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8 The Child Care Market and Allernative Policies In response to a dramatic increase in the demand for out-of-home child care services in the past decade and a half, a diverse array of organized programs and informal arrangements has emerged, and a variety of public policies have been implemented to improve the child care system and its efficiency. In previous chapters we described the delivery and regulation of services and the mix of public policies that support and supplement the child care "market." By market we refer to the interaction of demand for child care (the number of parents who purchase or want to purchase care) and the supply of child care (the amount of child care available); both are influenced by government intervention (policies) in the market. Although the concept of an economic market is foreign to most early childhood professionals, concern about the inadequacy of many existing programs and arrangements, about shortages of services for selected children and families, and about the costs of care in short, issues of supply and demand- are familiar. In this chapter we review what is known about how well the child care market currently meets the needs of parents and children, and we explore several policy alternatives that have been proposed to improve it. Before we do so, however, some general observations are needed about the evidence that is available on these topics. Understanding of the child care market is at an early stage. In some respects the market fails to meet several of the economic conditions that characterize an efficiently operating market: lack of information available to consumers (parents); high transaction costs associated with changing child care arrangements; and resistance to profit maximization by some providers (not raising prices as demand increases). In addition, there are the costs or benefits of a program that are not (or cannot be) resected in the price paid by individual consumers, "externalities." For example, the benefit to society 227

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228 WHO CARES FOR AMERICA'S CHILDREN? as a whole of better education for 4-year-olds is not accounted for in the price of a preschool enrichment program. It is also possible that there are several child care markets, rather than one. Distinguishing among various geographic markets or different product (program types) markets, or both, might explain some of the observed supply and demand phenomena, but such analyses have not been done. As a consequence, standard economic tools for measuring supply and demand and the related costs and benefits must be applied with caution. Assessing current practices and considering alternatives is also com- plicated by the dynamic and diverse nature of the child care market. It is one in which providers are a mixture of private for-profit firms, national chains as well as independent operators; private not-for-profit organiza- tions, such as neighborhood churches; public programs, such as Head Start; and individual family day care operators. It is a market in which funds come from the federal, state, and local governments, community groups, philanthropic organizations, employers, and parents. It in fact consists of many segmented, localized markets with little coordination and enormous turnover among providers and changing needs among consumers. It is also a rapidly expanding market and one in which many parents have difficulty obtaining adequate information about how to locate and arrange services that will meet their needs. The difficulties of analyzing the child care market are further com- pounded by the relative inadequacy of data on the current supply of, and demand for, child care services and by the lack of sophisticated analyses of the likely consequences of alternative policies. In short, although under- standing of the issues in this chapter has advanced substantially in recent years, it is still at a fairly rudimentary stage, due to the underdeveloped nature of the relevant analytic base. Nevertheless, a number of conclusions can be drawn by assembling the often fragmented, existing information, although many of these conclusions are highly qualified. A common perception about paid child care among parents, provid- ers, and politicians-is that there is a major, perhaps even severe, short- age of supply. However, there are three dimensions, often not clearly distinguished, to this perceived shortage. One dimension relates to the sufficiency of the number of places for the children of parents who wish to purchase care of the prevailing quality at market-determined prices: we refer to this dimension as availability. This kind of shortage may arise because demand is temporarily increasing faster than supply or because particular kinds of care are not available in certain locations. It is most vividly evident in the long waiting lists of many programs, as well as the high ratios of applicants to places in many private nurseries and preschools. The second dimension is affordability: Are the available places offered at prices that parents who need or want out-of-home child care can afford to

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 229 pay? The third dimension is quality: Regardless of the number of places or their affordability, what is the quality of care offered? AVAILABILITY OF CHILD CARE Although it might seem simple to count the number of child care places available, it is not. Many exist in unlicensed, unregulated centers and homes, and, as we discussed in Chapter 6, there is no national system to collect standardized data on the supply of child care services. It is also difficult to discuss availability without also considering the cost and quality of services. What is known about the availability of child care? The predominant form of nonparental care for all children 12 years old and under remains relatives, the majority of whom are not paid or are paid very little for their services. However, reliance upon care by relatives has been rapidly diminishing in recent years. In 1965 nearly two-thirds of nonparental care for children aged 5 or younger was provided by relatives; in 1985 about one-half was provided by relatives (Bureau of the Census, 1987~. Currently, the proportion is thought to be about 40 percent, and, as more and more women enter and remain in the labor force, the share is likely to decline even further. Nevertheless, relative care remains the least expensive form of nonparental care and an important resource for low-income families, who rely on immediate and extended-family members more than do middle- income families (McGroder, 1988~. And indeed, one study suggests that on one isolated objective indicator of quality caregiver/child ratio-care by relatives is superior, on average, to care by nonrelatives (Waite et al., 1988~. Only 18 percent of children under age 5 are in group or center care, most of which is licensed and, therefore, potentially countable from administrative data. About 32 percent are in family day care homes, approximately 60 to 90 percent of which are thought to be unregulated. And 11 percent of children under age 5 are cared for by nonrelatives in the child's own home. The supply of family day care and in-home babysitting is very difficult to measure. The existing data, however, suggest that the availability of nonrelative care differs according to children's ages and their special needs particularly needs related to economic disadvantage and disabilities. Infants and Toddlers The most common (and some argue the preferred) form of nonrelative care for children under age 3 is a family day care home, in which a provider looks after other people's children in her own home. For employed mothers

