The Economics of Child Care Supply in the United States I 3
INTRODUCTION
Children, their parents, and the economies in which they operate are all better o when societies provide easily accessible, high-quality
child care and early education options. This white paper aims to highlight the current economic state of child care provision in the
United States and describe how fundamental economic principles explain why our investments in child care have been insuicient. We
start by summarizing the literature that describes the benefits of child care, although that has been carefully outlined in other reports.
We then highlight the severe liquidity constraints faced by most parents of young children, which can prevent them from investing in
child care even though it would have large benefits both to their children and their own future earnings. We also describe the positive
externalities associated with investment in child care based on the literature that documents the large social spillovers beyond the
benefits for children and their parents. Finally, we describe how the child care industry, in which over 90 percent of the employees are
female and more than a third are people of color, is likely benefiting from existing labor market discrimination.
While we are primarily focused on general trends that apply to most families, we will also occasionally draw attention to subsets of
the population and disparities in families’ opportunities and circumstances. For example, almost 20 percent of children from infancy
to age 5 live with their mother only, and the share has been rising over time.
1
On a definitional note, we will use the term “child
care” to encompass all types of nonparental care focusing on infants to 5-year-olds. Where relevant, we will dierentiate between
situations that are primarily focused on care and situations involving more formal education.
Available, aordable, and high-quality child care provides benefits to children, their parents, and the economy at large. First, consider
the benefits of child care for children. Research documents that children who attend high-quality early childhood education programs,
relative to similar children who cannot attend these programs, perform better on grade school tests,
2
stay in school longer,
3
experience
lower rates of depression,
4
have better physical health, and have higher individual and household earnings.
5
Supporting these findings,
a growing body of research on brain development suggests that children’s early life experiences can be foundational. A National
Academy of Science report surveyed the literature and concluded that, “[t]he scientific evidence on the significant developmental
impacts of early experiences, caregiving relationships, and environmental threats is incontrovertible.”
6
While the positive impacts
have primarily been documented in programs involving group learning and care and may be stronger for disadvantaged children, the
literature consistently suggests that investments in early childhood experiences can pay o over a lifetime.
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1 Current Population Survey, 2020 Annual Social and Economic Supplement. 2020. “America’s Families and Living Arrangements: 2020 – Table C2. Household
Relationship and Living Arrangements of Children Under 18 Years, by Age and Sex: 2020.” U.S. Census Bureau, December 1, 2020.
2 Cascio, Elizabeth U., and Diane Whitmore Schanzenbach. 2013. “The Impacts of Expanding Access to High-Quality Preschool Education.” Brookings Papers on
Economic Activity (Fall): 127-178. https://www.brookings.edu/bpea-articles/the-impacts-of-expanding-access-to-high-quality-preschool-education/.
3 Bailey, M.J., S. Sun, and B. Timpe. 2020. “Prep School for Poor Kids: The Long-Run Impacts of Head Start on Human Capital and Economic Self-Suiciency.”
National Bureau of Economic Research Working Paper 28268. https://doi.org/10.3386/w28268; Pages, Remy, Dylan J. Lukes, Drew H. Bailey, and Greg J. Duncan.
2020. “Elusive Longer-Run Impacts of Head Start: Replications Within and Across Cohorts.” Educational Evaluation and Policy Analysis 42 (3): 1-22. https://doi.
org/10.3102/0162373720948884.
4 Carneiro, Pedro, and Rita Ginja. 2014. “Long-Term Impacts of Compensatory Preschool on Health and Behavior: Evidence from Head Start.” American Economic
Journal: Economic Policy 6 (4): 135-173. https://doi.org/10.1257/pol.6.4.135.
5 Thompson 2018 finds evidence of the impacts of Head Start on health, educational attainment, and earnings. Thompson, Owen. 2018. “Head Start’s Long-Run
Impact: Evidence from the Program’s Introduction.” Journal of Human Resources 53 (4): 1100-1139. https://doi.org/10.3368/jhr.53.4.0216-7735R1.
6 National Research Council. 2000. From Neurons to Neighborhoods: The Science of Early Childhood Development. Washington, DC: The National Academies Press.
https://doi.org/10.17226/9824.
7 We discuss these findings in more detail below. For a summary of the literature, see Cascio, Elizabeth. 2021. “Early Childhood Education in The United States:
What, When, Where, Who, How, and Why.” National Bureau of Economic Research Working Paper 28722.