Equitable Growth: The child care economy [feedly]

The child care economy
https://equitablegrowth.org/research-paper/the-child-care-economy/

How investments in early care and education can fuel U.S. economic growth immediately and over the long term

Fast facts

• Insufficient child care options can prevent parents who wish to work from doing so, with mothers often bearing the brunt of this challenge. Among parents who wish to work, child-rearing tends to interfere more with women's labor supply and employment outcomes than with men's. This leaves potential economic growth unrealized, as women's labor force participation is significantly associated with Gross Domestic Product growth.
• High-quality early care and education provides critical socialization and learning opportunities when the brain is developing rapidly and is particularly responsive to the outside environment. Young children in pre-Kindergarten programs experience positive developmental outcomes and are better prepared for school, scoring higher than their peers on standardized measures of reading, spelling, math, and problem-solving skills.
• Adequate funding is necessary for human capital development. Fully funding the subsidy programs and devoting resources for state-level agencies to assist providers in qualifying for subsidies are two ways in which greater public investment could increase child care availability and quality.
• Supporting child care workers is crucial for promoting quality care and human capital development. Using public funds to support higher compensation would help stabilize the child care workforce, ensuring that these workers can afford to stay in their jobs.
• Investing in the nation's children is one of the safest bets policymakers can make. Research on early care and education programs finds that $1 in spending generates $8.60 in economic activity.

Fact Sheet: What the research says about the economics of early care and educationDownload

Overview

U.S. workers and their families are largely on their own when it comes to child care, despite evidence that the provision of child care delivers immediate and long-term economic benefits. For working parents facing competing priorities and lacking many child care options, the current child care market in the United States gives them a lot to consider. Do I trust this child care provider with my child? How much will care cost? How close is this child care provider to my home or school? Are the hours compatible with my schedule? Is the environment safe, friendly, and stimulating for my child?

What parents probably aren't considering is how their child care choices can reverberate throughout the U.S. economy. From a macroeconomic perspective, however, child care decisions writ large are hugely consequential, whether it's how families purchase care and what type of care to how these decisions affect the family breadwinners' employers and then, the broader economy.

Despite the important role child care plays in U.S. families' lives and the economy, the private market remains largely insufficient in meeting their needs. With more parents in the workforce, fewer children are living with a full-time, stay-at-home caregiver than in prior decades.²¹ Yet rising demand for child care has not translated into a similar rise in the supply of affordable, high-quality care.²²

Roughly half of children live in so-called child care deserts, where there are insufficient licensed child care slots available to care for the local children. Even when parents can find care, it is often too expensive, exceeding the cost of public college in many states.²³ And despite these high prices, child care workers are some of the lowest paid in the U.S. economy, subsisting on poverty wages that threaten their own families' economic security.

This child care crisis in the United States did not develop by chance. The crisis is the result of decades of policy decisions that deprioritized helping families for the sake of arbitrary budget constraints and fears over, in the words of President Richard Nixon, the supposed "family-weakening implications" of a child care system that facilitates maternal employment—devaluing the critical work of women, primarily women of color, in the process.²⁴

Publicly funded Kindergarten through 12th grade education has been the national norm for decades, yet the same approach has not been applied to early care and education—a term that encompasses traditional child care, pre-Kindergarten, and targeted programs such as Head Start. Policymakers at the local, state, and federal level have instead allowed a child care system to develop in which accessing care is treated as a matter of personal responsibility rather than a public goal, despite growing evidence that investing in a high-quality child care system is sound economic policy for all.

Researchers and scholars are now confirming what many parents already knew: The current child care market does not meet the needs of working families.²⁵ This is not simply an issue for families with young children—accessible, affordable, and high-quality care also has the potential to generate substantial economic activity and growth that benefits the entire U.S. economy.²⁶ This occurs by:

• Freeing up parents' time and ability to work in the short term
• Supporting positive human capital development among children in the long term
• Improving working conditions and pay for millions of low-income child care workers

Unfortunately, the current child care market leaves these potential benefits to the U.S. economy unrealized. Public investment in child care can help correct this failure, facilitating economic gains for families, businesses, and the economy as a whole.

This report will explore the economic potential of an accessible, affordable, and high-quality child care system in the United States. The report begins by reviewing the research on how early care and education can boost short-term growth by facilitating labor force participation among parents. The report then discusses the significant long-term economic growth potential of high-quality care as it pertains to childhood development, school readiness, and other socioeconomic outcomes. It then analyzes how the United States can unlock this growth potential through greater public investment.

The report closes with a discussion of the overarching benefits of policies that aim to address the child care crisis and set the U.S. economy on the path for sustainable, broad-based growth. The bottom line: Addressing the child care crisis can improve families' immediate economic security and well-being while accelerating U.S. economic growth in the long term.

Where are families finding care? Early care and education arrangements in the current child care market

Relative care, in which a grandparent, older sibling, or other relative looks after the children while their parents are at work, is the most common child care arrangement for U.S. families. But about one-third of preschool-age children's families opt for a nonrelative arrangement. Nearly one-quarter of preschoolers whose parents work outside the home are cared for in a formal care facility—including child care centers, preschools, or Head Start. A smaller percentage, about 1 in 10, engage in what is known as home-based care, or child care delivered in the provider's personal home or the home of the individual child. 

