Population Research and Policy Review 9: 25-44, 1990. (~) 1990 Kluwer Academic Publishers. Printed in the Netherlands.

The labor force implicat ions of expanding the child care industry

DAVID E. BLOOM 1 & TODD P. STEEN 2 ~ Department of Economics Columbia University New York, New York 10027, USA; e Department of Economics Hope College Holland, Michigan 49423, USA

Abstract. This paper examines the labor force implications of increased social investment in the child care industry. We have two main conclusions to report. First, expanding the child care industry will remove a major barrier to employment for a sizable number of women. This includes women in middle and upper income families who desire to work for personal fulfillment and to improve their families' lifestyles. But even more so, it includes women in low-income and single-parent families who need to work to maintain a minimal and dignified standard of living and who might otherwise remain dependent on welfare benefits for their own and their families' subsistence. Second, expanding the child care industry will help employers cope with a range of personnel problems they will increasingly face as the U.S. undergoes a major transition in the 1990's from being a labor surplus economy to being a labor shortage economy.

Overview

The past three decades have witnessed remarkable changes in the labor market activity of American women. The 56 million women in the labor force in November 1988, 45 percent of the total civilian labor force, were more than double the number of working women in 1965. But even this large increase in the number of women in the labor force pales in comparison to the increased labor market activity of women with preschool children. More than half of all mothers with children under age 6 are currently in the labor force (i.e., employed, or unemployed but looking for work), compared to a ratio of only one-in-eight in 1950.

Despite the rapid entry into the American labor market of women with young children, many mothers are still prevented from working by the scarcity and high cost of quality child care. Rapid labor force growth over the past three decades due to the combined effects of the baby boom and the substantial influx of women into the labor market allowed employers and public pol- icymakers to pay relatively little attention to the many women who wanted to work - or to work more hours - but could not because of family responsib- ilities. But these women constitute a large and growing segment of the adult population and their employment needs will demand increased social atten-

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tion, especially as labor markets tighten through the end of the century.

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For most mothers of preschool-age children, the choice of whether or not to work is highly dependent upon the availability of child care. In the June 1982 Current Population Survey, 26 percent of mothers not in the labor force (with preschool children) said they would look for work if 'reasonably-priced child care were available.' This represents a potential addition to the workforce of 1.7 million women, a relatively large number of whom are drawn from eco- nomically disadvantaged groups. Among mothers not in the labor force living in families with annual incomes below 15,000 dollars, 36 percent reported that they would enter the labor force if reasonably-priced child care were available; among all single, divorced, widowed and separated mothers, 45 percent would enter the labor force.

For those women who are working, the cost and availability of child care can restrict the amount of time they are able to work. Thirteen percent of employ- ed women with preschool children (almost 700,000 workers) said they would work more hours if additional or better child care were available. No direct information is available on the extent to which some working women might want to work fewer hours if faced with lower child care costs.

The size of the U.S. labor force is no longer increasing as fast as it did throughout most of the post-World War II period. Employers are beginning to find it increasingly difficult to recruit new workers - especially in entry-level positions and low-wage jobs. These difficulties will become even more serious in the future as the 'baby bust' generation (children born between 1965 and 1975) continues to reach the working ages. By 1995, the absolute number of workers aged 20-24 will be 17 percent less than its 1979 level, while the number of teenaged workers will be 27 percent less (Fullerton, 1985).

There are potentially many policy responses - both public and private - to the problem of labor shortages. These include flexible scheduling, increased use of computers and other machinery in place of labor, and relaxed immigra- tion requirements. However, none of these responses is better suited- at least in principle- to satisfying the needs of employers and households, and simulta- neously promoting a variety of national interests, as policies aimed at expand- ing the child care industry and improving the quality of care. Such policies will enable many parents - especially women - to enter the labor force, to work more hours, and to enter more demanding and career-oriented occupations. In addition, they may lead to better morale, higher productivity, and reduced turnover among workers, thereby providing some relief to employers trying to recruit, retain, and motivate workers in increasingly tight labor markets. Expanding the child care industry might also ease the strain on government budgets caused by welfare payments made to many mothers not in the labor force. By making it easier for women to simultaneously work and care for their families, expanded child care might also help to boost flagging fertility rates

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and thereby mitigate problems associated with long-run projections of a 'birth dearth' (Wattenberg, 1987; Bloom, 1986).

Expansion of the child care industry will not be achieved easily, however. Child care workers are often young and are typically paid low wages, making it especially difficult to attract new workers into this industry during a period of slow labor force growth. Although some employers are now providing em- ployees with child care assistance, with benefits ranging from on-site child care centers to child care information and referral services, employer initiative in the area of child care is still in a state of infancy.

