Before I started working at Scioto Analysis, I worked for a think tank here in Columbus, Ohio. My new policy area focus in this position was on child care, a topic I did not know much about at the time.
To dive into this topic, I did what I usually do when I am trying to learn about a new public policy area. I went onto Amazon and I searched the phrase “economics of child care” so I could find a book to get me started.
Economics is a key tool in the public policy world. Earlier this week, Planet Money Newsletter published an article about the waxing and waning of the influence of economists on public policy in D.C. It followed the skepticism of mainstream economics in the middle of the 20th century to the rise of economics in policymaking with the appointment of Paul Volcker as chair of the federal reserve to quell runaway inflation in the 70s. It then followed through the rise of the Council of Economic Advisers until President Donald Trump “demoted” the chair of the Council by not putting its chair on his cabinet. Today, both Harris and Trump are supporting policies like exempting tips from taxes that most economists do not think either promotes economic efficiency or supports equity goals.
Despite some moves against the use of economics in policymaking at the federal level, economics is still one of our best tools for finding the answers to key questions about public policy. Economics is especially good at helping answer the following questions: does a policy work, does it grow the economy, and how does it impact different types of people?
Picking up a book about the economics of child care, I found answers to these questions. The book I read, David Blau’s The Child Care Problem: An Economic Analysis helped expose the problems with child care markets.
Child care markets are heterogeneous and hard to pin down. They are a mixture of people substituting informal markets (care for children at home or by volunteer family members) for less formal markets (paid home care in the neighborhood) or more formalized markets (free-standing child care centers). Each of these options have a range of costs and a range of quality as well, giving different experiences to children who are cared for.
And the experience for the child is something that really matters here. One thing Blau’s book opened my eyes to is that child care is the other side of the coin for another key public policy issue: early childhood education. While with child care we are often focused on trying to find some place to occupy a child while the parent can go work, the quality of this occupation matters since young children are at the point in their life where differences in care can have substantial impacts on their development.
The folly of focusing on child care to the detriment of early childhood development and education was demonstrated with the Quebec child care experiment in the late 90s. The province of Quebec made child care available for all residents for $6 a day. Subsequent evaluation of the impacts of the policy found Quebec’s universal child care program found children who took part in the program had worse health, lower life satisfaction, and higher crime rates later in life than those before the program took place.
The explanation researchers have given for this trend is that the universal child care program provided for universal child care availability but not universal child care quality. Without quality controls in place, children ended up in low-quality care that led to negative non-cognitive outcomes down the road.
In The Child Care Problem: An Economic Analysis, Blau argues there is a market failure in the child care market. If children were fully rational and in control of their own decisions about where to go for child care, they would likely, on average, choose child care that was more expensive and less convenient than their parents choose for them.
The natural answer to this problem is to subsidize child care that is higher-quality relative to child care that is lower-quality. By making high-quality child care cheaper, it will encourage parents to put their children in higher-quality care, closing the gap between the social cost and the private cost of this child care.
This entire argument, however, hinges on a crucial claim: that high-quality child care improves lifetime outcomes for children. Our strongest evidence that this is the case comes from two studies conducted in the 1960s and 1970s: the Perry Preschool Project and the Abecedarian Project. Both of these were randomized controlled trials that placed children in high-quality early childhood programs and followed them and the control group for decades afterwards to see what the impacts of the program were to life outcomes.
While many positive outcomes have been recorded from these studies, they have also come under some criticism. The studies were small, with just a few hundred participants between the two studies. They also focused on a certain subgroup of the population, in particular African-American children in specific parts of the United States (specific communities in Michigan and North Carolina). Additionally, they occurred in the 60s and 70s, under the specific social and economic conditions of that era and the decades to follow. All of these considerations cast doubt on whether the results of these studies can be extrapolated to the current day.
On top of these limitations, skeptics also point to a negative result from studies of early childhood: fadeout. While the children enrolled in the program had better outcomes in kindergarten, these results were found to fade out in the subsequent years until their evaluations were the same as their peers later in elementary school.
A working paper released this month and co-authored by Nobel Prize Winner James Heckman responds to many of these criticisms. In this paper, Heckman and his co-authors argue that criticisms are too narrowly focused on specific methodology. They argue that IQ fadeout does not occur in the Perry Preschool program and that long-term outcomes like improved educational attainment, higher earnings, reduced crime rates, and better health outcomes are demonstrated by Perry Preschool. All of these lead to a high benefit-cost ratio for the program.
They argue that the lesson of Perry Preschool is not “design a program exactly like Perry Preschool and you will see children succeed.” It is “involve parents and adults in children’s lives and you will see children succeed.” And that’s ultimately what we see in Blau’s work, in Quebec, and in the evidence we have on early childhood development: parental involvement is what sets children up for success later in life.