Each type of care offers unique benefits, as well as unique challenges, that families must weigh. Informal family care via family, a friend, or a neighbor may be more accessible and come with a lower price. This kind of informal arrangement may offer individualized care with a familiar and trustworthy caregiver, may be responsive to the family's language and culture, and may be the most flexible in meeting the needs of families, including those who have children with disabilities or parents working nontraditional hours.

But in some cases, informal care also can be unstable, impose costs on the relative or friend caregiver, or offer fewer educational opportunities. Formal, nonrelative care may provide more consistent quality of care and socialization opportunities but at a higher price with less flexibility. A robust child care market should support a diverse set of child care options so families can find care that best meets their unique needs and preferences—without sacrificing affordability or quality.

Source: Lynda Laughlin, "Who's Minding the Kids? Child Care Arrangements: Spring 2011" (Washington: U.S. Census Bureau, 2013), available at https://www.census.gov/prod/2013pubs/p70-135.pdf.

Early care and education supports immediate U.S. economic growth

The economic story of the 20th century United States may be the expansion of women entering the U.S. labor market. While many women, particularly women of color and all single mothers, were in the labor force for centuries already, changing social norms and economic necessities around the Second World War prompted more married women to pursue careers outside of the home. 

The shifting demographics of the U.S. workforce helped heteronormative, two-parent families remain economically stable, with gains in women's hours worked and hourly pay offsetting loses by male earners over the decades.²⁷ Women's greater U.S. labor market participation also has been an economic necessity for single parents, mostly mothers, with whom roughly one-quarter of children live.²⁸

A modern economy benefits when more people engage in the workforce or receive education or training to obtain a better job. At the same time, the private early care and education market has failed to address the greatest challenge facing many families: how to care for children when parents go to work or school. This apparent deficiency in the private market is likely hampering economic growth.

Indeed, following the explosive expansion of women in the workforce in the middle of the 20th century, labor force participation rates have stagnated in recent years. Economists and policymakers now suggest that insufficient child care and caregiving policies are preventing the United States from reaching its full economic potential.²⁹

Insufficient child care options can prevent parents who wish to engage in the workforce from doing so, regardless of gender, but it is women who often bear the brunt of this challenge. Research using time-diary data—where participants record the number of minutes they spend each day on different activities—consistently finds that women still have the primary responsibility for child-rearing in most families. This is true regardless of family structure.

In one study, single, cohabiting, and married women spent up to twice as much time—4.8 hours, 5.8 hours, and 6 hours per day, respectively—on child care as comparable single, cohabiting, and married men, who spent 3.2 hours, 3.4 hours, and 3.1 hours per day, respectively, on child care.³⁰ It is therefore unsurprising that among parents that wish to work, child-rearing tends to interfere with women's work in the economy and their employment outcomes more than it does for men.³¹ As a result, policies that alleviate child care concerns would be expected to primarily improve maternal employment, though all parents would benefit.

Such improvements could lead to meaningful changes in the U.S. labor force. Growth in women's labor force participation has slowed since the 1990s, and as of 2019, there remains a significant gender gap between the participation rate for men (69.2 percent) and women (57.4 percent).³² As documented elsewhere, the caregiving implications of closed schools and child care centers, along with other social distancing measures during the coronavirus pandemic, has only served to widen this disparity. The divide is largest for Hispanic workers, with an 18.5 percentage point difference in labor force participation between Hispanic woman and Hispanic men.

The United States once enjoyed a more sizable advantage, compared to its economic competitors, but U.S. labor force participation among prime working-age women now falls below the average of large, economically comparable nations. Gains in women's labor force participation in a country is associated with higher Gross Domestic Product.³³ U.S. GDP ranks high, compared to other nations, yet the nation's insufficient care infrastructure may be leaving economic potential unrealized. (See Figure 1.)

Figure 1

Put simply, when child care allows parents to work and the number of workers in the labor force increases, the economy grows. In this manner, the immediate consequences of providing child care are readily evident.

Accessible and affordable care helps ensure that parents who wish to work can do so

A new parent or new parents in the United States often encounter a pressing paradox after the birth of their children. With new children come new costs—approximately $12,980 annually per child for middle-income families.³⁴ These costs could induce parents to return to the workforce after childbirth or even enter it for the first time. Doing so, of course, requires finding appropriate care for their new child or children, which can be costly and complicated. If a parent is not confident that their child or children are in a safe and nurturing environment through the day—because they cannot find or afford high-quality care—then the parent or parents may need to forgo work to focus on caregiving, which solves child care concerns but not their economic situations.

Differences in the labor force participation of mothers exemplifies this paradox. While maternal labor force participation has increased since the 1970s, participation rates are lower for mothers with younger children. (See Figure 2.)

