Elizabeth Warren's $700 billion plan to get women off mommy track and boost their careers

Key Points
  • Sen. Elizabeth Warren's free child-care plan would be offered to families making less than twice the poverty-line income (less than $51,000 for a family of four), while wealthier families would have child-care costs capped.
  • The program could cost $700 billion over a decade, while a tax on the ultra-wealthy to pay for it could raise near-$3 trillion over the next decade.
  • Corporations have been increasing their child-care benefits and services in recent years as a way to meet today's labor market needs, help the early education of the next generation of workers and be less reliant on government.
Sen. Elizabeth Warren (D-MA) speaks to potential voters during a campaign stop at the Veterans Memorial Building on February 10, 2019, in Cedar Rapids, Iowa.
Scott Olson | Getty Images News | Getty Images

Can better child care help women make more money years after their kids are big, or even convince workers to have more children in the first place?

Those are some of the conclusions economists have reached from studying the history of subsidized child-care plans like the one proposed by Democratic presidential candidate Sen. Elizabeth Warren of Massachusetts.

Her sweeping proposal calls for providing licensed early childhood care for every family in the country at a cost of no more than 7 percent of that family's income. For families making up to 200 percent of the federal poverty level ($51,000 for a family of four), child care would be free. Moody's estimates 12 million children will be eligible.

Warren's Universal Child Care and Early Learning Act is certain to change lots about the federal budget. It has an estimated cost of $70 billion a year — or $700 billion over a decade. That's a big number, but it does represent only one-third of 1 percent of GDP, and Warren has cited estimates that the tax on the ultra-wealthy she would implement to pay for the program would generate near-$3 trillion in revenue over a decade.

An analysis by Moody's Analytics says it may be deficit-neutral — raising as much money as it costs to run — since Warren proposes to pay for it with the annual tax on fortunes bigger than $50 million. Warren has described the levy on the ultra-rich as a "small tax" and has cited research from economists at the University of California who proposed a 2 percent tax on net worth above $50 million and an additional 1 percent tax on net worth above $1 billion.

Female participation in the workforce

It will also lead to significant changes in the composition of the workforce, the most obvious being higher workforce participation by women, said Sophia Koropeckyj, a Moody's managing director who co-authored a review of available studies commissioned by Warren's campaign. Moody's concludes that the more affordable that child care becomes the more cost-effective it is for parents to work, while increased time and flexibility allows them to work more hours. Child care facilitated by federal support has the strongest employment effects for single mothers, moms with young children and lower-income mothers, according to research from the U.S. Department of Health and Human Services.

"A lot of studies show that when women leave the workforce because the cost of child care isn't worth it, when she comes back, it's a long slog to get back on the path," Koropeckyj said. "It can take several decades to eliminate the gap.''

Scholars from Brookings and Cato debate wealth tax
Scholars from Brookings and Cato debate wealth tax

The stakes for women are high, according to a study of women's work and family issues by Goldman Sachs' Global Markets Institute last October. There may also be clearer promotion paths for women if fewer of them take time off to raise children, according to Goldman Sachs.

Leaving the workforce for five years to raise children costs women, conservatively 20 percent of their earnings potential even though their leave only represents one-eighth of their working lifetime, researchers led by Amanda Hindlian found. In their leading example, they said a female attorney who takes off five years in her early 30s, and whose salary upon return doesn't reflect the experience-based pay raises male counterparts received during her absence, could lose as much as $5 million in lifetime earnings.

"Women are more likely than men to take time out of the labor force, whether to care for children or parents — or for other reasons,'' Hindlian and colleagues wrote. "The impact of this disparity is particularly important in high-paying jobs where seniority and experience can matter significantly.''

That said, the workers most likely to stay in the workforce, rather than drop out for child-care related reasons, are blue collar, Korpeckyj said. A study of nurses in Scotland found that there's an impact even in female-dominated fields, especially if the mother stays home for longer than two years, and the average lost lifetime income for women who stop working to raise children for a while is $79,000, Koropeckyj said.

