Child Care Subsidies, Low-Wage Work and Economic Development
Davis, Elizabeth E., Jefferys, Marcie, International Journal of Economic Development
Public spending for work supports like child care subsidies has been greatly increased in recent years to "make work pay' and to encourage the labor force participation of low-income parents. This study tracked changes in earnings and employment sectors over three years for parents receiving child care subsidies in Minnesota. Employment of these parents was more concentrated in a few sectors of the economy than for the workforce as a whole. The overall pattern of concentration of employment did not change over the three years, but parents who moved into or stayed in the health care sector received higher average wages and experienced greater wage growth. Given the importance of the health care sector for community development and projected future shortages of healthcare workers, opportunities for linking work supports like child care subsidies with training and employment in these fields could improve outcomes for both families and communities.
Public spending for work supports like child care subsidies has been greatly increased in recent years to "make work pay,' reinforced welfare legislative changes passed in 1996. "Work supports" are government programs intended to provide additional resources to working families with low incomes, and they include federal and state earned income tax credits, food stamps and child care subsidies. Over a ten year period, spending on work supports for low income families grew from $13 billion (in 2000 dollars) to over $70 billion (Haveman, 2003). A key public policy goal of these programs is to support low-income families who are working and who might otherwise apply for or return to cash assistance (welfare) programs such as Temporary Assistance for Needy Families (TANF).
This study focuses on low-income families who participate in the child care subsidy program. Recent research has demonstrated the effectiveness of child care subsidies in increasing the work effort of low-income parents (see for example, Blau and Tekin, 2001 and Tekin, 2004). The cost of child care is often high relative to workers' wages (Chase and Shelton, 2000), and public subsidies to help make child care affordable to families may increase the labor force participation of parents. Further, the expectation of many policy makers is that encouraging low income parents' employment will increase their work experience and will lead to promotions or better jobs, and, eventually, financial self-sufficiency. However, there is growing recognition in the welfare to work literature that the nature of the jobs many former welfare recipients obtain is unlikely to lift them substantially out of poverty in either the near or long term (Acs & Loprest, 2004, Loprest 1999, Burtless, 1995).
Affordable, quality child care plays an important role in enabling parents to work in the paid labor force. However, the role of child care in the economy extends beyond parents' workforce decisions. Recent studies have emphasized child care's "multi-faceted role" in the economy, including its linkages to local economic development. Increasingly, child care is recognized as an important economic sector in addition to its crucial role in the education and development of future workers (Warner, 2006, Warner & Liu 2005). For example, Ribeiro and Warner (2004) identify over three dozen studies completed or in progress that measure the importance of the child care sector to the local economy in specific states and local communities.
Economic development policies have traditionally focused on job creation in sectors with customers outside the local area (export-led growth). In contrast, Pratt and Kay (2006) describe the recent shift in economic development thinking to focus on the role of service sectors (including child care) as generators of local economic growth. At the same time, welfare policy has typically focused on getting parents off the welfare rolls and into jobs. …