Figure 2

Younger children generally require more intensive care and staff time, and as a result, child care for this age group is pricier than for older children. In 2019, the average annual price of center-based care was between $11,444 and $11,896 for infants and between $9,043 and $9,254 for 4-year-old children.³⁵These high prices, in the absence of subsidies or other discounts, can force working parents to find lower-cost informal care, either with family, a friend, a neighbor, or an unlicensed provider—even if it is not the family's preferred or the most stable option—or start making hard choices about their own employment arrangements.

Accessible and affordable child care can reduce this care-work conflict for families. Research by Taryn Morrissey at American University and by Chris Herbst at Arizona State University and Burt Barnow of George Washington University suggests that when child care is affordable and geographically accessible, parents, particularly mothers, are more likely to enter or reenter the workforce.³⁶ In fact, economists have long demonstrated that when the price of child care decreases, maternal employment increases.

In one economic model, for example, fully subsidizing child care costs so that parents paid nothing rather than an average of $89 per week (in 2021 dollars) increased the rate of maternal employment from 37 percent to 87 percent.³⁷ The exact relationship between child care costs and maternal employment varies across studies, with researchers typically finding that a 10 percent reduction in child care costs increases maternal employment by 0.25 percent to 11 percent.

Recent U.S.-based research suggests more modest, but still significant, associations between child care costs and maternal employment.³⁸ While researchers are still examining the exact magnitude of the price-employment relationship, the direction of that relationship is clear: When child care is less expensive, parents participate in the labor force at a higher rate. Intuitively, these gains are generally strongest among women with young children.³⁹

Affordability of care clearly affects parental labor supply, but accessibility is an important consideration as well. Child care could be free, but if families can't use that care because of where it is located, the hours it is available, the language spoken by care providers, or the accommodations available to their children, then their child care challenges remain unsolved.

A 2018 analysis by the Center for American Progress estimated that half of U.S. families live in so-called child care deserts, census tracts where there are three or more children under age 5 for each licensed child care slot.⁴⁰ Families in these deserts must compete for limited slots, travel long distances to licensed care, rely on informal or unlicensed care, or forgo work in order to stay home and care for their children. So, it's not a surprise that a 2007 study using data from Maryland finds that when the geographic supply of care increases, so does the labor supply across the community for all women.⁴¹

When accessibility is a challenge, finding new child care arrangements when initial child care plans fall through can be particularly difficult, potentially pulling parents out of the labor force. A 2008 study of mothers in low-wage jobs found that 19 percent stopped work entirely in the same quarter in which they experienced a disruption to their child care arrangements, compared to only 9 percent who did not experience such a provider disruption.⁴²

Employers who worry about employees not having stable access to child care discriminate against parents in their hiring decisions, which makes securing employment even more difficult for people with children.⁴³ In particular, researchers have identified a persistent "motherhood penalty" in employers' hiring decisions, in which mothers, but not fathers, are perceived to be less competent and committed to their work, resulting in fewer opportunities and lower wages for women.⁴⁴

Facilitating greater labor force participation among mothers may be a source of significant economic growth in the United States due to stagnation in women's labor force participation growth rates in recent decades and, most recently, the decline in their workforce engagement amid the coronavirus pandemic. Greater labor force participation results in greater household economic security, greater consumer spending, and a larger tax base to fund productive government expenditures—such as infrastructure and education investments—that can all contribute to economic growth.⁴⁵

In one recent estimate, increased employment due to accessible, affordable care was predicted to, over the course of a lifetime, increase a mother of two's earnings by about $94,000, leading to an additional $20,000 in savings and $10,000 in Social Security benefits.⁴⁶ But without accessible and affordable child care options, too many parents will remain outside of the workforce, and greater economic gains will remain unrealized.

Stable child care supports businesses with a more reliable and productive workforce

While the literature on the growth potential of child care primarily focuses on the perspectives of families, there is evidence that employers stand to gain from greater access to accessible and affordable child care as well. When children are sick and can't attend their care arrangements, or the care providers themselves are sick, closed, or otherwise unable to look after children on short notice, working parents may be unable to report for their regular shifts, or their concern for their child's well-being may distract them and decrease their productivity when they do report to work. Disruptions in child care arrangements can thus reduce worker productivity, lead to staffing challenges, and harm businesses' bottom line.

When parents are unable to report to work due to child care concerns—which is sometimes referred to as absenteeism—then they may lose out on a day's pay, and their employers lose out on a day of productivity, or even more. Research suggests that workers with high absence rates are more likely to report high productivity losses when they are back at work.⁴⁷

Even when parents dealing with child care disruptions do report to work on time, they may be distracted finding a care solution and also are less productive—a phenomenon known as presenteeism.⁴⁸ Recent research on presenteeism, conducted primarily in the context of worker illness, shows significant and costly productivity losses for employers.⁴⁹ Helping workers avoid or manage these disruptions, therefore, should be a priority for employers, as well as policymakers.