"A 10 percent increase in child care spending raises (workforce participation) by women with children by two-thirds of a percentage point,'' Koropeckyj said. "It has the important benefit of raising both women and children out of poverty.''

The plan will create a boom in child-care jobs

Early-childhood programs currently cost from 9 percent to as much as 36 percent of a working-class parent's wages, Warren said, citing a study from the Economic Policy Institute. According to the U.S. Department of Health and Human Services (HHS), child care is affordable if it costs no more than 10 percent of a family's income. By this standard, less than half (48.4 percent) of Alabama families can afford infant care, the EPI study found. The average annual cost of infant care in Alabama is $5,637, or $470 per month — that's equal to 70 percent of monthly rent cost in Alabama.

The cost of center-based infant care can take up between 27 percent to 91 percent of the average income of a single parent, according to a study from Child Care Aware of America that Warren cited.

Under Warren's proposed plan, the federal government would partner with local providers — including states, cities, school districts and nonprofits — to provide access to child care centers, preschool centers, and in-home child care. The idea is that the program will let families choose from a roster of federally-approved day care centers in their area that would be administered locally but subject to national standards and monitoring. Child-care and preschool workers would be paid comparable to public teacher pay.

More than a million child-care workers will get higher wages and more money to spend.
Elizabeth Warren
Democratic senator of Massachusetts

The programs would be voluntary, and modeled on childcare plans already provided to military families and through Head Start. Head Start requires the federal government to work with local partners to fit the specific needs of the community and ensures that child care providers offer early learning services. The military's universal child-care program covers more than 200,000 children of military families and is free or affordable for all the families, offering access to accredited child care options with well-paid and qualified child-care workers.

These two programs — and the federal government's block grant program for low-income family child-care support, which Congress increased in 2018 by $5.8 billion over two years — reach about 2.5 million children under the age of 5 at a cost of approximately $10 billion per year.

"More than a million child-care workers will get higher wages and more money to spend," Warren said in announcing the plan. "More parents can work more hours if they choose to, producing stronger economic growth."

Warren cited research from Nobel Prize-winning economist James Heckman of the University of Chicago that studied how early education can improve high school graduation rates and employment income, and reduce health risks. Work done by Heckman and co-authors also has shown that each dollar invested in child care produces more than $7 of discounted returns over the lifetimes of participants.

US is global laggard in government child-care support

And a review of studies by a Boston College economist Christina Olivetti and British colleague Barbara Petrongolo showed that nearly all developed nations have some form of subsidized early-childhood education. The U.S. spends only 0.4 percent of gross domestic product on early-childhood education, while Sweden spends four times that much and France, the United Kingdom and Finland spend three times the U.S. number or nearly so.

Women get more return, to their own income and prospects, from child care than almost any other investment designed to make juggling parenting and work, studies say. Its impact on female employment is three times large as that of paid maternity leave. Only flex-time scheduling, coupled with allowing parents to accumulate vacation days to devote to family issues, had a bigger effect, Olivetti and Petrongolo found in a study of policies of the Organization for Economic Cooperation and Development, or OECD.

"The United States has been an outlier in the adoption of family policies across high-income countries since the turn of the twentieth century," they wrote. "The female labor force participation in the U.S. has evolved into a pattern with very high rates of employment early in the life cycle, which then sharply decline with motherhood, which is being progressively delayed. ... With persistently low rates of labor force participation for women in their 30s and 40s."

Thirty percent of U.S. children live in single-parent households, according to Census data.

Of the 36 nations that are members of the Organisation for Economic Cooperation and Development, the United States is one of the least affordable nations for child care, as measured by percentage of family income. The United States also spends much less than other countries on helping families pay for child care costs. The OECD reports that the United States spends just 0.3 percent of gross domestic product (GDP) on early childhood education and care.

