Childcare Can Increase the Labor Force

This is not a bad idea. It is one issue long over due and needed if we are to attract more people into the Labor Force. It should be government sponsored to cut the costs of it.

To Increase the Supply of Workers, Our Economy Needs Childcare, Roosevelt Institute, Mike Konczal

Tuesday February 23, the Department of Commerce announced the CHIPS for America Funding Opportunity. This action is a part of the bipartisan CHIPS and Science Act designed to rebuild the semiconductor industry in the US. My colleague Todd N. Tucker gave a rundown of the innovative safeguards and incentives that are included here.

Though it’s just one piece of an overall set of requirements, “applicants requesting Direct Funding over $150 million must submit a plan to provide their facility and construction workers with access to child care.”

As the “CHIPS for America Fact Sheet” notes:

This first-of-its kind commitment will also be essential to getting people and especially women, into the workforce. A recent review of research on childcare costs and women’s labor supply found that a 10 percent decrease in the cost of childcare leads to a 0.5 to 2.5 percent increase in maternal employment. The effect is even stronger for mothers with lower incomes. If women participated in the labor force at the same rate as men, there would be more than 10 million additional workers. Making it easier for women to join the workforce will therefore be critical to the success of individual projects and of the program as a whole.

An additional argument for why this requirement is especially important for our current economy:

While labor force participation has recovered quickly to 2019 levels since the beginning of the pandemic, levels were already too low and declining in 2019 (and in 2007, before the Great Recession). Strong demand, by itself, is not solving this problem. Instead, for the economy to continue to grow, we need policies boosting labor force participation.

There has been a remarkable recovery in the labor market over the past two years: At 3.4 percent, the unemployment rate is the lowest it’s been since the 1960s. The labor force participation rate also provides evidence for the quick recovery (PR is still off by 7 tens of 1% in 2020). Employment-to-population ratios have returned to near where they were before the pandemic, for all groups of people. For some groups, notably Black men, the rates are even higher than they were before the pandemic.

Simply returning to 2019 levels is not good enough. Recently, there has been a big debate among Federal Reserve economists over “missing workers” (who largely turned out to be in their 70s). This debate ignored one group of people from which we know many workers are missing: women.

Our social policy does not give people (in particular women and parents), the support they need to work jobs. Women’s labor force participation increased steadily throughout the 20th century, until it hit a ceiling of 60 percent starting in the late 1990s. It has since declined slightly. This level is well below peer countries, many of which offer more social services designed to help families and workers.

And for further context, Figure 2 shows the age distribution of employment-to-population across age groups in 2022.

Needed are policies continuously boosting labor force participation rates. Though it is possible, demand will pull people into the labor force. Government support in childcare can facilitate the process. Including myself, many people, hoped the demand alone would cause higher increases in labor force participation and reversing the decades of stagnation and declining rates. After two years of higher openings-to-unemployment ratios and other measures of a high labor demand, the increases in labor force participation should also be higher.

Just as we need physical infrastructure like roads to get workers to factories, we need social infrastructure such as childcare supporting workers, too. And just as any individual firms will have an incentive to try to compete away workers from peers in an already tight labor market, coordinating firms to increase participation overall is an important labor market move. Solving these kinds of investment and coordination problems is where the government plays an important role.

As our nation moves to build things, it is important to remember that supporting families is essential to expanding the supply side. As Treasury Secretary Janet Yellen argued in coining the term “modern supply side economics” in January 2022 to describe the Biden administration’s economic approach:

“Labor supply has been a concern in the United States even before the pandemic . . . The lagging labor force participation rate is driven in large part by a combination of factors that disincentivize work, such as inadequate paid leave and high childcare costs.”

Childcare is exactly the kind of thing getting lost in a narrow focus on supply chains and materials. Sponsoring childcare is one of the things we know matters for workers and especially mothers.