Child Care is Infrastructure: Evidence from Universal Pre-K

• The Biden-Harris administration has made historic public investments in the child care industry and proposed transformative federal investments in child care and Pre-K. This Issue Brief presents evidence that these investments are good for the overall economy.
• Introduction of Universal Pre-K across various states led to increased Pre-K enrollment and higher employment rates among mothers with young children in those areas on average.
• The increases in the employment of mothers of young children was not offset by decreases of other workers, resulting in more growth in the overall labor force in places that introduced Universal Pre-K than places that did not.
• Consistent with an increase in overall economic activity, places that introduced Universal Pre-K also had larger increases in new business applications and the number of establishments than places that did not.
• The analysis shows that these investments in child care benefit families, businesses, and the overall economy-underscoring the importance of the Biden-Harris administrations investments in child care infrastructure.

The Biden-Harris administration has made historic public investments in the child care industry, and has proposed sustained, transformative federal investments to ensure that families-and the economy-can benefit from access to child care and Pre-K. This involves an unprecedented $24 billion in funding under the American Rescue Plan to support child care providers and the families that rely on them and executive orders with provisions to strengthen the Child Care and Development Block Grant (CCDBG) program and lower costs for families. Moreover, the President's most recent budget lays out a plan for guaranteed, affordable, and high-quality child care from birth until kindergarten, which includes voluntary, universal, free preschool and Head Start for all four-year-olds and charts a path to expanded preschool to three-year-olds.

It is well established that children benefit from access to high-quality affordable child care (CEA 2024) and that access to high-quality child care increases maternal labor supply (Li, 2020; Karademir, Laliberté, and Staubli, 2024).However, whether public investment in child care improves outcomes outside of important effects for parents and their children has not been established using quasi-experimental approaches on a large scale. To shed light on the foundational role that public investment in child care can have for the overall economy (akin to other forms of infrastructure), this issue brief shows that expanded access to child care is linked to increased economic activity (as measured by business outcomes).

International comparisons suggest that expanding access to child care would increase female labor supply in the United States. That is, in 2019 the US spent slightly less than half as much as the OECD average on child care as a share of GDP, and had about 2.5 percentage points lower prime age female labor force participation (OECD, 2019; OECD Data Explorer, 2019).[1] While international comparison are only suggestive, several studies provide causal evidence that providing access to child care increases maternal labor supply (Blau and Tekin 2007; Gelbach 2002; Herbst 2017; CEA 2023). Beyond the importance to mothers and their families, the 2023 Economic Report of the President finds that the U.S. economy overall was almost 10 percent larger in 2019 than it would have been without the increase in women's employment and hours worked since 1970. These studies emphasize child care's important role in facilitating female labor supply and the ensuing economic activity, underscoring the need to treat child care like other forms of infrastructure supported by federal investment.

Despite the potentially wide-reaching societal and macroeconomic benefits of affordable high-quality child care, the financial burden of provisioning child care is largely borne by parents. This is a classic example of a positive externality: one entity bears the cost of an action while other entities benefit from that action. In such cases, relying on private provision results in an amount lower than the socially optimal level of that action. As explained below, in this case, relying primarily on families to bear the cost of child care leads to an under provision of child care.

The child care market, if left to its own devices, will produce less than the socially optimal level of child care because child care is very labor intensive and the business model is fragile. Moreover, to maintain high quality, government regulations often stipulate the required ratio of children per adult in a classroom and other measures (Workman, 2018; Childcare.Gov). As such, care providers often struggle to afford paying wages at which they can attract enough teachers, while also charging a price that families can afford to pay. This tension often results in a gap between what families can afford and the cost of providing quality child care (US Department of the Treasury 2021; CAP 2023), leading to an under provision of affordable, high-quality child care slots.

Recognizing the benefits of accessible, affordable high-quality child care, some businesses have started to provide child care supports for their employees, reporting that provisioning child care benefits for employees enhances businesses profits through reduced worker turnover and training costs, reduced absenteeism, and increased productivity (IFC report, BCG report). These case studies show that, while families typically bear much of the financial cost of provisioning child care-often with subsidies from federal and state governments-local employers can reap substantial benefits. For example, when UPS started an onsite child care center at a warehouse facility, they reported increased worker retention, decreased absences, and increased job satisfaction and promotions. However, while some well-resourced businesses can afford to set up child care, the high start-up costs associated with this solution are infeasible for many businesses.

This brief summarizes novel CEA evidence on the broad benefits of provisioning child care, including for businesses, underscoring the need for greater public investment in child care infrastructure. This brief focuses on a specific public program structure that has been adopted by several states: Universal Pre-Kindergarten. Universal Pre-Kindergarten (Pre-K) allows all children of a given age (often 3, 4, and/or 5-year-olds) to enroll at no cost in a publicly provisioned Pre-K program (NIEER, 2016).[2] Pre-K is a unique form of child care, but this brief will use the availability of Pre-K programs as a proxy for the impact of publicly provided child care. While Pre-K is just one aspect of early care education needs (due to age and hours available), it does provide a partial-coverage educational option for young children who may have otherwise needed child care services.

This issue brief examines the change in maternal labor supply and business outcomes before and after individual states and large cities implemented Pre-K programs, and it shows that places with Pre-K had greater overall private employment and elevated business formation. That is, we show that public investment in Pre-K is good for business and good for the economy - underscoring the value of the Biden-Harris administration's historic public investments in the child care industry and the importance of implementing the additional investment proposed in the future.

Read the full CEA issue brief here.

[1] The United States spent 0.05% of GDP on child care compared to the OECD average of 0.08% (OECD, 2019)

[2] It should also be noted that not all programs highlighted in this brief meet the eligibility criteria for "Universal" Pre-K programs. We include states that have implemented true Universal Pre-K as well as those whose programs are considered universal eligibility, meaning that enrollment policies are open to all-regardless of income or family characteristics-but that the program itself is not necessarily available to all eligible students (often due to supply constraints).

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