Vice President Kamala Harris and U.S. Treasury Secretary Janet Yellen Source: Screenshot U.S. Treasury Facebook page

Forty years ago, U.S. Secretary of the Treasury Janet Yellen had the same problem that many of today’s parents do: Yellen needed a babysitter so she could go to work.

She placed a want ad seeking a sitter. Because both she and her husband were economists, they decided to offer a salary that was more than the going wage.

As Yellen explained last week in a speech about child care shortages:

“Classical economics says that it’s not rational to pay a worker more than the market rate, but we hypothesized it could be. The job might be an important one, for example, and a higher wage could encourage someone to do better work. That’s a completely rational reason to pay someone more, especially if the job is some of the most intimate work there is, which is caring for children.”

“Our hypothesis proved correct, at least in our own home. The advertisement led us to a babysitter who took wonderful care of Robert while George and I were at work.”

Today, parents face a far more dire situation.

“For the vast majority of Americans, the child care industry works in precisely the opposite way it worked for us,” Yellen adds, “which is to say it doesn’t work at all: Those who provide child care aren’t paid well, and many who need it, can’t afford it.”

Yellen’s speech marks the release of a new U.S. Treasury Department report that shares the hard facts of today’s child care market.

“Currently, the average family with at least one child under age 5 would need to devote about 13 percent of family income to pay for child care, a number that is unaffordable for most families,” the report says, adding:

“Less than 20 percent of children eligible for one of the largest federal assistance programs for low-income families, the Child Care and Development Fund, actually receives funding.” In addition, “margins for child care providers are low and many struggle to make ends meet. They survive by keeping costs low. Labor, the main input, is overwhelmingly provided by women, many of whom are nonwhite, who earn low wages leading to high turnover. Many child care workers are paid so little that they rely on public services for their own economic needs.”

Another problem: Families tend to need more expensive child care when parents are younger and earning less. As the report explains:

“The substantial costs of child care are largest, on average, in the five years after the birth of a family’s first child. These expenses arise when parents find themselves in the worst position to afford them; through their adult lives, this is when parental savings reach their nadir. By the time the median family’s first child reaches age 16, they will have over three times as much wealth as they did in those initial years.”

The report also points to the prevalence of child care deserts, noting:

“The Center for American Progress uses the approximately 75,000 census tracts (defined by the U.S. Census Bureau as encompassing roughly 4,000 people) around the country to identify areas where there are more than three young children for every licensed child care slot. Drawing on the notion of food deserts, they describe these areas as ‘child care deserts.’ Nationwide, over half of Americans live in child care deserts, and low-income and rural families are more likely to live in areas that are underserved.”

Yellen and the Treasury Department aren’t the only ones sounding an alarm.

The Center for the Study of Child Care Employment at the University of California Berkeley reports, “The early care and education sector suffered massive job losses due to COVID-19, exacerbating a workforce crisis that existed long before the onset of the pandemic. Recovery has been slow and is challenged as teachers walk away for higher pay at Target, Amazon, and the hardware store.”

Also speaking up are 127 economists and public policy scholars who write in an open letter:

“We, the undersigned, agree that long-overdue, comprehensive investments in affordable, quality child care must be a part of any major economic legislation. For decades, American families and in turn economic growth have been held back by the lack of modern care infrastructure, as working families have been forced to choose between work and caregiving, hampering female labor force participation and reducing productivity. Congress must seize this opportunity to finally support families and unleash economic growth.”

“Since the 1990s, child-care costs in the United States have grown at twice the rate of inflation. In the intervening decades, we’ve seen American women’s labor force participation stagnate and the U.S. transition from being a leader to a laggard in women’s labor force participation.”

What can help?

The Treasury report points to the importance of existing federal support and praises President Biden’s plans to make further investments. Biden’s universal preschool plan would “increase access to free, high-quality child care for all 3- and 4-year-olds in the country.” And the president’s paid family leave proposal would “complement child care services.”

In their letter, the 127 economists and policy scholars conclude:

“Now is the time to invest in the millions of low-income and middle-class households who are looking to Washington to find common sense solutions to their everyday problems. Congress supported the immediate relief needs for families and providers of child care, but now it’s time to tackle the long-term solutions that will spur our economy. Lawmakers should come together around the shared goal of supporting working parents, compensating our chronically undervalued child care workers, and building a fair and just child care system for our children and our economy.”

And in her speech Yellen wraps up the argument, saying:

“It’s past time that we treat child care as what it is – an element whose contribution to economic growth is as essential as infrastructure or energy.”