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The Cost Of Child Care Might Not Be Skyrocketing

It’s become conventional wisdom that child care costs are burdensome for American families and that the burden is growing fast. But new research suggests that the claim of skyrocketing child care costs is overblown.

In a recently released but not yet peer-reviewed working paper, Chris Herbst, a professor at Arizona State University, reassesses the data and finds the growth in U.S. child care costs over the past quarter-century to be modest.

His findings clash with “Who’s Minding the Kids?” — the Census Bureau’s standard-bearer report on child care costs in the U.S., which is often cited by journalists and economists. The latest version of the report, published in the spring of 2013 and authored by demographer Lynda Laughlin, showed a shocking 39 percent rise in child care expenditures between 1990 and 2011.1 Herbst argues for a different way to calculate child care spending and finds a 14 percent increase over the same period. In other words, he finds that costs are rising but not as quickly as the Census Bureau reports. Furthermore, the burden may be falling on those families that are in a better position to bear it.

Interestingly, both researchers are using the same data set: the Survey of Income and Program Participation (SIPP), a Census Bureau survey that regularly asks thousands of families (in particular, those with infants, preschoolers and children of grade-school age) about their child care arrangements and spending. With the imprimatur of the Census Bureau and its relatively long historical scope (with data going back to 1985), SIPP is the best data source for studying child care costs.

So what’s at issue is not which data to use, but how exactly to calculate the change in child care costs. The primary metric used in “Who’s Minding the Kids?” is the average weekly child care expenditures of families with a working mother. Between 1990 and 2011, those expenditures rose to $148 per week from $106, or 39 percent.

Herbst argues in his paper that this calculation is misleading. First, he says, it’s better to look at the median amount spent, not the average. That’s because, increasingly, high-income families are forking over much more for high-quality child care — they are “purchasing the Cadillac of child care,” Herbst said in an interview. Meanwhile, child care spending by low-income families hasn’t changed much. In other words, the gap between what wealthy and poor families pay for child care has widened.

Rose Kreider, chief of the Census Bureau’s Fertility and Family Statistics Branch, said the agency uses the average, rather than the median, for the sake of consistency. “The reports usually update a stat in the same way it was shown in prior reports,” she said. This allows for a comparable historical series.

Herbst’s second, and perhaps strongest, criticism of the Census Bureau calculation is that it does not account for changing patterns in female labor force participation (the share of women working or looking for work). After all, mothers worked more hours in 2011 than in 1990, and more hours (all else equal) means more child care spending. Rather than look at the weekly cost of child care for these working mothers, Herbst calculates child care spending per hour of maternal employment. He finds median child care spending rose from $2.27 per hour in 1990 to $2.59 per hour in 2011, or 14 percent.2 Furthermore, Herbst finds the growth in child care costs has slowed since 2000 relative to the brisk increases of the 1990s.

Indeed, any analysis of child care costs should account for the dynamic relationship between these costs and female labor force participation — which, after rising through the 1990s, has stagnated since 2000. Lots of research has shown women’s labor force participation is very sensitive to the price of child care, which suggests that fewer women are working now because child care costs are high. But, Herbst said, the price of child care is “not so large, so sensitive to explain why women’s labor force participation writ large has stagnated.” He points to the 1990s, when rising child care costs could have deterred women from working, but participation rose anyway.

On the flip side, it’s clear that the share of women in the workforce can be a decent proxy for the demand for child care services — the more women work, the greater the demand for child care. In Herbst’s view, because the labor force participation rate for women is down, demand for child care is down, and so costs have grown more slowly.

In interpreting other child care statistics, the Census Bureau report and Herbst agree. Both find that the share of all families paying for some child care has declined; using adjusted Census figures, Herbst calculates that this share has fallen to 27 percent of all families in 2011 from 37 percent in 1990. The Census Bureau report and Herbst also both find that the share of family income devoted to child care has remained constant over time (at around 7 percent or so). And, again, the report and Herbst agree that child care workers (like most workers) didn’t see an increase in earnings over the 2000s. According to Herbst, the typical worker at a private child care center earned roughly the same amount in 2011 as she did in 2003 (about $19,000, in 2013 dollars).

Herbst uses this last fact to bolster his broader claim that the growth in child care costs has slowed. That child care workers haven’t seen a raise makes sense in his view because spending on those services hasn’t risen that much and demand has dropped. Earnings of child care center workers are a good approximation of child care costs, Herbst says, because labor makes up 80 percent or more of a day care center’s total costs.

Even if Herbst is right that the growth in child care costs is lower than we thought, that doesn’t mean families need less child care — they just aren’t paying for it. That might mean they’re relying more on free “informal care” arrangements — leaving children with relatives, for example. The SIPP data only includes families who pay some amount for child care, so we can’t get a good estimate from the survey of families who may be relying on grandma.

Alternatively, it could be that “the expansion of the child care benefit system is actually doing its job,” Herbst said. Perhaps fewer families pay out of pocket for child care, thanks to the expansion of government-funded child care assistance — like Head Start and state pre-kindergarten programs — which provides families (especially low-income ones) with a place to have their children looked after. As Herbst writes in his paper: “It appears that greater utilization of school-based services … could be an important explanation for the declining share of families paying for child care.”

“That is the optimistic interpretation,” Herbst said. The pessimistic one: “For a non-trivial subset of low-income families who aren’t using Head Start or pre-K, they are purchasing child care of increasingly low quality.”

Footnotes

  1. In this story, all percentage changes over time are adjusted for inflation, and all cost figures are reported in constant 2013 dollars.
  2. In addition to using median, not average, spending and per-hour units, Herbst made some methodological changes to the SIPP data in his calculation. The details are in his paper.

Andrew Flowers writes about economics and sports for FiveThirtyEight.

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