The main objective of this paper is to explore the labor force implications of increasing the pool of public and private resources devoted to the child care industry. We focus primarily on measuring the extent to which labor force participation and hours worked by women with preschool children could be increased by expanding the availability of child care. We also identify the socio-demographic groups that would benefit most from expanded child care and examine the strength of the demand for their labor in the future. Finally, we review private and public policies and policy options for increasing the availability of child care and discuss the positive justification for government intervention in this area.

Who needs child care?

One of the most salient demographic trends in recent years has been the growing number of single-parent families. From 1970 to 1986, female-headed single-parent families increased from 12 percent to 23 percent of all families with children (U.S. Bureau of the Census, 1988: 48). In such families, the single parent typically bears the full responsibility for both income generation and household management. Given the absolutely pressing need to care for their children and the lack of access to affordable child care, many single parents find it easiest to meet their responsibilities by applying for public assistance. For example, data from the National Longitudinal Survey for 1982 indicate that 57 percent of young mothers not in the labor force because of child care constraints received some form of welfare payments, with the average amount received totaling nearly 400 dollars per month. For the U.S. overall, 3.8 million families received AFDC benefits totaling 17.8 billion dollars in 1985 (U.S. Bureau of the Census, 1988: 353).

Expanding the child care industry would help to accomodate single parents' urgent need for child care, while at the same time promoting their economic independence, and thereby helping to limit the size of the U.S. welfare system. Some preliminary direct evidence on these linkages is provided by the experi-

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ence of Massachusetts' Employment and Training Choices Program (ET), under which day care assistance has been provided to welfare mothers while they are enrolled in a job training program and for one year after they are placed in a job. The cost of this program in 1986 amounted to 51 million dollars, approximately half of which was used for child care assistance for roughly 60 percent of the program participants. According to the program administrators, the program benefits amounted to 172 million dollars, in the form of savings on AFDC ($ 91.4 million), Food Stamps ($ 22.3 million), and Medicaid ($ 39.2 million), and from increased tax revenues ($18.6 million) (U.S. House of Representatives Select Committee on Children, Youth, and Families: 188-91). Unfortunately, this impressive benefit-cost ratio almost certainly overstates the true benefits since it is constructed under the assump- tion that all ET program participants would have stayed on welfare contin- uously in the absence of the program. This is a poor assumption because it ignores the regular flow of individuals off of welfare, which is likely to have been especially substantial among individuals who have self-selected into the ET program. On the other hand, the benefits may be understated to the extent that an individual's human capital is typically augmented by working.

The June 1982 Current Population Survey asked women who had preschool children and who were not in the labor force if they would look for work if child care were available to them at a 'reasonable cost.' Their answers can be combined with actual labor force participation rates to estimate the potential fraction of women who would work or seek work if child care were more widely and inexpensively available [1].

In 1982, 26 percent of women not in the labor force with children under age 5 (or 13.4 percent of all women with preschool children) said they would look for work if reasonably priced child care were available. Adding these women to the 48.1 percent already in the labor force yields a 'potential' labor force participation rate of 61.5 percent in 1982 for mothers with preschool children (see Table 1). This represents a sizable increase over the corresponding figure of 51 percent derived from the 1977 CPS. In the 1977 survey, 1.2 million women with preschool children - 10.3 percent of all women with preschoolers (or 17 percent of those who were not in the labor force) - said they would look for work if they had better access to child care.

Child care arrangements are an especially severe constraint on the labor market activity of never-married mothers with preschool children. Forty-eight percent of women in this group who were not in the labor force (or 24 percent of all women in this group) said they would look for work if reasonably priced child care were available. This yields a 'potential' labor force participation rate of 74 percent for this group of women in 1982, a substantially higher rate than the 50 percent who were actually in the labor force.

As a check on the reliability of the CPS child care data, we examined similar

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data contained in the National Longitudinal Survey Youth Cohort, a national- ly representative survey of women who were 14-21 years old in 1979. These data provide further support for the notion that the workforce participation rates of mothers with preschool children depend on the availability and price of child care services [2]. As in the Current Population Survey, non-working mothers in this survey were asked if they would look for work if reasonably priced child care were available. In 1982, 38 percent of respondents (then aged 18-24) said they would look for work. The potential labor force participation rate for 18-24 year olds in 1982 is 69 percent (50 percent actual participation plus 19 percent desired participation). This figure is quite close to the potential labor force participation rate of 66 percent for mothers aged 18-24 in the June

Table 1. Actual and potential labor force participation rates, for 18--44 year-old women with children under 5: June 1982.

