What would it cost to transform “The Hell of American Day Care”?

Jonathan Cohn, a senior editor for The New Republic, wrote an outstanding article there a few weeks ago, entitled “The Hell of American Day Care: An investigation into the barely regulated, unsafe business of looking after our children”. The entire article is essential reading, even though some of it is troublesome reading. Cohn frames the article around the deaths of some children due to a fire in a Texas day care center, which was caused by the neglect of the day care center’s director.  But he then goes on to raise broader policy issues about what we as a society are failing to do to provide better child development for our nation’s children.

I want to focus in this blog post on one issue Cohn raises in a follow-up interview with Dylan Mathews of the Washington Post: what would it cost to make quality child care/preschool available to all families who need this assistance from birth to age 5? Cohn says in that interview that “I talked to some experts about what a true universal child-care program would cost. Nobody felt comfortable giving me a solid estimate.” I want to provide at least one estimate, and comment on its implications.

To summarize my conclusions: Providing access to quality child care for all birth to age 5 would probably cost around $100 billion annually in additional government funding. This amount of money is affordable and still somewhat less in child care and preschool funding than other leading countries, but would be politically difficult. This increases the importance of doing research on how we might hold down the costs by changes in child care and preschool design that could provide quality services at lower costs.  It also increases the importance of policies that would raise the economic position of lower-income families and thereby reduce the need for subsidies. Finally, I think the political cost of comprehensive birth to 5 services for kids increases interest in an incremental approach that would focus on age 4 preschool, which probably has the greatest ratio of benefits to costs.

The U.S. has around 19.7 million children under the age of 5. Of those children, around 25% are in families below the poverty line, 22% are in families with incomes between 100% and 200% of the poverty line, and 16% are in families with incomes between 200% and 300% of the poverty line.  Let’s assume that this 63% of families with incomes below 300% of the poverty line are the families for whom we are most concerned to make sure that quality child care and preschool is available and affordable.

The Abecedarian program was a high-quality full-time child care and preschool program from birth until age 5. The program has good random assignment research that suggests that the program increases long-run earnings of former child participants by an average of 10%. The program also provides considerable earnings benefits for parents, both in the short-run and the long-run, by allowing parents to accumulate more work experience and education. The Abecedarian program cost around $16,000 per child per year. The Educare  program that is supported by the Ounce of Prevention Fund and the Buffett Early Childhood Fund is very similar in design to the Abecedarian program.

Suppose we wanted to set up an Abecedarian program that would be available to all families on a sliding fee scale.  To pick somewhat arbitrary fees, assume that the government subsidy would be 90% of costs for families below the poverty line, 80% of costs for families between 100% and 200% of the poverty line, and 60% of costs for families between 200% and 300% of the poverty line.  Beyond 300% of the poverty line, families would have to pay full costs. Assume further that about 75% of all families receiving subsidies would participate in the program.

Under these assumptions, the government subsidy costs for this program would be about $118 billion per year. Of this total, $52 billion would go to families below the poverty line. There would be some cost savings offsets. With this new program, we would no longer need to spend money on Head Start, the Child Care Development Block Grant, or almost all the funds for state pre-K programs. This would save around $20 billion in annual costs. So the net costs of this program would be around $98 billion per year.

$98 billion is of course a lot of money. It is over $300 per capita averaged over the entire U.S. population, so funding it would require somehow collecting revenues of $1200 per year for the “average” family of four. I think that’s a very hard sell.

On the other hand, $98 billion represents between 2 and 3 percent of total federal, state, and local government receipts per year. $98 billion is around 8% of total state and local taxes. This amount of spending is equal to about 17% of total K-12 spending.  Therefore, what we’re talking about is a major expansion of about one-sixth in our spending on child education, which would require about an 8% tax increase if financed at the state and local level, but less than a 3% expansion of government revenues if we also got the federal government involved.  So if the financing is broader than just individual income taxes for the median household, then the proposal seems more affordable.

Based on OECD figures, such a proposal, if enacted, would increase U.S. spending on child care and education programs for preschool-age children from 0.4% of our Gross Domestic Product to about 1% of U.S. Gross Domestic Product, or an increase in our commitment of about two-and-a-half times. This would still leave the U.S. somewhat behind other leading countries in the percent of the national economy devoted to preschool-age programs.  For example, France, Finland, the United Kingdom, Denmark, Sweden, and Norway all spend 1.1% or more of their Gross Domestic Product on preschool and child care programs for preschool-age children. Therefore, it is not unusual for a leading industrial country to provide government subsidies of 1% or more of GDP in programs for preschool-age children.

Given the political difficulties in the U.S. of finding an extra $100 billion for child care and preschool, it seems wise to consider some alternatives that might make progress more politically attainable.  One alternative is doing research to see whether we can still increase quality preschool access, but at somewhat lower costs. We could use some good experiments that looked at different class-size ratios and different teacher training and teacher credential requirements at different ages. For example, the Educare model has 3 adults for every 8 infants and toddlers, and 3 adults for every 17 preschoolers – what are the cost/quality tradeoffs from tweaking those ratios? Right now, we don’t have enough evidence on this topic.

It would also be helpful if policies could lower the percentage of families that need large subsidies for child care and preschool. It is certainly disturbing that one-quarter of all American preschoolers are below the poverty line, almost half are below 200% of the poverty line, and over 60% are below 300% of the poverty line.  Job creation programs and training programs that would raise employment rates, and minimum wage and expanded wage subsidies that would raise earnings, would help. Government encouragement of paid family leave would reduce the needs for infant care, which is very expensive.

The enormous cost of providing full access to Abecedarian/Educare subsidies for needy preschool children is one reason for the interest in age-4 preschool as a political strategy. Universal half-day pre-K for 4-year olds might cost about $14 billion in additional funding per year.  This is about one-seventh the cost of full implementation of an Abecedarian style model. An extra $14 billion in funding is obviously more politically feasible than getting an extra $98 billion in funding, and in addition, universal pre-K would provide direct services to all children.

I think gross benefits and net benefits would be higher from full implementation of Abecedarian/Educare compared to universal pre-K for four-year olds. Depending upon what assumptions are made,  the gross increase in earnings from full implementation  of Abecedarian/Educare are probably from two to four times the increase in earnings from universal pre-K for four-year olds. But the benefits are not seven times as great. So, the benefit-cost ratio is somewhat higher for the four-year old pre-K approach.

A hybrid political approach is to begin with expanding 4-year old preschool, but at the same time seek to increase quality standards and access for child care and preschool for younger children. This should be coupled with research that would enable us to say more about quality and cost tradeoffs, and policies that would boost living standards for lower-income families with young children.  A package of policies may be needed to move us away from “hell”, and towards better child development for all American children.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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