Employers may be more likely to offer and advertise child care solutions for their high-wage workers, but productivity gains may be the greatest when low-wage workers are provided with adequate care options.⁵⁰ Research shows that disruptions to child care are more common among lower-income mothers, while mothers with more resources, including higher income and education levels, tend to have an easier time locating backup care.⁵¹ While the social networks that highly resourced parents can access may play a role in this disparity, lower-income mothers are also less likely to have access to family-friendly work policies, such as on-site child care, sick leave, and flexible and predictable work schedules that can help smooth the disruptions caused by interruptions in care arrangements.⁵² Access to such family-friendly policies, in addition to dependable child care options in families' local communities, can help mitigate these challenges and the potential productivity loss from unstable care.

Early care and education supports long-term economic growth

High-quality care helps children develop their human capital, the key to long-term U.S. economic growth. The research in the prior section of this report demonstrates that stable, accessible, and affordable child care can lead to short-term economic growth through increases in parental employment and reduced absenteeism/presenteeism. Additionally, high-quality early care and education has the potential for long-term economic growth, as the young children receiving care develop their human capital preparing for school and beyond.

Traditional child care and early learning programs, such as pre-Kindergarten programs and Head Start, have long been considered separate services for families. But no matter where a child is cared for, many of the ingredients for high-quality and stimulating care are the same. As the ongoing coronavirus pandemic makes clear, early learning and school is a form of child care, and child care is a place for learning and development. Completely separating the two is not possible.

Both so-called universal care and targeted care (see sidebar) provide socialization and learning opportunities that are critically important in the early childhood years, a time when the brain is developing rapidly and is particularly responsive to the outside environment.⁵³ When children are cared for in a supportive, nurturing environment, either by family members or professionals, there are physical changes in their brain development associated with positive long-term outcomes. High-quality, positive caregiving can even mitigate harmful developmental outcomes associated with poverty and high-stress environments, suggesting an important role for early care and education in addressing inequality and the intergenerational cycle of poverty.⁵⁴

Targeted care and universal care are both effective at developing the human capital of the next generation

Early care and education programs may be broadly categorized by the populations they serve. Targeted programs serve children in distinct socioeconomic groups, such as Head Start or the Perry Preschool program.Universal programs serve all children in a community or age range pending available slots.

Research suggests that children from low-income or disadvantaged backgrounds may experience greater benefits from high-quality care than their peers. So, when several evaluations of intensive, targeted early care and education programs showed promising results, scholars and policymakers cautioned that such outcomes may not translate to the broader population attending universal programs.

Yet several evaluations of universal pre-K programs in Oklahoma, Massachusetts, and elsewhere suggest that the benefits of high-quality early care and education extend to all children, not just those most in need. These studies point to significant human capital developments across the board, which is essential for broad-based and stable economic growth in the long term.

Over the years, a robust literature evaluating the effects of early care and education programs—primarily focused on formal pre-K initiatives—finds evidence of positive developmental, education, social, and economic outcomes among participants. In several evaluations of Tulsa, Oklahoma's universal pre-K program, researchers found that the experiences and lessons learned in the program translated to enhanced school readiness. Participants in that Tulsa program scored better than their peers on standardized measures of reading, spelling, math, and problem-solving skills.⁵⁵ Many of these effects were still discernable at least through the students' time in middle school.⁵⁶

Likewise, participants in the famous Perry Preschool program, a 2-year targeted early care and education intervention for low-income Black children, also presented higher test scores and school readiness in the years following the program.⁵⁷And for both intensive, targeted programs, such as Perry Preschool and Head Start, and universal programs, such as the Tulsa pre-K system, improvements in school readiness were robust across racial, ethnic, and socioeconomic categories, further adding to the evidence that high-quality early care and education can potentially mediate the harmful effects of inequality.⁵⁸

These effects also are likely to persist in the long term.⁵⁹ In a follow up to the original 1960s Perry Preschool study, when former students were 40 years old, past participants were significantly more likely to be employed, high school graduates, and earning more than their peers who did not complete the program. They also experienced significantly less involvement with the criminal justice system.⁶⁰ (See Figure 3.)

Figure 3

A more recent 2021 evaluation of a universal pre-K program in Boston, Massachusetts took advantage of the program's random lottery enrollment system to provide strong evidence on its long-term effects. Like the more targeted Perry Preschool program, participants in Boston's universal preschools were more likely to graduate from high school by 6 percentage points, complete the SATs by 9 percentage points, and enroll in college on time by 8 percentage points, compared to similarly aged peers not selected through the city's lottery system. Participants were also less likely to experience high school suspensions and involvement in the juvenile justice system.⁶¹

In helping children avoid negatives experiences with high economic costs—such as getting pulled into the criminal justice system—and experience positive outcomes associated with higher economic gains—including high school graduation and college enrollment—the research literature provides a clear mechanism by which high-quality child care and pre-K programs would be expected to boost workers' earnings and our nation's economic growth. Other factors—including the impact of pervasive structural racism and the ebbs and flows of the business cycle—can negatively impact one's lifetime economic trajectory. But the long-term research strongly suggests that kids who get started in a high-quality early care and education program may be better positioned to weather these challenge as they grow into tomorrow's breadwinners and parents themselves.  