Characteristic (1) (2) Potential Labor Force Actual Labor Force Participation Rate Participation Rate

Total 62 48 Race

whites 59 47 blacks 79 56 other 62 48

Region Northeast 52 39 North Central 63 50 South 64 49 West 61 49

Marital status married, husband present 58 46 separated, widowed or divorced 76 59 never married 74 50

Family income less than $15,000 65 45 $15,000 to $ 24,999 60 49 $ 25,000 and over 60 54

Age of youngest child less than 1 year old 57 41 one year old 61 48 two years old 65 51 three years old 63 51 four years old 64 54

Source: June 1982 Current Population Survey. Note: Column 1 represents the percentage of all women within the group who are actually in the labor force or who say they would look for work if child care were available at a reasonable cost.

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1982 CPS (47 percent actual participation plus 19 percent desired participa- tion), providing some confirmation of the reliability of the CPS data.

Although potential rates of labor force participation are just projections of the maximum level of participation in the labor force, and would probably not be fully realized, these results suggest that there exists a potentially large labor pool that could be tapped in the presence of more widely available and affordable child care. For instance, if just half of the women who said they were constrained by child care in 1982 could be brought into the labor force over the period 1990-1995, there would be a total addition to the labor force of roughly 850,000 workers, and the projected growth rate for the entire labor force over this period would increase by 13 percent, from 1.06 to 1.20 percent per year.

Potential labor force participation rates for women with preschool children vary by region of the country. In the South, according to the June 1982 CPS, 30 percent of all non-working mothers with preschool children said they would seek work if they had access to reasonably-priced child care, compared to only 22 percent of mothers not in the labor force in the Northeast. The potential labor force participation rates for women with preschool children are 64 percent for the South, 63 percent for the North Central region, 61 percent for the West, and 52 percent for the Northeast. The Northeast region also had the lowest rate of potential labor force participation in the 1977 CPS.

The most striking comparisons of labor force participation rates are between mothers in different educational categories. Only 35 percent of high-school dropouts who are mothers of preschoolers were in the labor force in June 1982, roughly 20 percentage points lower than the rate for mothers with college degrees. When women with less than a high school education were asked if they would seek work if more affordable child care were available to them, slightly over one third replied in the affirmative, yielding a potential labor force participation rate for this group of 59 percent. This figure is quite close to the potential participation rate of 61 percent for mothers who are college graduates (56 percent actual participation combined with 5 percent desired participation). The closeness of these figures seems to indicate that women with different educational attainment have similar preferences for work, but that the less-educated are unable to work because they cannot afford satis- factory child care.

Overall, the CPS and NLS data suggest the following profile of women who are most constrained from entering the labor force by their lack of access to affordable and satisfactory child care: young black women with little education living in single-parent low-income families (see Table 2). A similar profile emerges from the CPS data on women who say they would work more hours if 'reasonably priced child care were available.' Nineteen percent of blacks say they would work more hours compared to 12 percent of whites; twenty percent

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of never married mothers versus 12 percent of mothers whose husband is present; and 26 percent of those with family incomes under 5,000 dollars versus 8 percent of those with family incomes over 25,000 dollars (see Table 3).

Testing the accuracy of the data on potential labor supply

In the preceding section, we reported and analyzed estimates derived from the Current Population Survey of the fraction of mothers with preschool children who say they would seek work, or work more hours, if they had access to reasonably-priced child care. We confirmed the reliability of the CPS esti- mates by comparing them to similar estimates derived from one of the Nation- al Longitudinal Surveys. In the present section, we perform some simple tests of the consistency of these data on 'what people say they would do' in the hypothetical presence of reasonably-priced child care with other data more closely related to 'what people actually would do.' We do this by analyzing

Table 2. Percent of women not in the Labor Force who would look for work if satisfactory child care were available, by Demographic Group, June 1982.

Race blacks 53 whites 22 other 27

Region Northeast 22 North Central 25 South 30 West 24

Marital Status married, spouse present 21 never married 46

Income families with income < 5,000 47 families with 25,000 < income < 49,999 15 families with income > 50,000 4

Age mothers aged 18-19 43 mothers aged 20--24 35 mothers aged 35-39 18

Education college graduates 12 high school dropouts 36

All groups 26

Note: Women are aged 18-44, not in the labor force, and have children under 5. Source: Current Population Survey, June 1982.

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data from the 1982 NLS on (1) 'reservation wages' (i.e., the minimum wage required to induce someone to enter the labor force) reported by non-working mothers with preschool children and (2) market wages received by working mothers with preschool children. We also analyze the actual hours worked by working mothers as well as changes over time in the fraction of working mothers who report themselves constrained by the lack of reasonably-priced child care.

