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Child care, paperclips and the economy

Posted on 09/26/18 by in Basic Needs + Unemployment Insurance

Weekend economists on talk radio sometimes praise the sanctity of the “free market.” But some markets work better when states get involved with them. A great example is the child care market.

Indulge me in a little Econ 101 refresher.

In economics, anything that satisfies a human want is called a “good.” In our market-based system, child care is a good. If I want it, I can go purchase it from someone in my community.

In this way, child care isn’t that different from other goods, like paperclips, for instance. If I want a paperclip, I go to Staples and buy a box of them. If I want child care, I go to a child care center and enroll my toddler. I can compare paperclips based on price and quality and buy the ones I think most meet my needs.

But there are also some important ways that child care is different from paperclips. Child care quality is difficult to measure. Unlike a paperclip, where quality is predictable and varies little between brands, quality of child care is hard for a parent to assess and can differ dramatically from provider to provider.

Photo: United States Departmemt of Agriculture

Developmental psychologists have tried to address this measurement problem by creating the “Early Childhood Environment Rating Scale” and the “Infant/Toddler Environment Rating Scale,” two rating scales that correlate with positive outcomes for children. To help consumers assess quality, states implement rating systems, like Ohio’s Step Up to Quality program. Evidence shows these state ratings, which are usually based on things like teacher/student ratios, curriculum and teacher credentials, are generally correlated with better early childhood development on different tests.

Another difference is that paperclips don’t have what economists call “spillover effects.” If I have a paperclip, it does not usually improve the position of anyone around me. But if my child gets high-quality child care, it can benefit others. Children who have had high-quality child care tend to do better in school, earn more as adults, and be less likely to commit crimes. It also saves taxpayers money for later remedial education. That’s one reason that it makes sense for the government to help make high-quality child care available – especially to low-income families.

This brings me to my last point. With an annual cost of $7,000 to $11,000, child care makes up huge portions of low-income family budgets – much more than paperclips do on average. A single mother with one child who lives below the federal poverty line would have to spend half her annual budget on child care. The government can help this family stay afloat with cash or subsidies to help them pay for child care.

Everyone is better off when kids have a safe, nurturing place to be cared for. Maybe the paper clip market works fine pretty much on its own, but there is certainly a role for the state in the child care market.