There are multiple beneficiaries from this positive relationship between child care and employment. Families of the future earn higher incomes and experience greater economic stability. The broader economy benefits from higher consumer spending. And businesses enjoy a larger, better-educated, and more skilled labor force from which to draw employees.

Reaping benefits for the macroeconomy through robust investment in care

A growing research base shows the economic potential of high-quality child care and pre-K programs. Various estimates by early childhood researchers and economists suggest that every dollar spent on early care and education initiatives generates $8.60 in economic activity in the long term, primarily through the increased earnings of care participants.⁶² Yet the United States does not have an early care and education system capable of delivering these benefits on a large scale. The failure to realize this potential is no accident: It is the result of decades of policy decisions that treat child care as a personal responsibility that can be met by the private market, despite decades of evidence that this is a failed strategy for families.

Greater public investment in early care and education offers multiple benefits. It can reduce the out-of-pocket spending for families, helping parents who wish to work outside of the home to do so. It also reduces the child care industry's exposure to macroeconomic conditions, ensuring that child care remains an available support to families in recessions, as well as periods of stronger growth. Finally, greater public investment can increase the supply of high-quality care—key to human capital development and long-term economic growth.

Behavioral and market constraints on parents when financing early care and education

While the price tag of child care seems staggeringly high, child care is not overpriced. Most research estimates that the benefits of care far exceed the cost, and the price does not support adequate compensation for the child care workforce. As a result, providers and families are both bearing the costs of an inadequate child care system. Providers cannot afford to charge any less, and families cannot afford to pay any more.

But if the benefits of child care are so significant, as the research suggests, then why are parents not simply paying the costs necessary to support high-quality care as dictated by the market, whether that involves paying more from savings, working more, or borrowing to cover costs?

As described by economists Sandra Black and Jesse Rothstein in their 2021 essay on Boosting Wages for U.S. Workers in the New Economy, a purely theoretical model would suggest that families should collateralize their children's future earnings in order to obtain loans that can cover the cost of care if they are unable to afford it out of pocket. This is how many families fund their children's higher education.

In the real world, however, this does not happen, in no small part because such loans are nonexistent in the public or private market. Even if loans were available, Black and Rothstein argue that parents would be unlikely to take on such costs and risk, in part because most economic benefits are accrued by their children in future decades.

Further, it is likely that the long-term private benefits of high-quality child care visible to families—think more free time to engage in work, alongside developmental and socialization opportunities for their children—are smaller in magnitude than the public benefits of developing a more diverse labor force, a better-educated community, and fewer acts of delinquent or criminal behavior. It is difficult to jeopardize one's present family budget—particularly when families are still young and finances are tight—in the name of long-run societal good. As a result, families will purchase cheaper, lower-quality care than what might otherwise be optimal for the economy—or indeed forego purchasing care all together.

Increased public investment can offset deficiencies in the private market

Research in the previous two sections of this report demonstrates that accessible, affordable, and high-quality child care can contribute to short- and long-term economic growth. For many of the long-term benefits discussed—cognitive development, school readiness, and better economic, educational, and social outcomes in the future—quality is the key ingredient, particularly for children from disadvantaged households.⁶³

But care costs money, with one significant expense being a well-trained and educated workforce that requires fair compensation, and high-quality care costs even more. Yet private purchasers of child care—families or their employers—often don't have room in their budgets for high-quality care or, indeed, for any care at all.⁶⁴

Increasing public spending to account for the cost of quality and to increase the scale of care provision is critical to help the economy realize the growth potential of early care and education. This is the general model of the primary and secondary public education system in the United States. Communities have long recognized the long-term benefits of a better-educated public and devoted public dollars to finance basic K-12 education for all children.⁶⁵

As with the nation's K-12 system, early care and education delivers public benefits that far offset the costs, yet the private child care market is ill-positioned to recognize these public benefits and provide the quality and quantity of care that would be socially and economically optimal.

There is already evidence that existing public investment in early care and education can yield promising outcomes, but overall public investment remains too low and too limited to a subset of low-income families. Communities with universal public pre-K education, including the District of Columbia, West Virginia, Oklahoma, and elsewhere, are already enjoying higher early education enrollment and long-term social and economic benefits, but the availability of universal pre-K is geographically limited and still unavailable to millions of families.

Robust subsidies ensure families can afford the care they need and contribute to the labor force when they choose

Reliable and robust public spending can lower the out-of-pocket costs for families to purchase care, thus reducing the costs parents must pay in order to engage in work. Currently, child care subsidies represent the chief mechanism for public child care investment in the United States. The main source of child care assistance is the federal Child Care and Development Block Grant program, which provides funding to states to help families afford care, as well as to invest in improving the quality of care.

Several decades of academic research demonstrates a significant association between access to child care subsidies—which decrease families' child care costs—and increased labor force participation, hours worked, and wages among mothers.⁶⁶ These results generally hold across family structure and income level.