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230 WHO CARES FOR AMERICA'S CHILDREN? during 1984-1985, 23 percent of infants (ages birth to 12 months) and 27 percent of toddlers (ages 12 to 36 months) were cared for in the home of an unrelated caregiver (Bureau of the Census, 1987~; only 14 percent of infants and 17 percent of toddlers were in child care centers. Center care for infants and toddlers is increasing but at what rate is not known. Thus, the predominant form of out-of-home care for infants and toddlers is family day care. Most family day care homes appear to operate in an underground market (see Chapter 6) in which prices are relatively low and caregivers do not pay taxes on their income from child care, although many parents who use this type of care currently receive a tax credit. In the panel's 1988 survey, state licensing offices reported 198,257 licensed family day care homes. If 10 to 30 percent of homes are licensed, as many observers suggest, there may be as many as 1.2 million family day care homes in the United States. How does this presumed supply relate to the demand for places? Hofferth and Phillips (1987) estimate that the number of licensed homes increased by about one-third between 1977 and 1986. But during the same period mothers of infants and toddlers entered the labor force at a much faster pace. The percentage of mothers with children under age 3 who were employed or looking for work rose from 32.6 in 1975 to 52.7 in 1988, an almost 62 percent increase (Bureau of Labor Statistics, 1988~. Moreover, the absolute number of young mothers rose considerably during this period, as the large baby-boom cohort reached the prime childbearing ages. Although each new family day care home presumably can care for more than one child, the increase in places in family day care homes does not appear to have matched the increase in the number of infants and toddlers of employed mothers. Looked at another way, the number of young children with mothers in the labor force has increased dramatically. For example, the number of infants with mothers in the labor force nearly doubled from 977,000 in 1975 to 1,796,000 in 1985 (Hofferth and Phillips, 1987), and in March 1988 there were 3.1 million children under age 2 with mothers in the paid labor force (data from Current Population Surrey). This increase in the number of employed mothers of infants and toddlers has also reduced the pool of potential providers of home care. Direct evidence of a shortage of infant care was provided by a recent survey of the child care market in three low- income urban areas, which found relatively little center-based care available to infants and no excess capacity of infant care either in family day care homes or in centers (Kisker et al., 1989~. Staff in resource and referral agencies consistently report that the highest demand is for places for infants and toddlers and that requests are more difficult to fill for them than for older children (Patricia Siegal, California Child Care Resource Referral Network, personal communication, May 23, 1988~. In a number of surveys, employed parents with infants have been more likely than parents of older

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 231 children to report difficulties in finding their current arrangements (see Galinsly [1988] for a summary). According to Grubb (1988), several recent commission and task force reports in California suggest that availability is more of a problem for parents of infants than for parents of toddlers and preschoolers. Thus, although aggregate national data do not exist, other evidence suggests that, in general, the supply of child care places for infants and toddlers has failed to keep pace with the demand. Preschoolers The rate of increase in the number of preschool children (ages 3 to 5) with working mothers was smaller than that for younger children: from 3,872,000 in 1975 to 4,984,000 in 1985, a 28 percent increase (Bureau of Labor Statistics, 1988~. Almost all 5-year-olds are enrolled in a school program, although fewer than half are in full-day programs (Kahn and Kamerman, 1987~. Among 3- and 4-year-olds, the predominant form of nonrelative care is some type of group care, for example, nursery school, prekindergarten, or a child care center. The number of licensed child care centers alone almost doubled over a 12-year period: from approximately 34,000 in 1976 (Coelen et al., 1979) to 64,879 in 1988 (panel survey). Although all licensed centers are not operating at full capacity, the number of available licensed center care places increased from approximately 1 million to 2.1 million during that period (Haskins, 1988~. Of course, it is possible that the number of places for preschoolers still is inadequate, despite the rapid growth of centers and the existence of part- day programs and family day care homes. Not all licensed centers operate full-day or full-year programs. Evidence suggests that many children are on waiting lists for places at child care centers, but caution must be exercised in interpreting this finding as an indication that child care is unavailable. These queues might be for ones in desirable locations or for ones that provide special opportunities for parents and children, such as especially gifted teachers or cost subsidies. If so, queues would not necessarily indicate an absolute lack of availability. Also, waiting lists tend not to be routinely updated and therefore may contain names of children who have since been placed in other care. A recent survey in three cities found that child care centers were operating at 92 percent of their capacity, but it also found significant (SO percent) unutilized capacity in family day care for preschool and school- age children (Kisker et al., 1989~. An important question is whether the unutilized capacity is accessible to parents in need of care now (or in the future). If it is not accessible due to a lack of information or inconvenient location, the increased demand for care for preschoolers

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232 WHO CARES FOR AMERICA'S CHILDREN? that will undoubtedly be prompted by implementation of the 1988 Family Support Act (FSA; see Chapter 6) could result in more obvious shortages. Other indirect evidence suggests that availability is less of a problem for preschoolers than for toddlers and, especially, for infants. After a comprehensive examination of national data on the availability of child care, Kahn and Kamerman (1987:14) concluded: Parents continue to complain about shortages, and most requests for help in finding care are for this age group [infants and toddlers]. Ibe supply of services for 3- to 5-year-olds appears to be quantitatively adequate. However, much of what is available is still only part-day, as parents seek full-day care and as many preschool programs, both full- and part-day, are more expensive than most parents can afford. In sum, the evidence of a shortage of child care places at prevailing prices for preschoolers is currently not persuasive, although availability undoubtedly varies by geographic region. School-Age Children Family day care homes are the dominant form of paid care for older children of working mothers. It is used most often by mothers who work full time and primarily for children 6 to 8 years old (Cain and Hofferth, 1987~. As detailed in Chapter 6, the number of before- and after-school programs is growing, both in public schools and in other community agencies and organizations, but the number of children who need such care appears to far exceed the available program places. Although it is very difficult to compare the supply and demand for school-age child care because of limited data, there is a serious concern about the large and growing number of children who are without adult supervision during nonschool hours. The Bureau of the Census (1987) reports that approximately 2.1 million elementary school and junior high school students are latchkey children. The U.S. Department of Labor (1988) concludes that this may well be the largest shortage in child care, and Hofferth (1988:564) suggests that as the current group of preschool children ages, there may be "a growing population of school-aged children who are unsupervised when they are not in school." Although school-age children who go unsupervised during non- school hours are not a new phenomenon, their growing numbers coupled with increasing incidence of drug use, youth violence, and other problem behaviors have made the care for these children a special concern. Children With Special Needs Child care providers, teachers, social workers, special educators, par- ents, and policy makers all believe there is a shortage of child care services

