Panel Paper: Child Care Costs, Subsidies, and Poverty: The Case of California

Thursday, November 8, 2018
Jefferson - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Caroline Danielson1, Sara Kimberlin2, Sarah Bohn1, Marybeth J. Mattingly3, Christopher Wimer4 and Jonathan Fisher2, (1)Public Policy Institute of California, (2)Stanford University, (3)University of New Hampshire, (4)Stanford Center on Poverty and Inequality

More than one in five children in California (21.6%) live in families that lack sufficient resources to meet basic needs (Wimer et al, 2017). According to the Supplemental Poverty Measure (SPM), California’s poverty rate is the highest in the nation. The question of how to better meet the basic needs of children and their families preoccupies California policymakers. This paper will assess the role of child care subsidies in mitigating poverty within the framework of a state-specific SPM.

The 2015 California Poverty Measure (Bohn et al, forthcoming), a SPM-like measure that combines American Community Survey (ACS) microdata with aggregate administrative data on social service provision, indicates that the mechanical effect of zeroing out work-related commuting and child care expenses yields a 18% reduction in child poverty (or a rate 3.8 percentage points lower). Thus, these work expenses are on par with the largest social safety net programs--the federal Earned Income Tax Credit (EITC) and the Supplemental Nutrition Assistance Program (SNAP)—which each lower child poverty by 18-19% (holding all else equal).

However, work expenses are driven by commuting costs, not child care expenses. This is because only about 15% of all children live in families with out-of-pocket child care costs. Among children under 6 living in poverty, only 8% have reported out-of-pocket costs. At the same time, the vast majority of poor young children live in families at least one adult is working (83%). Together, these facts imply substantial unmet need for child care among poor working families; and/or child care needs met almost entirely by subsidized programs; and/or families substantially underreport child care costs.

Relatedly, our current approach to imputing employment-related child care costs in the CPM relies on a predictive model developed in the Current Population Survey (CPS). The CPS in turn asks respondents to report out-of-pocket costs for child care. This implies that—unlike for major means-tested cash and near-cash programs—we cannot specifically assess the poverty mitigating effects of child care subsidies within the CPM framework.

This study proposes a methodology to overcome these limitations. We will consider key sources of free or subsidized child care—Child Care Development Fund subsidies, Head Start, and several state-only programs—and use a set of auxiliary datasets to impute child care and child care costs for 2016 ACS respondents in California. Key auxiliary datasets include the California Health Interview Survey (CHIS), which asks about types and out-of-pocket costs of child care, the California child care Regional Market Rate Survey, and several sources of disaggregated counts of children receiving care in free or subsidized settings.

The federal budget for the Child Care and Development Block Grant will nearly double by $2.4 billion for FY 2018. Within this policy environment, it is of interest also to consider how much additional poverty reduction could be achieved by expanding access to subsidized care. We will accomplish this within a framework of considering the dynamic responses of parental employment to an environment of means-tested, but otherwise non-rationed child care.