Free Market Fundamentalist

Biden’s Child Benefits Don’t Make Child Care Cheaper

The sector is overregulated.

Joe Biden
American president Joe Biden meets with staff in the Oval Office of the White House in Washington DC, June 2 (White House/Adam Schultz)

Last week, American parents received their first monthly child benefits worth $300 for children under the age of 6 and $250 for kids up to the age of 17.

Couples making under $250,000 per year, or single parents earning less than $112,500, qualify.

President Joe Biden described the cheques, worth $15 billion, as “the largest ever one-year decrease in child poverty in the history of the United States of America.”

That’s probably true, and the hope is that the benefits, introduced as part a COVID-19 rescue plan, will become permanent.

But it doesn’t make child care itself more affordable.

Child poverty

American parents commonly spend between $15,000 and $26,000 per year on child care when the median household income is just $63,000.

Child-care costs are tax deductible. But a third of families don’t pay enough — or any — income tax, and they need help the most.

At 14 percent, American child poverty is high by Western standards. It’s one reason I argued Biden should prioritize child care in his first term, the other being that one in four Americans cite the high cost of childrearing as a reason to have fewer kids, or no kids at all.

Disparities

The average cost of child care in America conceals huge disparities between states. In Mississippi, one of the poorest states, full-time daycare for a 4 year-old cost just $4,556 in 2016, when daycare centers in Connecticut, the District of Columbia, Illinois, Massachusetts, New Jersey, New York, Rhode Island, Vermont and Washington state charged in excess of $10,000 per child.

One thing those states have in common: they are all governed by Democrats, and have been for a long time.

Democratic-ruled states tend to be more heavily regulated than Republican-ruled states. Child care is no exception. Indeed, “blue” states in America regulate child care more thoroughly than most countries in the EU.

The libertarian Cato Institute believes the main cost drivers in child care are staff‐​child ratios and worker‐​qualification requirements. Let’s compare those.

Staff-child ratios

Most European countries do have child-staff ratios for daycare centers, a notable exception being Denmark. Austria, France and the Netherlands have child-staff ratios for 2 year-olds, but not older children.

In most countries, the maximum number of kids a single daycare worker may look after increases from between twelve and sixteen at age 2 to between 23 and 25 at age 4.

Ratios across America (in those state that regulate them) are much lower. Connecticut, New York and Vermont require one caretaker for every four to five 2 year-olds and they allow eight to ten kids in a group at age 4.

Economists Diana Thomas and Devon Gorry have estimated that loosening ratios by just one child across age groups would result in daycare prices falling 9 to 20 percent.

Worker-qualification requirements

Comparing worker-qualification requirements is more difficult. Not only do they differ per country and, in America, state; they differ per role.

For the sake of comparison, the EU makes a distinction between core practitioners and assistants. Among the former are educators and pedagogues, and they typically need a degree. The latter can range from paid staff to volunteers and require perhaps a training or no certification at all.

Denmark and Sweden are the most lightly regulated in this regard, requiring either no degree or just one certified staff member per kindergarten.

In the United States, virtually all child-care roles require some form of certification. This not only raises costs; economists Joseph Hotz and Mo Xiao found that increasing the average required years of education by just one year reduces the number of child-care centers in an area by 3 to 4 percent. That makes sense: there will be fewer qualified workers.

Unintended consequences

Regulations are always well-intended, but the unintended consequences tend to harm the most vulnerable.

When rules drive up the cost of child care, it are low-paid working mothers and fathers who lose out. They can no longer afford professional daycare and must rely on unqualified alternatives, such as a family member or neighbor. That can set children back in their cognitive and social development, perpetuating the cycle of poverty.

When rules limit supply, poor neighborhoods suffer. The cheapest, least profitable daycare centers will be the first to close.

Earlier this year, UNICEF compared child care in 41 rich countries according to accessibility, affordability and quality of care. It placed the United States all the way at the bottom. In terms of quality, it is in the middle tier of countries. But in terms of accessibility and affordability, it is one of the worst.

In practical terms, that means the system works well for wealthy parents in Manhattan and the suburbs of Connecticut and New Jersey, but not at all for the people who clean their homes, cook their food and supply their stores.

What can Biden do?

Biden can’t change state laws, but he can, as leader of the Democratic Party, call on Democratic governors and state legislatures to relax their child-care regulations.

He has also signed an executive order kickstarting a wide-ranging effort to reduce licensing requirements as well as other government rules and industry practices that stifle competition. Child-staff ratios and worker-qualification requirements in child care should become part of that review.

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