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 233 for children with special needs. Two types of special needs merit special attention: children from economically disadvantaged families and children with disabilities. Currently, there are no systematic data on the demand for or the supply of child care services for children with special needs; however, there are several indicators that a shortage exists. Economically Disadvantaged Children An estimated 25 percent of children under the age of 5 are living in poverty (Bureau of the Census, 1988~. In terms of chid care and development, these children and their parents have special problems. As discussed in Chapters 3 and 4, poor children have been shown to benefit from compensatory education programs (such as Head Start, Chapter I school-based programs for 4-year-olds, and child care services funded by the Social Services Block Grant [SSBG] program) and from programs that address nutritional and health needs (e.g., Head Start immunizations and U.S. Department of Agriculture food and nutrition programs). As these programs suggest, children from economically disadvantaged families are the target of several public intervention programs (see Chapters 6 and 7~. Rut many boor children are not served by these programs. Head Start, for example, serves fewer than 20 percent of the income-eligible population of 3- and 4-year aids despite increased funding since 1980. In 1981 it was estimated that SSBG programs served only 13 percent of the eligible children; since then the number of eligible children has grown, but funding has not (Reismon et al., 1988~. In one study, low-income women were more likely than others to report that they would work if affordable child care were available. The new welfare reform legislation acknowledges a shortage of child care for low-income families by specifically requiring that child care services be made available so that mothers with young children can participate in job training or seek employment. Implementation of the FSA may significantly increase the amount of care for economically disadvantaged children. The parents of these children also have special needs, some of which are not addressed by the current programs. For example, Head Start helps poor parents develop parenting skills, but it is primarily a part- day child development program, and it does not provide child care for parents working full-time. Yet 22 percent of all children aged 3 to 5 who live in poverty have mothers who work full time (Bureau of the Census, 1988~. Low-wage jobs, geographic location, irregular work schedules, and transportation needs constrain many low-income parents in finding child care. Public child care funding for low-income families varies dramatically by state. California and Massachusetts have made major commitments to ~-. rim

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234 WHO CARES FOR AMERICA'S CHILDREN? low-income child care, but other states have not. For example, Blank and colleagues (1987) found that half of all the counties in Kentucky provide no child care assistance for low-income families. In New York City, publicly funded child care is available for only 20 percent of the eligible children (Blank et al., 1987~. Although there has been rapid growth in for-profit child care, partic- ularly by large corporate chains, few of these programs serve children in low-income families. Restrictions under the SS8G program make it difficult for these providers to cover their costs in many states, and therefore there is little economic incentive for new centers or family day care homes to open in rural areas or inner cities where there are large concentrations of low-wage jobs and poor families. Hours of service may also be an important issue affecting the availabil- ity of care for children from low-income families. In a study of employed mothers with children under 6 who receive support from Aid to Families with Dependent Children (AFDC), Sonnenstein and Wolf (1988) found that one-third required care after 5:30 p.m. and one-fifth required care after 8:30 p.m; 70 percent of that care was provided by relatives. As noted in Chapter 6, it is not known if these women work late hours because that is when inexpensive or free child care is available or if these are the only work hours available and they must use relatives because other types of care are in short supply (at any price) during these hours. Children With Disabilities There are very few data on the availability of care for children with handicapping conditions. Under national criteria specified in the Education for the Handicapped Act (P.L. 94-142), it is estimated that 1 to 2 percent of all infants will be born with some disabling condition (Scott, 1988~. Depending on the definition of disability and high risk, the numbers and costs of caring for those children vary tremendously. However, it appears that both the number of children and the need for out-of-home care has been increasing faster than the supply of such care. Public policies to dein- stitutionalize children with disabilities and require that they be integrated into programs with the least restrictive environments have exacerbated the need for specialized programs and caregivers. There are more children being diagnosed with serious emotional problems, and advances in modern medicine have lowered the death rate of high-risk infants. As more of these children live longer at home, the diagnostic, therapeutic, and medical costs of their care have increased. These increased costs may in turn necessitate more mothers seeking employment. It is not known whether parents of children with disabilities choose to provide full-time care themselves rather than seek employment and

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 235 out-of-home care or whether adequate services are simply not available. Under amendments to the Education for the Handicapped Act (P.L. 99- A57), decisions concerning whether or not to serve infants and toddlers are left to the discretion of the states. In Florida, for example, only a few districts serve 3- to 5-year-olds or those up to 2 years old; for the younger group, only visually impaired and hearing-impaired children are served. Scott (1988) concludes that, in Dade County, only 199 places are available annually for an estimated 265 to 530 handicapped infants and toddlers potentially in need of child care. When services for children with disabilities are available, they are used. Head Start requires its local programs to reserve 10 percent of their places for children with disabilities, and approximately 65,000 children with professionally diagnosed handicaps are now served by Head Start. In a small exploratory study, Fink (1988) found that a lack of child care programs for school-age children with disabilities resulted in employment problems for parents, especially for single parents. Evidence suggests that there may be a shortage of care for disabled children and that this shortage may be greatest for infants and toddlers, school-age children, and children from low-income families. In sum, for all children under age 6, the evidence suggests that, the younger the child, the more serious the availability problem. Finding a place seems to be most difficult for the parents of infants, somewhat less difficult for the parents of toddlers, and least difficult for parents of preschoolers. Finding places for school-age children and those with disabilities also appears to be difficult. All of these availability problems are compounded for children from economically disadvantaged families. If the places that are available are not affordable to most parents, they are not really available. AFFORDABILITY OF CHILD CARE Not all employed mothers pay cash for child care. In a sample of young employed parents using child care in 1985, 77 percent paid for care for their youngest child under 5; 57 percent paid for care for their youngest child over 5 (Hofferth, 1988~. The U.S. Department of Labor (1988) estimates that families who do pay for services, spend more than $11 billion per year: approximately $8.6 billion by married couples with both parents working and $2.5 billion by single working mothers. There are two significant aspects of the affordability issue: the absolute amount spent for care and the proportion of total income spent for care.

