Panel Paper: Child Care Expenses and the Potential Role of Child Care Subsidies in Family Budgets

Saturday, November 10, 2018
Johnson - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Christopher Wimer, Stanford Center on Poverty and Inequality, Robert Paul Hartley, Columbia University and Marybeth J. Mattingly, Stanford University

Quality child care is expensive for families with young children. Indeed, for many families it is one of the largest monthly out of pocket expenditures. For others, quality child care may not be an option, pushing them to either rely on informal arrangements or remain less (or un-) attached to the labor force. In this paper, we take a closer look at the child-care situation faced by low-income and middle-class families. Using five years of the Annual Social and Economic Supplement to the Current Population Survey, we consider which families are being “pushed” into poverty and out of the middle class by child care expenses. Specifically, we use a Supplemental Poverty Measure (SPM) framework to consider which poor families would rise above their family’s poverty threshold if they did not have to pay for child care, all else being equal. We also look at which middle-class families would be pushed downward in the income distribution given their expenses. The SPM subtracts out-of-pocket child-care expenses (as a part of total work expenses) from total resources when calculating the poverty rate. We can therefore use the SPM resources measure to examine the total effect of child-care expenses on family budgets, in addition to how potential subsidies that reduce such expenses ameliorate these effects. We focus on families with young children, defined as those with a child aged 0-5, for whom child-care needs are most pressing. We consider variation by age of the youngest child, the number of children in the home, parent’s marital status, race/ethnicity, and parental educational attainment. Preliminary results suggest that among families with a young child who pay for child care, nearly a third of those in poverty would not be in poverty if families did not incur such expenses. Further, when defining middle class as the middle quintile of families' resources-to-needs ratios, about 9 percent of families with young children drop out of the middle class after accounting for child-care expenses. We will also explore how necessary child-care expenses factor into the budgets of families with young children across various income thresholds (e.g. by quintile, or low-income/middle-class status). Additionally, to better understand the need for quality child care, we will look at working families who do not pay for child care, examining how family resources would change if middle-class and lower-income families had to pay child care expenses equivalent to what middle-class families who pay for child care paid. Finally, we will simulate how the results above would change if affected families (both existing and simulated new payers) received child care subsidies that helped reduce their out-of-pocket expenses.