Minnesota’s Economic News — W/E 9/24/21
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On August 11, the United States Senate passed the massive $3.5 trillion spending plan that would fund new programs as well as expand existing programs. Among one of the programs included in the package is childcare. The bill, if signed into law, would provide $225 billion to affordable childcare in the next 10 years.
Details for the bill are currently being sorted out, but if the bill mirrors President Joe Biden’s American Families Act, it would ensure that households with up to 1.5 times their state median income would pay no more than seven percent of their income on childcare, based on the Department of Human Services definition of affordability. Additionally, the bill would fully cover the cost of childcare for households with incomes under 75 percent of their state median income.
Biden would also require that child care workers receive a minimum wage of $15.
Childcare is essential to the economy; it frees parents to work and contribute to the economy while also providing a stimulating environment for children’s development. It is laudable that efforts are being taken in order to improve access to childcare.
Subsidies are, however, the wrong approach. For one, subsidies raise the prices of goods and services. As economist Michael R Strain explains,
When government subsidizes the demand for something, more people want to buy it, leading to higher prices. That’s what happened in higher education and health care. The rising costs intensify calls for even more generous subsidies, which in turn boost prices even further. Congress should not want to make the same mistake with child care.
A lot of evidence already exists showing that the lack of childcare supply is mainly due to excessive regulation. This new bill by requiring a $15 minimum wage would worsen the supply issue and raise prices further.
While most child care regulations are made at the state level, the federal government also has a role to play in ensuring a smooth regulatory process. When the federal government reauthorized the Child Care and Development Block Grant (CCDBG), for example, numerous provisions were included in the bill that required states to enact rules in order to improve quality.
These provisions increased the cost of providing care for providers and did not provide any extra funding. End result? A lot of providers left the market due to increased regulations. In Minnesota, for instance, numerous providers reported that federal health and training requirements were increasing the cost of care and making it hard for providers to stay in business.
If the federal government really wants to help working parents, the best way to do that would be to boost the supply of childcare providers. Infusing more taxpayer money into childcare while tightening regulations will only make the childcare crisis worse.