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236 WHO CARES FOR AMERICA'S CHILDREN? Amount Spent For families whose youngest child was under 5 and who paid for at least 30 hours of child care per week in 1985, the amount spent was approximately $35 per child per week (Hofferth, 1988~. On an annualized basis, this totals $1,820, considerably less than the $3,000 estimate frequently cited (Clifford and Russell, 1989; Haskins, 1988~. However, the $1,800 figure may be low for several reasons. It is an average that includes care that is less than a full day; it averages the costs of center care, family day care, and relative care; and it does not adjust for large regional variations. In addition, the population used in the survey is from the National Longitudinal Survey of Youth (NLSY): parents in this survey are generally younger aged 20 to 27 than the majority of parents who purchase child care services. Older parents, who usually have higher incomes, typically spend more on care. Analysis of data from the Survey of Income and Program Participation (SIPP) found that 27 percent of the women surveyed paid more than $50 per week per child (Bureau of the Census, 1987~. Kisker and colleagues (1989) report the median total expenditure for those paying for care was $50 per week These estimates reflect the amount parents report spending: they do not reflect the actual costs to the provider or the fees they charge, since many parents benefit from public subsidies that reduce the amount they pay for child care. The differences in the amount paid for care reported in the NLSY are informative. In direct outlays, the least expensive type of care was that provided by relatives, about $30 per week; family day care homes and center or nursery care, about $37; and a babysitter in the home (the most expensive form of care), $42. On an hourly basis, relative care was also the least expensive, at about $1.14 per hour, and babysitter care was the most expensive at about $1.60 per hour. Family day care homes were $1.17 per hour, and center and nursery school care was about $1.40 per hour. For a 40-hour week 52 weeks per year, the fees paid ranged from $2,280 for family care to $3,200 for babysitter care. Despite the increased use of out-of-home care, weekly expenditures for child care appear to have risen only modestly in recent years (Hofferth, 1987~. Not unexpectedly, Hofferth (1987) and Brush (1987) both found that the number of children in a family and the mother's employment status were the most significant predictors of how much parents paid for care. Mothers employed full time obviously paid more than mothers employed part time because they purchased more hours of care. In addition, mothers living in metropolitan areas, those with higher educations, those who are white, and those living in families with higher earnings were all likely to pay more money than others for child care.

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THE CH LD CARE MARKET AND ALTERNATIVE; POLICIES Proportion of Income 237 Among all families paying for care for children under age 5, the cost averages about 10 percent of family income (Grubb, 1988; Hofferth, 1988). This represents a substantial expense, comparable to the share of income most families spend on food. Among low- and moderate-income families, however, the burden of child care expenses is much heavier. Data from the 1985 NLSY showed that child care expenses were 30 to 50 percent of the family incomes of those earning under $5,000 per year; 15 to 20 percent for those earning $5,000 to $9,999; 10 to 15 percent for those earning $10,000 to $14,999, 5 to 10 percent for those earning $15,000 to $49,999; and under 5 percent for those with incomes of more than $50,000 (Hofferth, 1988~. For a single parent who earns the minimum wage and pays a caregiver $30 per week for one child, the data suggest that that family is spending 22 percent of its gross income on child care. Hofferth (1988) finds that, overall, poor families paid an average of 23 percent of their incomes on child care; nonpoor families paid only 9 percent. Although low-income employed families do receive some subsidized care and although they tend to use the least expensive form of out-of-home care, their relative expenditures are vastly larger than those of higher income families. The potential burden of out-of-home child care on low-income house- holds is even greater when children are infants or if they have disabilities. One study has found that infant care costs run, on average, one-third higher than the costs of care for preschoolers (Grubb, 1988~. Head Start estimates the additional cost of serving a child with disabilities (compared with a child without disabilities) at $1,000 per child per year (Brush, 1988~. Additional staff (a major cost component) and services required for children with disabilities account for this difference. Hofferth (1988) also found that single-parent families tend to pay a larger proportion of their incomes on child care than do two-parent families, in part because they have lower earnings and less flexibility to reduce their expenses- for example, by working different shifts. As indicated in Chapter 2, shift work is surprisingly common among two-parent, two-earner families (Presser, 1988~. One study found that in one-third of all such families with children under 6 in which both parents worked full time, one parent worked other than a regular day shift (Presser and Cain, 1983~. Although out-of-home child care expenses absorb 20 percent or more of the gross income of working poor families who use it, these costs are not borne by a large proportion of all poor households, since the proportion of the poor who work full time all year and use out-of-home care is small. Paradoxically, this fact suggests that the burden of out-of-home care is even more important than the data suggest: it implies that child care costs may discourage work altogether for some parents.