"Over the past 20 years, women's prime-age employment in the U.S. has lagged ever further behind the rest of the advanced world — at this point we're well below even Japan. And lack of child care is probably one main reason," noted New York Times columnist and Nobel Prize winner in economics Paul Krugman.

Corporations have been increasing child-care benefits

The U.S Chamber of Commerce Foundation went on a road show around the country last year to promote its evolving view on how improvements in access to child care will impact two generations of workers. The current tight labor market will worsen if more parents cannot enter the workforce, and the next generation of workers will not be as strong if early education fails them — a significant amount of research shows how critical early education is to development and career success.

Julia Barfield, senior manager of policy and programs at the Chamber's Center for Education and Workforce, said this is an issue where conversations are becoming higher priority and it is being recognized as a workforce issue.

"This is a complex challenge and many businesses are overwhelmed and unsure where to start," Barfield said.

One mistake a business should not make is thinking they need to do it all.

"We don't want businesses to get into the business of childcare. There is an already existing system around them. Tap into that. ... Going into it thinking there is nothing going on around you is unproductive. Context is crucial," she said.

The Chamber's Center for Education and the Workforce encourages corporations to first study their employee base and understand its needs, and then choose from a range of options to support employee child-care needs, including providing child-care centers at work sites, working to fund community child-care services, reserving spots within existing third-party programs for employees, funding backup child-care options for workers and pooling resources among small business to make the benefit cost-effective.

Child Care Aware estimates $4.4 billion is lost each year when employees are absent or less productive due to child-care issues; the Chamber has provided its own estimate of $3 billion lost annually.

We want 100 percent of businesses to be engaged in this issue for current employees and future employees.
Julia Barfield
senior manager of policy and programs at the U.S. Chamber of Commerce Foundation Center for Education and Workforce

One of the Chamber's messages on the issue is that companies need to directly provide child-care solutions to workers rather than depend on already cash-strapped government agencies. While she could not comment on Warren's plan specifically, Barfield said the federal government has a role to play.

"We believe everyone has role to play to create a system to address this issue, which is not only about recruiting and retaining skilled workers but making sure our future workforce is strong and globally competitive. ... This is a workforce challenge that is a crucial conversation to be having, and if we don't, we will never move the needle."

The Society for Human Resource Management's found that 7 percent of employers offer child care at the work site or nearby, according to its 2016 National Study of Employers. Only 2 percent help employees pay for child care through vouchers or other subsidies and only five percent offer backup child care.

Barfield said the Chamber's Foundation uses the SHRM work to help educate businesses, but it doesn't think in terms of quantitative yardsticks for measuring progress, except in one case: "We want 100 percent of businesses to be engaged in this issue for current employees and future employees."

Backup care has become a popular option

More companies are offering access to back-up child care, including Starbucks, which last year began to offer backup child care to all of its employees for $1 an hour in-home care and $5 per day center-based care. Best Buy offers full-time and part-time employees up to 10 days of backup childcare a year for both in-home and center-based care, including weekends and evenings, with a $10 co-pay for up to 10 hours a day.

The extent to which employers see these serviced as increasingly important can be viewed through the stock market performance of the largest provider of child-care services to employers. Many companies offer back-up care through early education company Bright Horizons Family Solutions, which has created and managed employer-sponsored dependent care and early education programs, including Home Depot.

Since a 2013 IPO (the second IPO in its history after being taken private by Bain Capital), Bright Horizon's client base has grown by about 30 percent, from 800 to 1,150. The back-up care line of business has experienced the most growth in new clients, and has doubled in revenue since 2013. The company's stock price has increased from a first-day closing price of $28 share on January 25, 2013 to over $120 today.

Last November its CEO, Stephen Kramer, told Wall Street analysts on an earnings call that the tight labor market continues to propel its growth.

"The conversations and discussions that we're having are really focused on the [war] for talent that exists sort of pervasively across industries. ... We're not hearing conversations about slowdown. We're really hearing conversations about how we can support them as employers to not only be employers of choice but also how we can help them to differentiate themselves from competitors in the market."

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