In one 2020 study, for example, a 10 percent increase in child care subsidies was associated with a 2 percent increase in employment among married mothers, while prior research indicates that a $100 increase in block grant subsidies would be expected to increase employment among single mothers by 2 percentage points.⁶⁷These findings are perhaps unsurprising, given the related literature on the costs of child care and maternal labor force participation. The findings are nonetheless encouraging in that they show that the public policy mechanisms already in place can be effective in reducing costs and increasing employment.

Despite this promising research, too few families can access the child care subsidies they need to purchase appropriate care and engage in the workforce. In recent years, the U.S. Congress has significantly increased funding for the Child Care and Development Block Grant. Even so, annual funding remains below its peak in the early 2000s, adjusted for inflation and excluding COVID-19 emergency relief funding. And the number of families receiving subsidies has declined even as the eligible population grows.

To contend with there being a greater need than there are available subsidies, some states limit access by setting lower income thresholds far below the maximum allowed under federal law, set other restrictive eligibility criteria, institute wait lists, and/or simply fail to provide outreach to let families know that help is available. A recent report by the Government Accountability Office, the nonpartisan investigative arm of the U.S. Congress, estimates that in 2017, 13.5 million children ages 0 to 12 were eligible for subsidies under federal rules and 8.7 million were eligible under state rules, but only 1.9 million children actually received subsidies for their child care.⁶⁸ (See Figure 4.)

Figure 4

Fully funding child care subsidies to support all low-income families and expanding eligibility for those in middle- or higher-income brackets is critical to inducing parental labor force participation and economic growth in the short term.  

Stable public funding ensures child care is available to support families and macroeconomic growth

Currently, the early care and education system in the United States is chiefly funded through parent fees, meaning out-of-pocket tuition payments by families enrolling their children in care. As stated above, the sticker price of child care—whether in center- or home-based settings—can be exorbitant. Some families may have the economic means to pay these prices for their child care needs, but many more will be unable or unwilling and will instead seek out alternative arrangements.

Research shows that when the cost of formal care rises, families transition to informal or family-based care arrangements and may even forgo work to care for their children at home.⁶⁹ In other words, when families' economic conditions or child care prices change, so too do their decisions on the types and amount of care to purchase. This can lead to financial instability for formal providers unable to compete with the informal market on prices.

Reliance of parent fees leaves the child care market particularly exposed to broader economic trends. When parents are laid off, they often can no longer afford child care and may pull their children from care. Because profit margins are so thin, if just a few parents pull their children from care, then the child care provider may need to lay off staff—or even temporarily suspend operations entirely—to stay in the black.

Recent research demonstrates how this exposure is both significant and asymmetrical: Every 1 percent decline in a state's overall employment is associated with a 1.04 percent decline in child care employment, but every 1 percent increase in a state's overall employment is only associated with a 0.75 percent increase in child care employment.⁷⁰ Even when the economy is in recovery and newly employed parents wish to enroll their children back in care, there are inherent delays while the child care industry rebuilds capacity lost during weaker economic times. 

To put it another way, when the economy is in decline, child care declines faster, but when the economy is in recovery, child care recovers slower. This can cause a dangerous drag on growth as economic declines damage a child care market that is essential for allowing labor force participation and economic recovery. Therefore, an overreliance on parent fees for child care poses risks not just to families and care providers, but also to the economy overall.

Increasing public financing for child care can help blunt this trend. Research shows that public investment helped care providers weather the economic turmoil unleashed by the coronavirus pandemic and recession. Child care programs that received public funding, rather than solely relying on parental fees, were better able to retain their enrollment and staff during the coronavirus recession.⁷¹

In that respect, the pandemic experience of these programs with public funding was similar, albeit not as stable, as that of publicly funded K-12 education systems. Despite temporary closures and changes in enrollment, parents could be generally confident that their local public schools would still be there when it was time for their child to return in person. The same could not be said for their privately funded child care providers.

Even during the most restrictive periods of the pandemic, when multiple states had stay-at-home orders in place, pre-K and Head Start programs benefited from the stability offered by public investment and were able to largely maintain pre-pandemic hiring plans. Conversely, child care systems that primarily rely on parental fees saw a more significant decline in hiring during that period.⁷² This slowdown in hiring contributed to a significant contraction in the child care workforce in the early months of the pandemic that was sustained through 2021. (See Figure 5.)

Figure 5

Adequate funding and caregiver support is necessary for quality caregiving and improved human capital development

Subsidies are important, but they alone are not the silver bullet that will fix the child care crisis in the United States. While many studies find a positive relationship between parents receiving subsidies and maternal employment outcomes, the literature on subsidies as they relate to the quality of care—a critical ingredient for long-term growth—is more mixed.

In some studies, parents receiving subsidies are more likely to purchase formal care, select care that is higher-rated on measures of language, cognitive, and social growth, and be more satisfied with the care they use overall.⁷³ Yet similar studies find little direct evidence between existing subsidies themselves and enhanced childhood development and academic achievement, particularly among lower-incomes families.⁷⁴ Put simply, the U.S. subsidy system is not paying for quality in child care, so parents and the nation get what we pay for.