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256 WHO CARES FOR AMERICA'S CHILDREN? annually) (Weikart, 1989~. Whether or not these savings would be realized on a national scale is not known, but they give some indication of the long-term benefits of high-quality care for young children. A variation of the proposal to expand Head Start is to expand an array of public prekindergarten programs for 4-year-olds. As discussed in Chapter 6, a number of states have launched such initiatives, and federal legislation to provide added subsidies is also pending. For example, one proposed federal bill would authorize $1 billion a year for a full-day school program, building on the Head Start and state compensatory education programs already in place. The program would be voluntary, with a funding formula based on the number of children in the state (or community) aged newborn to 5 years who live in families below the poverty line, the number who live in single-parent families, and the number in families with both parents in the labor force. This formula reflects a commitment to serve poor children from families with no employed parents as well as children from low-income working families. Similar specific programs could also be designed for school-age children and children with disabilities. A third and more comprehensive approach was presented in a major bipartisan child care initiative the Act for Better Child Care (ABC). Initially introduced in the 100th Congress, it would target approximately 75 percent of a $2.5 billion budget to subsidize child care programs for families at or below 115 percent of a state's median income. A 20 percent state match would be required. The legislation proposed a block grant approach, combined with income targeting and direct provider grants to increase the supply of child care. The bill also contained provisions for some consumer subsidies, such as sliding-fee scales and vouchers. Quality guidelines were mandated, and states were required to coordinate child care resources and services. Despite significant negotiation and compromise, the bill failed to pass in the first session of the 101st Congress; it is expected to be reconsidered in the second (1990) session. We believe that provider subsidies for services to low-income families and other categories of children who are underserved in the current market would probably raise the quantity and overall quality of care. Parental choice, however, would be less than if the same sums were provided through direct consumer subsidies. Increased self-sufficiency through increased maternal employment should also result in reduced welfare costs, although gains would be small if proposed expenditures are small. For all of the proposed provider subsidies, the most likely source of federal funding would be general revenues, with the financial burden spread across all taxpayers, although Watts and Donovan (1988) propose using projected surpluses from the Social Security trust fund. However, these funds are already being used to offset the general fund deficit, so that any use to pay for child care would be equivalent to using general revenues

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 257 and would increase the current budget deficit. Direct services could also be funded through the public schools by using the local tax base, although it can be argued that federal funding is essential since fiscal capacity varies considerably across communities. Infrastructure Subsidies A third type of subsidy supports the infrastructure of the child care system. Such policies do not provide financial benefits directly to families, nor do they finance the direct provision of services to children. Rather, they address the more general questions of quality and efficiency through increased training and wages for caregivers, expanded planning and coor- dination, improved standards and regulations, and extended resource and referral services. Related infrastructure supports include liability insurance pools and provider networks. By themselves, such policies may be less expensive than consumer or provider subsidies. Many of the increased costs are borne by providers and consumers (unless other subsidies are also available). Since there is currently no federal child care policy, and most initiatives are undertaken at the state and local levels, there are no accurate data from which to project the costs of investments in the child care infras- tructure. They would, however, directly affect the cost and quality tradeoff discussed earlier: they may improve quality and efficiency, but increase costs and reduce availability if implemented in the absence of additional subsidies. The primary goals of caregiver training and wage subsidies are to encourage individuals to become child care workers, to increase their skills, to increase their tenure, and, therefore, to improve the quality of child care that is provided in a variety of programs and settings. Although child care workers in centers generally have some formal child development training, a high proportion of workers in family day care homes have limited formal education and little or no formal child care training (Coelen et al., 1979; Fosburg, 1981; Kisker and Strain, 1988~. Increasing the supply of trained providers is likely to increase the wages of child care workers and, hence, increase the cost and affordability of care. Implementing a comprehensive policy for training child care workers would involve initial as well as recurring costs. There are a substantial number of current providers who would benefit from basic training in child care, as would new child care workers. A less intensive program of in- service training would benefit all workers in centers, schools, and family day care homes on an ongoing basis. Increased wages, however, are a significant and continuing cost (Clifford and Russell, 1989~. Only a few states have explored the possibility of providing subsidies directly earmarked to increase the wages of child care workers (see Chapter

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258 WHO CARES FOR AMERICA'S CHILDREN? 7~. Massachusetts, for example, allocated supplemental funds to Head Start programs for salary enhancement through a grant program. To reinforce the intent that supplemental funds be used to increase staff salaries, the state established suggested hourly minimum rates for several positions. Initial findings of a study of the impact of this allocation reports reduced staff turnover and an increased ability to recruit qualified staff (Goodman et al., 1988), but the full impact of wage subsidies on the quality, availability, and affordability of care is unknown. Increasing staff salaries through wage subsidies in one segment of the child care market is likely to create competition for qualified staff, which may result in higher wages and higher fees for parents in programs not receiving wage subsidies. Programs unable to charge higher fees and therefore to provide higher wages may have to hire less qualified staff. The goal of subsidies for service planning and coordination is to improve the efficiency of the child care market. Planning and coordination efforts at the local and state levels focus on identifying needs and available program resources, coordinating programs, and allocating funding across myriad departments and jurisdictions. These planning efforts may bring together the public and private sectors in an effort to increase the supply of services, enhance the provision of resource and referral services, and more efficiently allocate funds (see Chapter 6~. Infrastructure support for the development of standards and the im- provement and enforcement of regulations is intended to increase the quality of care children receive. As detailed in Chapters 3 and 4, many current state regulations fail to reflect what research and best professional practice suggest is necessary to protect children's health and safety and to enhance their social, emotional, and cognitive development. Efforts to establish federal child care regulations have a long and beleaguered his- tory; efforts to encourage states to adopt more stringent regulations have been limited. Although there is convincing evidence that increasing the stringency of regulations and their enforcement improves the quality of care, there is widespread disagreement about whether national standards or regulations are feasible, whether the federal government can or should enforce child care regulations, how the states could be induced to adopt and implement more stringent regulations, and whether it is possible to effectively regulate family day care homes as well as child care centers. If agreement could be reached on national standards of quality for child care and the federal government then endorsed such standards for states to use as the basis for their regulations, the likely edect would be to reduce poor-quality care by establishing a minimum threshold for services. It would also raise the costs of care. To encourage states to act, the federal government would have to link any existing or new child care subsidies to states' incorporation of the specified standards in their regulatory system.