Our first empirical test is to determine whether reservation wages are closer to market wages for non-working women who say they are kept from working by the lack of child care than they are for other non-working women. The rationale for this test is the following: although reservation wages should exceed market wages for all non-working women (i.e., the women are not working because the wage they could earn is less than the lowest wage they

Table 3. Percent of working women who would work more hours if satisfactory child care were available, for selected Demographic Groups, June 1982.

Race blacks 19 whites 12 other 14

Region Northeast 15 North Central 12 South 13 West 13

Marital status married, spouse present 12 never married 20

Income families with income < 5,000 26 families with 25,000 < income < 49,999 8 families with income > 50,000 8

Age mothers aged 18-19 15 mothers aged 20-24 18 mothers aged 35-39 10

Education college graduates 11 high school dropouts 17

Labor force status part time workers 21 full time workers 9

All groups 13

Note: Women are aged 18-44, currently working, and have children under 5. Source: Current Population Survey, June 1982.

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require to accept a job), we would expect the women who say they are constrained by the lack of affordable child care to be 'closer' to entering the labor force than the unconstrained women. In other words, in comparison to a woman whose market wage is well below her reservation wage, it seems likely that a woman whose market wage is close to her reservation wage would seek work if she had better access to reasonably-priced child care since a given reduction in the price of child care (or a given increase in its availability) would be more likely to drive her reservation wage below her market wage.

Since there are no data on the market wages that would be earned by non-working women, implementing this consistency test requires that we estimate them. We do this by regressing working women's wages on their labor market characteristics (e.g., education, experience, race, region, age of youngest child, and marital status). We then use the regression results in conjunction with the known labor market characteristics of the non-working women to impute a market wage for the non-working women [3].

The average reservation wage for non-working women who say they are constrained by child care is $ 3.88 per hour, compared to an average market wage (which we estimated) of $ 3.83 (see Table 4). In contrast, the average reservation wage for non-working women who are not constrained by child care is $ 4.14, compared to an average estimated market wage of $ 3.96. For both groups of non-working women, average reservation wages exceed aver- age market wages, in accordance with our theoretical expectation [4]. More- over, the data suggest that those women who report that they are constrained are indeed closer (as a group) to entering the labor force than the group that is not constrained. Although not definitive, these results provide some support for the view that responses to hypothetical questions provide meaningful indicators of likely labor force behavior in the presence of 'more reasonably- priced' child care.

Our second test of the data focuses on the accuracy of working mothers' answers to questions about whether they would work more hours if they had better access to reasonably-priced child care. We judge the extent to which their answers are genuinely reflective of their likely behavior by comparing the market wages and child care costs of women who say they would not work more with women who say they would. We are particularly interested in determining whether the difference in the average wage between the un- constrained group and the constrained group exceeds the difference in their average child care costs. If so, the group that reports itself constrained is relatively less able on average to afford the type of child care it uses or would use, which is a perfectly sensible reason for identifying itself as being con- strained.

According to the NLS, the average hourly wage of working women with preschool children who said they would work more was $ 4.36, significantly

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below the average wage of $ 4.85 for the group of women who said they would not work more (see Table 4). In contrast, the average cost of paid child care was $1.16 per hour for the constrained women and $1.25 per hour for the unconstrained women (although 48 percent of the constrained women did not pay for any of their child care, in contrast to just 33 percent of the un- constrained women). Thus, it appears that those who say they would work more hours if they had better access to child care are less able to afford child care, even child care that is priced slightly lower.

A third test of the data attempts to determine whether working mothers who say they would work more hours if reasonably priced child care were available are actually working fewer hours than their unconstrained counterparts, hold- ing other characteristics constant, including the wage. Estimates of a regres- sion of hours worked on a variety of relevant labor supply variables using the

Table 4. Market wages, reservation wages, and child care costs, for mothers in the NLS Youth Cohort, 1982.

Mean reported Mean imputed Difference reservation wage market wage

NILF constrained 3.88 3.83 0.050 (0.057) (0.031) (0.059)

NILF unconstrained 4.14 3.96 0.179 (0.099) (0.044) (0.097)

Mean actual wage Mean imputed Difference reservation wage

ILF constrained 4.36 3.52 0.838 (0.241) (0.045) (0.215)

ILF unconstrained 4.85 3.74 1.106 (0.158) (0.070) (0.141)

Mean cost of child Percentage care (per hour) paying zero

ILF constrained 0.60 0.48 (0.08)

ILF unconstrained 0.84 0.33 (0.06)

Notes: The sample is all women in the survey aged 17-24 with a child under 5. Standard errors are in parentheses. NILF = Not in the labor force; ILF = in the labor force. For women not in the labor force, market wages were imputed from the estimates of a standard wage equation using data on working women. For women in the labor force, reservation wages were imputed from the estimates of a reservation wage equation fit to data for nonworking women. Source: National Longitudinal Survey Youth Cohort, 1982.

