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Carney: Low Unemployment Is a Big Problem for Elizabeth Warren’s Childcare Scheme

GLENDALE, CA - FEBRUARY 18: U.S. Senator and Democratic presidential candidate Elizabeth Warren (D-MA) pauses while speaking at an organizing event on February 18, 2019 in Glendale, California. Warren is attempting to become the Democratic nominee in a crowded 2020 presidential field and is the first candidate to have a …
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JOHN CARNEY

Sen. Elizabeth Warren proposed a government scheme this week to guarantee universal, affordable, high-quality child care for all American families.

Perhaps the most serious obstacle to the plan is not based just the magical mathematical models its advocates use to estimate its costs but something much more elementary:  the lack of childcare providers.

Professional child care is already very expensive in the United States. Nationwide, parents pay an average of $10,000 per child. In some of the more expensive regions, the cost can be double that. In certain Brooklyn neighborhoods, including Park Slope, parents pay even more than that–and even get shutout altogether if they do not apply early enough.

The high cost and lack of daycare slots is an indication that child care is supply constrained. As it is, women–and it is mostly women working in daycare centers–demand a lot of money to do the work of raising the young children of other women. Increasing the number of women doing this work would mean pulling them away from jobs they already have–which means paying even more.

In the language of economics, the supply curve of child care slopes upward. Each new unit of child care is more costly than the last. And there are very few offsetting economies of scale. If it takes 5 caretakers to look after 20 children, it takes 2o to look after 100. You might save a bit on bookkeeping, but that is a trivial cost compared to hiring the army of new child-minders.

Warren’s scheme is an enormous undertaking. She envisions nearing doubling the number of children in daycare from 6.8 million to over 12 million, which would mean doubling the number of caretakers. And, as discussed here, Warren is likely underestimating the number of children that would be enrolled in the subsidized Baby Warrens.

To be fair, the economists who examined the plan for Warren estimate it will cost more per child than the average today. But their analysis shows no sign that they are aware of the upward sloping supply curve for caretakers. As a result, they have almost certainly underestimated the cost of the Baby Warrens.

The people lured into working in the Baby Warrens would have to be lured out of jobs where they are currently productively employed.  The worker shortage in child care would be pushed off to other parts of the economy. This would have a negative effect on economic growth because subsidized child care would be competing with private businesses for labor.

This makes it highly unlikely that Warren’s plan would deliver the promised economic benefits. While it may draw some women into the workforce by paying for their child care–which increases growth–it also draws women who are already in the workforce into child care. In effect, the economy would be substituting the labor of those currently out of the workforce for those currently in the workforce. That is likely to diminish productivity and economic growth.

In very different economic circumstances, this might not be an insurmountable obstacle. If the U.S. was swamped with excess labor capacity–that is lots of folks out-of-work or under-employed–Warren’s plan would be a jobs plans as well as a childcare plan. But most economists believe the U.S. labor force is at or near full employment. Creating a national program that would shift people away from where they are needed by the private sector into the new government childcare sector would certainly be problematic.

Indeed, current economic trends indicate that we’re likely to see many of the benefits promised by Warren’s plan come around through the operations of the markets. Employers swamped with demand for their products and desperate for workers will likely raise wages and benefits and attempt to keep young mothers working or induce them to return to the workforce sooner by offering childcare benefits. These efforts will also face challenges by the low-supply of labor, of course, but the additional costs will come out of corporate profits rather than taxpayer dollars. Any boost to the economy from expanded child care will come about with or without Warren’s plan.

In many ways, Warren’s plan suffers from that old dilemma of the generals who are always fighting the last war. It is a plan built for a very different economy, the pre-MAGA economy that prevailed when Warren was elected and Barack Obama was president.

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