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 259 However, as several observers have noted, unless sufficient public funds are available both to help providers meet new regulations and to assist low-income families in purchasing care, the unfortunate side effect of more stringent regulations is likely to be a reduced supply of affordable child care services. Regulations that establish recommended levels for staff/child ratios, group size, and physical facilities could as much as double the current average costs of care and of caregiver training, putting them on a par with high-quality Head Start (Brush, 1988~. More stringent regulations will tend to discourage unlicensed providers from entering the regulated market and might encourage some currently licensed providers to go underground. One analysis reported by the Heritage Foundation (1988) found that regulations in the proposed House version of the ABC bill in the 100th Congress would result in the closing of roughly 20 percent of current child care centers, primarily those in the private sector, and would replace them with publicly funded child care centers. An alternative interpretation, however, is that the centers would raise their fees rather than close. If increased costs are not offset by public subsidies, many parents would be unable or unwilling to pay the increased costs of purchasing care, thus reducing their flexibility of choice and, perhaps, leading them to place their children in lower quality care. The administrative costs of regulations vary with the extent of en- forcement activity. Critics of stronger regulations point to the difficulties of widely varying parental views about what constitutes quality care and the inadequacy of current enforcement efforts. They also note that it is extremely difficult to effectively enforce services provided in family day care homes. An alternative approach has been to link standards for quality to the provision of technical assistance, resource and referral services, and provider subsidies for family day care providers (e.g., the Child Care Food Program benefits and Work Incentive Program tWIN] child care subsidies). If the financial incentives are substantial enough, and technical support Is available, there is evidence that providers are willing to comply with ap- plicable standards, thereby improving the quality of the services they offer (see Chapter 6~. Regulations and standards are similar to parental leave in that they can be mandated but are not necessarily funded by the government. If national guidelines were mandated without funding, the costs of meeting them would be borne by providers, who would presumably pass them along to consumers. Enforcement costs, however, would be borne by the government, that is, taxpayers. Resource and referral services can complement regulations and serve as an alternative mechanism to increase the quality of care by offering consumer education to parents and technical assistance and training to

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260 WHO CARES FOR AMERICA'S CHILDREN? providers. Parents generally have limited knowledge of the child care op- tions available to them, and they choose largely on the basis of convenience or recommendations from friends (Kisker and Strain, 1988; Liebowitz et al., 1988~. Educating parents about the factors that affect quality and pro- viding information on available programs will enhance their ability to make informed decisions to select high-quality programs. Some proponents of resource and referral services claim that they will encourage parents to be- come effective monitors and so fill the gap between appropriate standards and enforcement of regulations. Resource and referral services can provide critically needed support and assistance to family day care providers, who tend to work in isolation, to lack efficient mechanisms for filling staff vacancies, and to have limited access to training and technical assistance (Kisker and Strain, 1988~. The costs of establishing and maintaining resource and referral services are relatively low in comparison with the costs of other mechanisms to enhance the quality of care. In addition to improving the quality of care through consumer education and provider training and assistance, resource and referral services are a source of valuable information about the supply of and demand for services that is essential for state and local planning and coordination. Although there are insufficient data to estimate the costs of specific programs, there are general estimates associated with various proposals to strengthen the child care infrastructure. For example, in the ABC proposal (cosponsored by Senators Christopher Dodd and Orrin Hatch in the 101st Congress), approximately 22 percent of the originally proposed $2.5 billion authorization was earmarked for investments in infrastructure, including state-level planning and coordination. CONCLUSIONS In the 1950s most child care was provided free and "off the books" by at-home mothers and relatives; since then it has increasingly been replaced by paid nonrelative care. During the 1950s and 196Os, a great deal was written about the economic value of the services that women were performing in the home. Now the great expense of replacing the quality and quantity of those services is becoming apparent. There is also increasing recognition that even in the 1950s child care was not free; it was paid for by women in lost wages and by society in lost tax revenues. Inhere is now much greater public awareness and discussion of the current child care market and alternative public policy responses to the perceived child care problem. Discussion about shortages must include three linked but distinct con- cerns: availability, affordability, and quality. The number of places available

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 261 is probably of most serious concern for children aged 0-2, for children from low-income and, especially, single-parent families, and for children with disabilities. But availability alone is of little import unless the places avail- able are affordable and of adequate quality. Most parents are paying a nontrivial proportion of their family income for care. But the burden is much heavier for low- and moderate-income parents, among whom the share of income for child care may approach the share of income for housing. And this burden is magnified for single parents, for parents of infants, and for parents of children with disabilities. Improving the quality of child care will inevitably raise the cost. Increasing wages to levels that would reduce the extremely high rate of staff turnover and implementing standards that would reduce the number of children per caregiver now allowed by some states would be very expensive. It is hard to see how low- and moderate-income families would be able to afford high-quality care without substantially more assistance from government or employers. This evidence demonstrates the very difficult tradeoffs in the child care market, among availability, affordability, and quality. Improving staff/child ratios is expensive, and raising staff salaries is even more expensive. Yet current salary levels and staff/child ratios are generally not adequate for the kind of child care that research and best professional practice suggests is safe and developmentally sound. Thus, intervention In the market such as stricter licensing and regulation may be desirable from the standpoint of improving quality, but it would be likely to aggravate the problem of affordability, and it might reduce availability. How should the United States find the optimal balance of cost and quality? One way is to ensure that parents have adequate resources, and allow each family to make its own decisions. Most American parents want to retain a high degree of independence from government in choosing employment and child care, and the panel agrees that parental choice should be a key feature of public policy. Current policies do in fact provide some subsidies for most families, and this approach could be expanded through tax credits and child allowances. It is possible, however, that sometimes the choices parents make for the care of their children do not meet the criteria necessary to achieve a safe, healthy, and developmentally sound environment. For example, should parents have the choice of placing an infant in a child care center in which one worker cares for six or more infants at a time (as eleven states allow), even though it is known that such stafI/child ratios are not good for children? The U.S. government already supports low-income families in improving the intellectual and social development of their children and strengthens parenting skills through programs such as Head Start. Indeed, one of the common political rationales for expanded child care programs is to improve the health and life chances of children at risk by building