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CPS data reveals that working women who say they would work more hours were working 5 fewer hours per week (significant at the 1 percent level) than comparable women who said they would not work more hours (see Table 5). A similar difference - 4.6 hours per week - emerged from a comparable regres- sion fit to the NLS data. Thus, child care does indeed seem to be a major constraint on the hours worked by women who report themselves constrained.

One last issue deserving attention is the extent to which results based on the CPS data reflect the state of the business cycle in 1982, the latest year in which the Census Bureau asked questions about child care constraints on labor force participation. The national unemployment rate in June, 1982 was 10.3 percent, almost twice the rate of 5.5 percent that prevailed on average in 1988. Perhaps the relatively large proportion of mothers of preschool children who reported that the lack of affordable child care constrained their labor market activity was inflated by the depressed state of the economy. In order to test this hypothesis, we used the NLS data to calculate similar statistics for each year from 1982 to 1984. The results indicate that the fraction of women for whom child care is a labor market constraint was almost constant from 1982 to 1984. Since the national unemployment rate dropped from 9.7 percent to 7.5 percent during those years, the NLS data provide some indication that our results are not sensitive to the point in the business cycle to which they refer. On the other hand, the fraction of non-working mothers of pre-school children who report that they would seek work if they had access to reasonably-priced child care did increase from 17 percent to 26 percent between the June 1977 and the June 1982 CPS (a period during which the unemployment rate increased from 7.1 percent to 9.7 percent). Although the 1977 to 1982 change could partly reflect a secular increase in the degree to which the absence of reasonably-priced child care prevented women from working (as opposed to a pure business cycle effect), the NLS and CPS results are at odds with respect to this issue. Thus, we cannot rule out the possibility that the 1982 CPS data overstate somewhat the fraction of mothers whose labor market activity is constrained by the lack of affordable child care on average over the business cycle.

A shortage of labor?

From 1970 to 1985, the U.S. labor force expanded at a relatively rapid rate of 2.24 percent per year. However, from 1985 to 2000, the labor force is projected to increase at a much slower rate of just over 1 percent per year. This decline in the growth rate of the labor force is largely a consequence of the coming of age of the baby-bust generation, the slowing growth of female labor force partici- pation, and the dual trends toward increased educational attainment and early retirement.

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Table 5. OLS regression of hours worked on child care constraint and other standard labor supply variables, 1982 Current Population Survey and 1982 National Longitudinal Survey.

Dependent variable: Hours worked per week

Variables Coefficient (standard error)

1982 CPS 1982 NLS

INTERCEPT 39.437 (3.284) 8.322 (7.003) WAGE 0.461 (0.163) - 0.009 (0.002) AGE - 0.088 (0.087) 1.362 (0.305) EDUCATION - 0.638 (0.184) 0.034 (0.234) BLACK 2.918 (1.195) 0.886 (1.352) HISPANIC 4.564 (1.967) 0.315 (1.531) SOUTH 2.610 (1.059) 2.544 (1.455) NORTHE -1 .320 (1.196) -0 .986 (1.724) WEST 1.320 (1.057) 2.676 (1.746) MARRIED -3 .156 (1.161) -1 .402 (1.162) WORKMORE -4 .997 (1.156) -4 .566 (1.200) CASHPAY 5.157 (0.790) - - COSTPHOUR - - 0.001 (0.004) AGEYOUNG 0.419 (0.276) - 0.018 (0.042) INSMSA 0.533 (0.776) - 0.177 (1.140) R-squared 0.154 0.102 N 753 516 Mean of dependent variable 33.2 34.4

Key to variables: EDUCATION: SOUTH: NORTHE: WEST: WORKMORE:

CASHPAY: COSTPHOUR: AGEYOUNG: INSMSA:

Years of Education completed Lives in the South region Lives in the Northeast region Lives in the West region Would work more hours if reasonably priced child care were available Pays cash for child care Cost per hour for child care (in cents) Age of youngest child Resides in an SMSA

Sources: June 1982 Current Population Survey and 1982 National Longitudinal Survey Youth Cohort. Samples: 1982 CPS sample includes all women 18--44 with at least one child under 5 years old and with available wage and child care data. 1982 NLS Youth Cohort sample includes all women 17-24 with at least one child under 5 years old and with available wage and child care data.

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The number of teenage workers decreased 18 percent between 1979 and 1986 and is projected by the Bureau of Labor Statistics to decline an additional 11 percent between 1986 and 1995, for a total decline of 2.5 million teenage workers from 1979 to 1995. Similarly, the number of 20-24 year old workers is expected to decline by 2.3 million between 1986 and 1995, a decline of 15 percent (Fullerton, 1985: 20).

