we study whether the EITC influences children’s care arrange-

ments (e.g., use, type, and costs) using the Survey of Income and Program

Participation (SIPP). We focus most of our analyses on unmarried mothers, the

primary recipients of the EITC (Tax Policy Center 2006); but given the hetero-

geneous labor supply responses to the EITC by marital status (e.g., Eissa and

Hoynes 2004), in supplemental analyses we also examine patterns for married,

divorced, and never-married mothers.

Results suggest that the EITC increases the use and total hours children

spend in nonparental childcare. We find that the EITC increases use of both

center-based and relative care as well as the costs of care. Most of the effects are

concentrated among children under age three, though we also find evidence that

the EITC shifts school-aged children into center-based care. Analyses by marital