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262 WHO CARES FOR AMERICA'S CHILDREN? on the positive results of Head Start. The government also intervenes in family choices to their and the larger socie~cy's benefit through the public school system. It is not a large step to argue for more intervention in the child care market, at least on behalf of the youngest children, regardless of family income, with particular emphasis on those whose needs are greatest. Because of the limited research available, this panel cannot fully ex- plore the many policy alternatives available to address the child care needs we have identified. On the basis of our review of the available research and our evaluation of the current system and selected policy alternatives, however, we can make specific recommendations for research and policy. REFERENCES Bane, M.J., and P. Jargowsky 1988 Links between government policy and family structure: What matters and what doesn't. In ~ Cherlin, ea., We Changing American Family and Public Policy. Washington, D.C.: The Urban Institute Press. Blank, H., A. Wilkins, and M. Crawley 1987 State Child Care Fact Book 1987. Washington, D.C.: Children's Defense Fund. Blau, D.M., and P.K Robins 1986 Fertility, Employment and Child Care Costs: A Dynamic Analysis. Paper presented at the annual meeting of the Population Association of America, San Francisco. Bogat, G.~, and L" Gensheimer 1986 Discrepancies between the attitudes and actions of parents choosing day care. Child Care Quarterly 15~3~:159-169. Bradbard, M., R. Endsley, and G Readdick 1983 How and why parents select profit-making day care programs: A study of two southeastern college communities. Child Care Quarterly 12~2~:160-169. Brush, L" 1987 Usage of Different Kinds of Child Care: An Analysis of the SIPP Data Base. Paper prepared for the Social Services Policy Division, Planning and Evaluation, U.S. Department of Health and Human Services, Washington, D.C. 1988 Projecting the Costs of Full Day Child Care from the Costs of Head Start. Paper prepared for the Panel on Child Care Policy, Committee on Child Development Research and Public Policy, Commission on Behavioral and Social Sciences and Education, National Research Council, Washington, D.C. Bureau of the Census 1987 Who's Minding the Kids? Current Population Reports, Series P-70, No. 9. Washington, D.C.: U.S. Department of Commerce. 1988 Poshly in the United States 1986. Current Population Reports, Series P-60, No. 160. Washington, D.C.: U.S. Department of Commerce. Bureau of Labor Statistics 1988 Marital and Family Characteristics of the Labor Force: March. Unpublished data. Cain, V., and S. Hofferth 1987 Parental Choice of Self Care for School Age Children. Paper presented at annual meeting of the Population Association of America, Chicago.

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES Cherlin, A., ed. 263 1988 Lee Changing American Family and Public Policy. Washington, D.C.: The Urban Institute Press. Clifford, R., and S. Russell 1989 Financing programs for preschool-aged children. Theory into Practice. 2~1, Winter):19-27. Coelen, C., F. Glantz, and D. Calore 1979 Day Care Centers in the US. A National Profile 197~1977. Cambridge, Mass.: Abt Associates. Connelly, R. 1988 Utilizing Market Child Care: An Economic Framework for Considering the Polipy Issues. Paper prepared for the Panel on Child Care Policy, Committee on Child Development Research and Public Poligy, Commission on Behavioral and Social Sciences and Education, National Research Council, Washington, D.C. Department of Economics, University of Vermont. Eck, A. 1984 New occupational separation data improve estimates of job replacement needs. Monthly Labor Review 107~3~:3-10. Espenshade, T., and J. Minarik 1987 Demographic implications of the 1986 U.S. tax reform. Population and Devel opment Review 13:115-127. Fink, D. 1988 A Quick Fight All the Way: A Report on the Need for Child Care Among Parents of School-Age Children with Handicapping Conditions. Working paper No. 178. Wellesley, Mass.: Wellesley College Center for Research on Women. Fosburg, S. 1981 Family Day Care in the United States. Summary of Findung>;. Cambridge, Mass.: Abt Associates. Frank, M. 1988 Costs, financing, and implementation mechanisms of parental leave policies. Pp. 315-325 in E. Zigler and M. Frank, eds., The Parental Leave Crisis: Toward a National Policy. New Haven, Conn.: Yale University Press. Fuchs, V. 1988 Women's Attest for Economic Equality. Cambridge, Mass.: Harvard University Press. Galinsly, E. 1988 The Impact of Child Care Problems on Parents on the Job and at Home. Paper presented at the Child Care Action Campaign Conference, Wingspread, Racine, Wisc. Bank Street College of Education, New York. Garfinkel, I. 1988 The Potential of Child Care to Reduce Poverty and Welfare Dependence. Unpublished paper. Institute for Research on Poverty, University of Wisconsin. General Accounting Office 1987 Parental Leave: Estimated Costs of H.R 925, The Family and Medical Leave Act of 1987. Washington, D.C.: U.S. Government Printing Office. 19 ~Parental Leave: Estimated Cost of Revised Parental and Medical Leave Act. Washington, D.C.: U.S. Government Printing Office. 1989 GAO's Cost Estimate of the Family and Medical Leave Act of 1989 (H.R 770). Washington D.C.: U.S. Government Printing Office.