Changes in the size and the age structure of the labor force are already being reflected in national unemployment statistics. From 1982 to 1988, the national unemployment rate decreased steadily from a post-World War II high of 9.7 percent to 5.5 percent. In September 1988, unemployment rates were below the 'full-employment' level of 5 percent in 28 states. In that same month, unemployment rates were below 4 percent in many cities across the country, including Boston (2.7 percent), Minneapolis/St. Paul (3.2 percent), San Fran- cisco (3.5 percent), Milwaukee (3.4 percent), and Washington, D.C. (2.9 percent) (Bureau of Labor Statistics, 1988a: 114; Bureau of Labor Statistics, 1988b: 74).

Much of the decline in the national unemployment rate through the 1980's is due to the stronger growth of the national economy. However, the decline in the national unemployment rate also reflects a changing balance of supply and demand in the labor market for teenaged workers. For example, from 1982 to July 1988, the teenage unemployment rate declined from 23 percent to 15 percent, while the unemployment rate among individuals aged 20 to 24 de- clined from 15 percent to 8 percent.

Many employers have already begun to experience difficulties hiring new labor, especially in fast-growing urban areas. Many unskilled jobs that typical- ly paid minimum wages now pay well above the minimum wage as the U.S. labor market shifts from a buyer's to a seller's market. Over time, these changes will surely be felt even more widely through the labor market (see Bloom and Bennett, 1989). Some firms are responding to the tightening labor market by raising wages and benefits for skilled workers, or by promising more rapid promotion schedules. Scheduling of work hours has also become more flexible, with more companies allowing workers to choose their own hours or offering 'mother's hours.'

Over the long-run, the supply of workers to an economy is determined principally by three factors: number of births, net immigration flows, and labor force participation rates. The first of these factors, the number of births, affects the supply of workers with a long lag: people born this year will not enter the labor force for at least 16 years, and perhaps 20 to 25 years hence. It therefore follows that possibilities for the expansion of the U.S. workforce in the next 10-15 years are constrained by the size of the 'baby-bust' generation: the relatively small cohort born from 1965 to 1979.

The net immigration rate also affects the size of a country's workforce,

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especially because recent immigrants tend to have relatively high labor force participation rates and because immigration is highly selective of working age individuals. Unless there is a major change in current U.S. immigration policy, the number of legal and illegal immigrants to the U.S. is expected to hold quite steady for the rest of the century at about 600,000 per year, according to Census Bureau projections (U.S. Bureau of the Census, 1988: 14). However, the future labor force contribution of U.S. immigrants may be moderated by stricter laws governing the hiring of illegal aliens.

In practical terms, inducing labor force participation rates to increase may be the primary means of expanding the U.S. workforce. Male labor force participation rates have, however, been steadily declining and are projected to continue to decline through the year 2000 (Fullerton, 1987: 21). In contrast, large numbers of women seem to be willing to enter the labor force, as evidenced by the sizable differences between the 'potential' and actual labor force participation rates of women with preschool children. Increasing the supply of child care and making it more affordable would likely bring sub- stantial numbers of new workers into the labor force. Insofar as better child care would also allow many women who are already working to work more hours, the labor force impact would be magnified. Furthermore, if better child care does indeed increase women's labor market activity, it may also increase investments in the development of women's job skills, leading to even greater economic benefits.

Projections of employment growth through the end of the century indicate that a relatively large number of jobs will be available for new female labor force entrants, at all skill levels. Although it is expected that occupations requiring more education will experience the greatest employment growth (Silvestri & Lukasiewicz, 1987), above-average employment growth is also projected for many of the low-skill occupations that are currently dominated by women (see Table 6). For example, even if the proportion female in each occupation stays the same from 1986 to 2000, women's share of total national employment should increase slightly from 45 to 46 percent, because of the projected shift in national employment to jobs in which there are a greater proportion of women.

Expanding the supply of child care services means that additional workers will have to be attracted to work in the labor-intensive child care sector. In order to attract more child care workers, wages will have to rise and working conditions will have to improve, especially in a tight labor market. Ironically, higher wages would raise the cost of child care, making it even more difficult for many to afford, especially members of the urban underclass and other disadvantaged groups that tend to be bypassed by national economic growth. For women in these segments of society, financial assistance from both public and private sources may be essential if they are to have the increased access to

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affordable child care that will permit them to increase their labor market activity. Perhaps the growing number of senior citizens will provide a ready supply of individuals who are well-suited to working in the child care industry. Indeed, nearly one-in-eight employees of Kinder-Care, Inc., the nation's largest chain of child care centers, are over age 55 (Collins, 1987).

