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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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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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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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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
OCR for page 261
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
OCR for page 262
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.
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Representative terms from entire chapter:
day care