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264 WHO CARES FOR AMERICA'S CHILDREN? Goodman, I., J. Brady, and B. Desch 1988 A Committment to Quality: The Impact of State Supplemental Funds on Mas- sachusetts Head Start. Newton, Mass.: Education Development Center, InG Graham, M., and K. Scott 1988 The Fiscal Impact of Definitions of High Risk for Education of Infants and Toddlers. Unpublished paper, University of Miami. Grubb, W.N. 1988 Choices for Children: Policy Options for State Provision of Early Childhood Programs. Unpublished paper. School of Education, University of California, Berkeley. Hartmann, H., and D. Pearce 1989 High Skill and Low Pay. The Economics of Child Care Work. Washington, D.C.: Institute for Women's Policy Research. Haskins, R. 1988 What day care crisis? AEI Joumal on Govemmenz and Society Ref~lanon 2:13-21. Heritage Foundation 1988 The "ABC" child care bill: An attempt to bureaucratize motherhood. Issue Bulletin No. 145, October 6. Washington, D.C.: Heritage Foundation. Hofferth, S. 1987 Child Care in the U.S. Statement before the Select Committee on Children, Youth, and Families, July 1. The Urban Institute, Washington, D.C. 1988 The Current Child Care Debate in Context. Paper prepared for the 1987 annual meeting of the American Sociological Association (revised). The Urban Institute, Washington, D.C. Hofferth, S., and D. Phillips 1987 Child care in the United States, 1970-1995. Joumal of Mamage and the Family 49~3~:559-571. Kahn, A., and S.B. Kamerman 1987 Child Care: Facing the Hard Choices. Dover, Mass.: Auburn House. Kisker, E., and M. Strain 19~ Child Care Markets: A Brief Look at the Markets for Child Care in Camden and Newark, New Jersey. Notes for presentation at annual meeting of the Association for Public Policy Analysis and Management. Mathematica Policy Research, Inc., Princeton, N.J. Kisker, E.E., R. Maynard, ~ Gordon, and M. Shain 1989 The Child Care Challenge: What Parents Need and What Is Available zn Three Metropolitan Areas. Princeton, N.J.: Mathematica Policy Research. Leibowitz, A., L" Waite, and C. Witsberger 1988 Child care for preschoolers: Differences by child's age. Demography 25~23:205- 220. Lombardi, J. 1988 Child Care Workers. The Hidden Subsidy in the Child Care Delivery System. Paper prepared for the Panel on Child Care Policy, Committee on Child Development Research and Public Policy, Commission on Behavioral and Social Sciences and Education, National Research Council, Washington, D.C. Child Care Employee Project, Alexandria, Va. Marr, M. 1988 The Child Care Crzszs: Are Tax Credits the Answer? An Arzalysis of Seven Child Care Tax Credit Bills. Washington, D.C.: Citizens for Tax Justice.

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THE CHILD CARE MARKET AND ALTERNATIVE POLICIES 265 McGroder, S.M. 1988 A Synthesis of Research on Child Care Institution Patterns. Paper prepared for the Panel on Child Care Policy. Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services. O'Connell, M., and C.C. Rogers 1983 Child Care Arrangements of Working Mothers: Rune 1982. U.S. Bureau of the Census, Current Population Reports, Series P-23, No. 129. Washington, D.C.: U.S. Department of Commerce. Powell, D., and J. Eisenstadt 1980 Finding Child Care: A Study of Parents' Search Processes. Detroit, Mich.: The Merrill-Palmer Institute. Presser, H. 1988 Shift work and child care among dual earner American parents. Journal of Mamage and the Family 50:133-148. Presser, H., and W. Baldwin 1980 Child care use and constraints in the United States. In ~ Horberg, ea., Women and the World of Work. New York: Plenum Press. Presser, H.B., and V.S. Cain 1983 Shift work among dual-earner couples with children. Science 219:876-879. Reismon, B., A. Moore, and K Fitzgerald 1988 Child Care: The Bottom Line An Economic and Child Care Policy Paper. New York: The Child Care Action Campaign. Robins, P. 1988 Federal support for child care: Current policies and a proposed new system. Focus 11(2):1-9. Scott, KG. 1988 The Fiscal Impact of Definitions of High Risk for Education of Infants and Toddlers. Unpublished paper. University of Miami. Sonnenstein, FL., and D.^ Wolf 1988 Caring for the Children of Welfare Mothers. Paper presented at the annual meeting of the Population Association of America, New Orleans, April 21-23. Spalter-Roth, R., and H. Hartmann 1988 Unnecessary Losses: Costs to Americans of the Lack of Family and Medical Leave. Washington, D.C.: Institute for Women's Policy Research. Stephan, S., and S. Schillmoeller 1987 Child Day Care: Selected Federal Programs. Congressional Research Service, Library of Congress, Division of Education and Public Welfare. Washington, D.C.: U.S. Government Printing Office. U.S. Department of Labor 1988 Child Care: A Workforce Issue. Report of the Secretary's Task Force. Washington, D.C.: U.S. Department of Labor. Waite, C, ~ Leibowitz, and C. Witsberger 1988 What Parents Pay for Child Care and Child Care Costs. Unpublished paper. Rand Corporation, Santa Monica, Calif. Watts, H., and S. Donovan 1988 What Can Child Care Do for Human Capital? Paper presented at the Child Care Action Campaign, Wingspread, Racine, Disc. Department of Economics, Columbia University. Weikart, D.P. 1989 Quality Preschool Programs: A Long-Term Social Investment. Occasional Paper 5. New York: lhe Ford Foundation.

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266 WHO CARES FOR AMERICA'S CHILDREN? Whitebook, M., D. Phillips, and ~ Howes 1989 Mono Cares? Child Care Teachers and the Quality of Care in America. Executive Summary, National Child Care Staffing Study. Oakland, Calif.: Child Care Employee Project. Zigler, E., and M. Frank, eds. 1988 The Parental Leave Crisis: Toward a National Policy. New Haven, Conn.: Yale University Press.