Government policies toward child care

Public policymakers in the U.S. have taken some actions over the past few decades to ease the financial burden of child care, but it has been quite limited compared to the policies of many other developed nations. Several attempts since 1971 to pass a comprehensive package of child care legislation have failed, leaving in this area a patchwork of direct and indirect programs at the Federal, state, and local levels.

The first financial help to parents came in 1954, when an amendment to the tax law allowed single-parent families and low-income two-earner families a tax deduction for certain types of child care expenses. In 1976, the Federal

Table 6. Occupations projected to have the largest job growth, 1986-2000, and the proportion female in those occupations, 1986.

Occupations Share of Share of Proportion employment, projected total female, 1986 job growth, 1986

1986-2000

Salespersons, retail 3.2 Waiters and waitresses 1.5 Registered nurses 1.3 Janitors and cleaners, including maids 2.4 General managers and top executives 2.1 Cashiers 1.9 Truck drivers, light and heavy 2.0 General office clerks 2.1 Food counter, fountain, and related workers 1.3 Nursing aides, orderlies, and attendants 1.1 Secretaries 2.9 Guards 0.7 Accountants and auditors 0.8 Computer programmers 0.4 Food preparation workers 0.9 Teachers, kindergarten and elementary 1.4 Receptionists and information clerks 0.6

5.6 61 3.5 76 2.9 95 2.8 41 2.7 40 2.7 83 2.5 5 2.2 80 2.1 65 2.0 90 2.0 98 1.8 21 1.8 46 1.6 37 1.5 55 1.4 87 1.3 90

Source: Silvestri and Lukasiewicz (1987) and United States Bureau of Labor Statistics (1987).

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government replaced this deduction with the Dependent Care Tax Credit. This credit, as it currently exists, allows a family to decrease its tax liability by up to 720 dollars for one child or 1440 dollars for two or more children. Families with incomes below 10,000 dollars can claim a tax credit of 30 percent of child care expenses up to $ 2400 ($ 4800 for 2 or more children). This percentage drops steadily from 30 percent to 20 percent for families with incomes of 30,000 dollars or more. However, the credit cannot be larger than the family's tax liability (i.e., it is nonrefundable), effectively reducing the benefit for many low-income families. In 1982, just 15 percent of families using the credit had incomes of less than 12,000 dollars. The Tax Reform Act of 1986 preserved the dependent care credit, making it one of the few large deductions still available to Federal taxpayers.

Kamerman and Kahn (1987) estimate that direct Federal funding for all child care programs (exclusive of the Dependent Care Tax Credit) decreased by 18 percent in inflation-adjusted dollars from 1980 to 1986, from 2.5 to 2.1 billion dollars (in 1986 dollars) (Kahn & Kamerman, 1987: 19). This decline is especially severe given the 29 percent increase in the number of working mothers with preschool children from 1980 to 1986. Between 1981 and 1985, many state governments decreased the nominal amount of funds independ- ently allocated for child care programs; in inflation-adjusted terms, child care funding was reduced in nearly all states.

Funds allocated to states under Title XX of the Social Security Act of 1975 are a major source of direct Federal subsidies for child care. Nominal expendi- tures on child care under this program fell from 600 million dollars in 1980 to around 400 million dollars in 1986. In addition, many states lowered their standards for the quality of care that centers must meet to be eligible for support under this program, while simultaneously relaxing their quality en- forcement policies.

The latest attempt for a comprehensive child care legislative package, the Act for Better Child Care Services, passed the Senate in June 1989. This bill would provide more direct subsidies to states for child care (and at the same time require states to develop better standards for child care) along with expanding the Dependent Care Tax Credit and making it refundable. This bill faces substantial opposition in the House of Representatives, however, and a possible presidential veto.

The United States' policy on maternity leave is an anomaly in the developed world. Although maternity leave can greatly facilitate child care for infants, no Federal statute guarantees a pregnant women the right to leave her job for a specified period of time and then to return to that same job after giving birth. Neither are there any provisions for cash benefits during the time a women is unable to work due to childbirth. Firms are required only to treat pregnancy and maternity in the same manner as any other temporary disability. If a

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company makes available some form of disability leave, pregnant women are eligible for coverage under that provision. However, no Federal regulation requires employers to provide disability insurance to their employees. Five states do, however, require employers to provide temporary disability insur- ance. In addition, many firms do provide some maternity benefits to their employees, as does the Federal government and some state governments. For many women, however, the only option is an unpaid maternity leave with no guarantee of reinstatement later.

