Would Subsidized Child Care Boost U.S. Labor Participation Rate?

By FeaturesFOXBusiness

Available and affordable child care is always of top concern for families with working parents.  According to a new report from the U.S. Census Bureau, the average cost of day care for families with an employed mother and children under 15 is $143 a week, compared to $84, adjusted for inflation, in 1985.

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To help ease the financial burden, the federal government has taken various steps recently to help increase child care accessibility, the most recent with President Obama’s push for high-quality preschool education for all children.

But a new German study shows the U.S. government might want to increase its efforts, detailing the benefits of more women in the workplace. The study from The IFO Institute at the University of Munich found that with greater government involvement and subsidies for child care, the labor participation rate among young women spikes and provides an economic boost. It also concluded that state-funded child care has a positive effect on the birth rate.

Professor Helmut Rainer, head of the IFO’s Social Policy and Labor Markets Department, found mothers with children under the age of three who use public child care are approximately 35% more likely to work than mothers who do not use these programs.  These mothers often switch from being included in the labor markets non-participation rate to part-time employment, providing an economic boon.

“Moreover, publicly-subsidized child care largely finances itself. The state receives more money in the form of taxes and Social Security contributions if mothers work, and can therefore cover the direct costs of child care subsidies to a substantial degree,” the report states.

Paul Conway, former chief of staff at the Labor Department, says employers in the U.S. are increasingly adding child care subsidies to help recruit a competitive workforce.

“The real drivers of daycare and child care were at the workplace,” he says. “Companies knew this helped their bottom line, talent retention and recruitment potential.”

However, subsidizing child care and pushing to have children enter school at an earlier age remains a hot-button issue for many Americans.

American parents do receive tax breaks for childcare, through various credits. The child and dependent care credit covers up to 35% of child-care expenses or up to $3,000 for a child under 13 per year, dependent on income. A second child may qualify parents for an additional $3,000 and employers may exclude up to $5,000 from taxable wages for childcare expenses, according to TurboTax.

“There is a line of argument that at times, having kids in a quality daycare is better than what a parent or trusted people can do,” Conway says. “The data on that is mixed. I think the president would like to model this European form.”

Women’s’ Labor Participation in the U.S. and Abroad

Ten percent of young women in the U.S. ages 18-to-29 are unemployed, 2.4% higher than the national average as of March 2013, according to the Labor Department. Conway says the higher female unemployment rate isn’t directly tied to affordable child care, but instead is due to a lack of meaningful opportunities in the workforce. The Labor Department and Bureau of Labor Statistics declined to be interviewed for this story.

One of the puzzling aspects of subsidizing child care abroad is that the U.S. has higher rates of female labor participation than other nations like Germany that provide these subsidies, according to Gary Burtless, senior fellow of Economics Studies at the Brookings Institute. The World Bank reports 58% of the female U.S. population ages 15 and older were participating in the labor force in 2011, compared to 53% of females ages 15 and up in Germany that same year.

“It could just be that in the long run, the increase of women’s’ and mothers’ participation in the workforce has been driven by factors aside from the generous treatment of the tax code from work,” Burtless says. “In the U.S., the career paths of men and women now look more similar, except among very poorly educated Americans.”

Do Subsidies Lead to Discrimination?

Burtless says in countries like Sweden or Germany, women may be discriminated against more when it comes to competing for managerial positions despite the government subsidies.

“They may be more likely to discriminate against a woman for a managing position because the employer suspects the woman of child bearing age is more likely than a male of the same age to take time off,” he says. “The more society leans over officially to do things to help women, the more some women may be disadvantaged by that, even if they intend to never have children.”

President Obama’s Pre-K Push: The First Step?

Education opportunities for younger children have increased steadily over the course of the 20th Century as  kindergarten has become widely universal. Burtless supports the president’s latest push to expand access to preschool to all  children from moderate- and low-income families, but warns against making the programs mandatory.

“It’s hard for me to see, at the moment, the potential for the government to tell people they must send their 3-or-4-year old kids into enrichment programs,” he says. “But since the time the Head Start program was introduced in the late 1960s, many more youngsters are getting more education.”

He adds that Obama’s push for more education is more about making opportunities available for younger children who are born into disadvantaged situations. “There is some evidence that interventions for those who are quite young is better than intervening later,” he says. “There is a lot of logic to that view, and I think Obama and his aides are also persuaded in that way.”

Conway says that over the years the government has increasingly shifted its view of American children away from just products of their parents but as the responsibility of the government. Young women and parents should be trusted to make their own choices regarding the care of their children, he says.

With more government assistance comes more regulation, and once the federal government gets into the business of licensing and accrediting daycares through a third-party source, which is what will happen it becomes mandatory, parents will have less choice, he says.

“Parents consider multiple factors, proximity based on potential emergencies, costs and their own view of ‘quality,’” he says.  “If government increases the amount of subsidies while simultaneously tying those funds to some facilities deemed  ‘higher quality’ versus ‘lower quality’ then government is substituting its own judgment over that of a parent… small, non-profit, faith-based and proprietary child-care providers will make decisions to stay in business or close – thereby increasing cost and limiting choices for parents… That is true in Germany.”

The factor that will decide how Obama’s proposal plays out is the word “quality,” Conway said, because it all comes down to who determines what is considered “quality.”

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