For most families, it doesn’t make sense to use paid child care in Indiana. It costs more than parents can earn through working.
Indiana’s legislature has struggled mightily with child care issues. Doing anything meaningful with legislation and spending is shockingly expensive. I have no short-term silver bullet to offer, and only one suggestion for long-term policy.
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Indiana has both child care and pre-kindergarten programs available to low-income households. These are the Child Care Development Fund Voucher Program and On My Way Pre-K. There are approximately 1.3 million Hoosiers under the age of 14, and more than 60,000 qualify for these programs, which have a low enrollment rate — there are only 7,000 students in the pre-K program.
There is only room for 183,000 children in licensed daycares in the state. There is no way to know how many of the 1.3 million children under 14 are in the care of family members. But at least one study found that child care costs consumed about 10 percent of the family budget in 1 in 3 Indiana counties.
Realizing cheaper childcare is a major challenge.
Childcare rules are not the problem
Indiana licenses child care programs and establishes staffing regulations. I have heard complaints about the cost of these regulations, and I am generally sympathetic to criticisms of the cost of regulations. However, the most expensive child care regulations involve staffing requirements.
I am no expert on child care, except for a memorable stint as a Sunday school teacher. In Indiana, one caregiver is allowed to supervise a maximum of four infants or five toddlers. That seems like a ceiling—and way beyond my skill level.
The problem is not so much regulation, but simply a problem of supply and demand.
Last month, two colleagues and I published a study of the supply and demand for child care in Indiana. The work, with Dr. Dagney Faulk and Madelyn Ponsier, a recent Ball State graduate, took the better part of a year. Our findings will surprise many observers.
We conducted a statistical test that measured the effect of changes in childcare employment on women’s labor force participation. Our model found that increasing childcare employment by 10% would increase the labor force participation rate of women aged 25-34 outside the childcare sector by 0.4%. That same increase in childcare workers had an effect about two and a half times greater for women aged 35-44.
Of course there are men who stay home to look after the children, but this is mainly a matter of women’s labour market experience.
Childcare workers can earn more money in retail
An interesting feature of our findings is how closely the results correspond to the staffing levels of child care programs. Mothers between the ages of 25 and 34 are more likely to have younger children who require more supervision. Their older sisters, between the ages of 35 and 44, are more likely to have older children who require less supervision.
Adding childcare workers therefore has a much greater effect on the labor participation of people between the ages of 35 and 44 than on the participation of people aged 25 to 34.
This part of our work is usefully seen as a proxy for the supply of childcare services. To explore that question further, we delve deeper into the effect of wages on people’s willingness to work in childcare. We found that to increase childcare employment by 10%, an overall wage increase of about 8% for childcare workers would be needed. Economists call this the elasticity of labor supply.
This industry is unusual in the size of the wage increase needed to stimulate employment. That makes sense when you compare child care worker wages to other industries with similar education requirements.
In 2022, the last full year for which we had data, the median child care worker earned $13.20 per hour. That same year, the median retail worker earned $5.10 per hour more, and the median transportation and warehousing worker earned more than twice as much as child care workers.
The typical child care worker has an abundance of labor market options available that pay much better for comparable skills. Any increase in the availability of child care facilities will require more people, and the only way to do that is through substantially higher wages.
There is no evidence that Indiana has insufficient training programs for child care workers or too few people willing to do the work. There is clear evidence that wages are too low to expand child care.
It is always good to realize that wages bring together supply and demand for labor.
For many families, childcare is not worth the cost
We also looked at the demand for child care. This part of our study was a simple accounting exercise of a family’s financial decision regarding child care. Our sample was a family of four, with one partner earning $57,000 a year, which falls just outside the highest threshold for child care support.
The question is, how does the decision to go to work pay off for that family?
Childcare costs were $5.28 per hour, per child — the average for our three cities. Next, we wanted to illustrate the net hourly wage a spouse could earn after subtracting income and payroll taxes and childcare costs. The results are shocking and illuminating.
At wages under $15 an hour, this family is losing money with a second working partner. As wages rise to $21 an hour, about the median wage for working women in Indiana, net income rises to just over $3 an hour.
To make $7.25 an hour (the minimum wage), this mother would need to make almost $27 an hour, or more than her husband.
It is therefore no wonder that so many families choose not to use paid childcare.
That doesn’t mean there aren’t any policy options. They’re just not direct child care policies. If Hoosier workers were paid better, the child care problem would solve itself. Wealthier families would be able to afford higher child care costs, and that would boost child care worker salaries.
Direct subsidies seem impractical in a legislature that consistently cuts education spending rather than increases it. My quick calculation is that child care subsidies would cost about half a billion dollars per age cohort under five, and half that for 5- to 14-year-olds. That’s up to $4.5 billion a year if every child participated.
The real, lasting cure for our child care problems is a long-term effort to better educate workers who can then command higher wages. The child care problem in Indiana is really a problem of educational achievement, nothing more or less.
Michael J. Hicks is director of the Center for Business and Economic Research and professor of economics at Ball State University’s Miller College of Business.
This article originally appeared on the Indianapolis Star: How Much Does Child Care Cost in Indiana? Too Much for Most Families.