In contrast to the United States, a number of other developed nations provide a generous set of child care and maternity leave benefits. For example, in France, all female employees are entitled to a maternity leave of six weeks before childbirth and at least ten weeks after, with a guarantee of returning to the same job at the same wage. France also maintains a system of preschools, open to all children 2-6 years old. Partially subsidized care is available for children under age 2.

Sweden, a country that has faced chronic labor shortages since the end of World War II, is another example of a country in which government policies toward maternity leave and child care have attempted to overcome the funda- mental incompatibility of raising children and participating in the labor force. Either parent is entitled to take a 12-month leave upon the birth of a child with a guarantee that the parent who was on leave can resume his or her old job upon returning to work. During the first nine months of this period the parent is paid 90 percent of his or her salary by the government (up to a ceiling of 180 percent of the average weekly wage) with a smaller fixed weekly benefit for the last three months. In addition, one parent has the legal right to work six-hour days (at proportionately lower compensation) until their child is eight years old. Parents are also legally entitled to 60 days paid leave per year per child to care for sick children at home.

Sweden also provides highly subsidized child care for working parents. Local communities organize and maintain child care centers to which parents pay about 10 percent of the actual cost of providing care. In addition, families receive a monthly allowance of about 50 dollars for each child they have. This extensive system of child care and maternity benefits has allowed many Swed- ish women with children to participate in the labor force, partly alleviating the national labor shortage (Burtless, 1987: 200-210). The labor force participa- tion rate of Swedish women aged 16-64 was 80 percent in 1985 (compared to 65.5 percent in the United States), with women comprising over 47 percent of the total labor force (in contrast to 45 percent in the U.S.) (Organisation for Economic Co-operation and Development, 1987). Swedish attempts to ease conflicts between work and family life provide many examples that U.S. policymakers may want to consider.

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Conclusion

This paper has attempted to contribute to the analytical basis for policy decisions on investments in the child care industry by identifying and research- ing selected labor market benefits associated with such investments.

We have two main conclusions to report. First, expanding the child care industry should remove a major barrier to employment for many women. This includes women in low-income and single-parent families who need to work to maintain a minimal and dignified standard of living and who might otherwise remain dependent on welfare benefits for their own and their families' subsist- ence. It also includes women in middle and upper income families who desire to work for personal fulfillment and to improve their families' lifestyles.

Second, expanding the child care industry will help employers cope with a range of personnel problems they will increasingly face as the U.S. undergoes a major transition from being a labor surplus economy to being a labor shortage economy. Expanding the child care industry may also enhance the productivity of American workers via reduced absenteeism and less stress on the job, although available evidence on this matter is mostly anecdotal.

Our findings support the view that additional resources should be devoted to the child care industry. Yet, they do not provide a sufficient basis for setting specific policies. In particular, they do not indicate, even crudely, whether an additional investment of, say one billion dollars, would yield five billion dollars in benefits or just one-half billion dollars in benefits.

There has been a general decline in the well-being of children and ado- lescents over the past two decades (as evidenced by their increased rates of alcoholism, drug abuse, suicide, fertility outside of marriage, and crime, and by the secular decline in standardized test scores) (Preston, 1984; Uhlenberg & Eggebeen, 1986). This period of time coincides closely with the extraordinary growth in the labor force participation rate of women with young children - a trend that seems quite irreversible. A great deal of supervision and care previously provided by the mother is now provided by a cadre of child care workers whose talents, training, and commitment to children vary widely. Since the government has a legitimate interest in safeguarding and promoting the well-being of its future adults, increased investment in the child care industry - especially in the quality of child care - may be justified on the grounds that it will reduce the potential risks inherent in present arrange- ments, and may also yield a large future return to society [5]. But much additional research is needed before these issues can be resolved in anything resembling - even remotely - a definitive manner.

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Acknowledgement

The authors are indebted to David Beede, Nell Bennett, Martin O'Connell, Jane Trahan, and Elizabeth Waksman for helpful comments and discussions, and to the Child Care Action Campaign and the Rockefeller Foundation's Gender Roles Program for financial support.

Notes

1. These calculations are similar to those performed in O'Connell and Bloom (1987). 2. Additional evidence on this point can be found in Blau and Robins (1988). They estimate an

average elasticity of the probability of labor force participation with respect to the weekly cost of child care of - 0.38 (i.e. a 1% increase in the weekly out-of-pocket cost of child care will result in a reduction in the probability of labor force participation of 0.38%).

3. This technique follows standard labor economics practice in estimating wage equations; for details, see Mincer (1974). Details of the technique and the full set of our results are available on request.

4. Although it is not central to our argument, it is also worth noting that market wages do exceed reservation wages estimated for working women in the NLS data - by more than the average hourly cost of child care. See Table 4.

5. For an examination of similar issues in the Australian context, see R. Anstie, et al. (1988).

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