The current subsidy system is not sufficient in supporting the type of care that fosters children's human capital development for two primary reasons. First, subsidy amounts are generally low, primarily covering the cost of workers' low salaries and leaving insufficient funds for providers to meaningfully invest in the activities and materials that promote quality caregiving and improved human capital development.⁷⁵

Second, when the Child Care and Development Block Grant was reauthorized by Congress in 2014, it included new quality and safety standards that providers must meet to qualify to receive child care subsidies. These requirements are critical in ensuring children are safe and families can be confident in the quality of care their children receive. Unfortunately, Congress did not allocate sufficient funds to assist all providers in meeting these standards.

As a result, many smaller providers, particularly in the home-based sector, continue to struggle without additional support.⁷⁶ These providers were already dealing with low pay and poor working conditions, contributing to a decades-long decline in the number of licensed home-based providers.⁷⁷ Whether these licensed providers are exiting the market completely or transitioning to the underground, unregulated market, the results are the same: fewer subsidy-eligible providers in whom families can be confident in the quality of care their children receive. (See Figure 6.)

Figure 6

Fully funding the Child Care and Development Block Grant so that providers can receive subsidies in line with the cost of high-quality care is one way in which greater public investment could increase the availability and quality of child care for working families. Another is devoting resources for state-level agencies to assist providers in qualifying for subsidies.

Additionally, regulators and social service agencies at the federal, state, and local levels should invest money and manpower so that all child care providers—including small independent child care centers, licensed family child care homes, and so-called family, friend, and neighbor, or FFN, providers—have the resources and guidance they need to meet any requirements and navigate the process to receive subsidies if they choose to do so. Such supports would raise quality across provider types and ensure a range of child care options to meet families' varied needs.

But public investment also must come in the form of targeted funds and initiatives designed to raise quality standards for all children and providers, not just those entwined with the subsidy system.⁷⁸ Supporting child care workers is central to promoting quality caregiving and improved human capital development.

One factor that researchers have pegged as particularly meaningful to quality is caregivers' qualifications and training.⁷⁹ Some promising methods for supporting the early education workforce while raising quality and worker pay in the process include:

• Providing programmatic support and funding for improved preparatory training programs for providers
• Internship and student teaching opportunities
• Professional development opportunities
• Coaching, consultations, and mentoring⁸⁰

Most importantly, however, is the need to financially support the workers that care for our nation's children. The child care workforce is one of the lowest paid in the U.S. economy, contributing toward high turnover in the profession—and high stress among those providers who remain in the field. All of these baleful outcomes undermine the quality of care children receive. With a median hourly salary of $12.88—or $26,790 per year—many child care workers lack economic security and stability for their own families.⁸¹ Using public funds to support fair compensation would help reverse the decades-long undervaluing of these workers' labor, promote spending and saving in their own households, and, importantly, stabilize the workforce by ensuring that these workers can afford to stay in their jobs.⁸²

Greater public investment could spur economic growth, offsetting short-term costs

Greater public investment in the child care market is necessary for the United States to unlock the full growth potential of an accessible, affordable, and high-quality early care and education system. Meaningful public investment in child care should have the goals of:

• Promoting family economic security through a combination of employment participation and lower costs
• Stabilizing the precarious child care market, thus ensuring adequate supply of care in communities with the most need
• Supporting high-quality care by assisting providers in meeting licensing standards, providing targeted training and professional development support for workers, and fairly compensating workers so that they can support their own families and remain in their careers

Economic theory and empirical evidence reinforce that early care and education remains a smart investment. Research on public financing and how nations achieve economic growth in the long term continuously point toward the importance of investing in human capital.⁸³ After all, it is people who develop the products, processes, services, and technologies that translate to a more productive and efficient economy. Recent public finance models suggest that human capital spending in the long term is one of the most effective ways in which government spending is translated into an economy's well-being and should therefore be a priority for policymakers who seek to spur economic growth.⁸⁴

In other words, investing in people is often a safe bet, and investing in the nation's children is one of the safest bets policymakers can make. As documented above, research on both targeted and universal early care and education programs find significant internal rates of return: Economies can earn approximately $8.60 for every dollar invested in the long run.⁸⁵

Making the necessary investments to actualize these returns will involve a greater commitment from the public to supporting the child care market. But doing so would be a commitment that should pay off handsomely for the nation and the economy.

Growth that is strong, stable, and broadly shared will only be achieved by making choices that prioritize robust public investments in people and communities and sustain the workers and families who are the foundation of our economy. High-quality early care and education is worth the cost, and now, with the cost of borrowing at record lows, policymakers can prioritize investments in the nation's care infrastructure at an effective discount, further accentuating the short- and long-term economic benefits from an accessible, affordable, and high-quality child care system.⁸⁶

Conclusion

The intentional neglect that policymakers in the United States have inflicted on the early care and education market is preventing the U.S. economy from reaching its full potential. The country loses a competitive advantage as growth in mothers' labor force participation stagnates and labor force participation for all women falls below peer nations. Children in our country are missing out on important educational and developmental opportunities when the quality of care is too low.

The research evidence also strongly suggests that a more accessible, affordable, and high-quality early care and education system can reverse these trends by inducing women's entry into the labor force in the short term and promoting critical human capital development in the long term.

The short- and long-term economic potential of early care and education suggests tremendous benefits from these programs to the general public. These benefits tend to spill out of the private market and into the public sphere, but the private market is unlikely to purchase the quantity and quality of child care that would yield the most economic growth.

Enhanced, targeted public investment can correct for these deficiencies in the private market by reducing out-of-pocket costs for families, stabilizing the supply of care, and raising the level of quality across care types. By making these investments, the economy stands to enjoy a significant rate of return—approximately $8.60 in benefits for every $1 in costs.⁸⁷

Working U.S. families should not have to struggle to find safe, convenient, and high-quality care options for their children. By neglecting the child care market for decades, policymakers have shifted the burden of child care onto the shoulders of families already bearing the weight of child-rearing, employment, and other responsibilities at home—despite research evidence that the public has the most to gain from a functional and equitable child care system.

Addressing the child care crisis has the potential to improve families' economic security and well-being while accelerating economic growth in the short and long term. To do so, policymakers must unburden families with meaningful, targeted, and evidence-based investments in the nation's early care and education system. The alternative—continuing to neglect this crisis in care—could be too costly to bear.

About the author

Sam Abbott is a family economic security policy analyst at the Washington Center for Equitable Growth.

Acknowledgments

The Washington Center for Equitable Growth would like to thank the researchers, scholars, and policy experts who participated in the September 2020 research convening, "Kick-off Roundtable on Accessible and Affordable Child Care." Their scholarship, insight, and experiences informed the content of this report. Additionally, special thanks is owed to Rasheed Malik, Laura McSorley, Taryn Morrissey, Melissa Boteach, Karen Schulman, and Whitney Pesek for their assistance, review, and feedback on drafts of this report.

The post The child care economy appeared first on Equitable Growth.

 -- via my feedly newsfeed

Tim Taylor: International Corporate Taxation: What to Tax? [feedly]

Without stronger international governance, progress on global corp tax avoidance may be blocked by too many competing interests. Also, such governance is unlikely before much stronger consensus on the principles of peaceful coexistence is won.

International Corporate Taxation: What to Tax?
https://conversableeconomist.wpcomstaging.com/2021/09/16/international-corporate-taxation-what-to-tax/

There have been news stories in the last month or two about broad-based support across 130 countries for a minimum corporate global tax rate of 15%. The common assertion is that a minimum tax rate will be a powerful discouragement for companies that are trying to use accounting methods to shift their profits to low-tax countries. But the problem of international corporate taxation is considerably harder than agreeing on a minimum tax rate.

Ruud de Mooij, Alexander Klemm, and Victoria Perry have edited a collection of essays that lays out the issues in Corporate Income Taxes Under Pressure: Why Reform is Needed and How it Could be Designed (IMF, 2021).

Imagine a hypothetical of a multinational company. It's a US-based firm with management and headquarters in the US. However, the company owns subsidiary firms in a dozen other countries that support its global production chain, and it sells its products backed by a substantial advertising/marketing in several dozen other countries. When all is said and done, the firm makes a profit. But was the profit generated by the US-based management of the country? By the production units in other countries? By some combination of these two? What about the countries where the actual sales take place?

It's easy to make this example a little more complex. What if the multinational company also owns a management consulting arm, based in non-US country #1, an insurance arm based in non-US country #2, and a research and development facility based in non-US country #3. Again, these different branches happen within the single firm, but all their services to the firm are provided digitally–without any physical product that ships across national borders. The firm will need to make decisions about what it is reasonable to pay each of these parts of the firm–and to decide what part of its overall profits (if any) are attributable to each arm of the company.

Finally, remember that each country along the production chain has two goals: it wants to encourage economic activity to happen within its own borders, and it wants some share of corporate tax revenues for itself. Some countries will put a stronger emphasis on attracting economic activity; others will put a stronger emphasis on collecting revenue. Some countries may reason that if they attract economic activity with low corporate taxes, they can instead collect tax revenue with value-added taxes or payroll taxes as production happens. Each country will write its own corporate tax rules, perhaps following the same general pattern, but also with its own favoritisms and politics built in. For example, countries may impose a certain corporate tax rate, then also have other provisions in the tax code, or other agreements about what kinds of public services will be provided to the firm, which make the effective corporate tax rates lower. Moreover, it is a general rule of international corporate taxation that a company should not be taxed more than once on the same earnings.

In thinking about the appropriate tax rules for multinational corporations, generalized statements of support for a 15% minimum rate (even if that support holds up when tested in the fiery furnace of practica politics) doesn't begin to address the issues at hand. The question is not so much the tax rate (15% or another level), but which governments have the right to tax what parts of the production chain.

In Chapter 3 of the book, Narine Nersesyan lays out these issues in "The Current International Tax
Architecture: A Short Primer." She writes (citations and footnotes omitted):

When a business activity crosses national borders, the question arises as to where the profits resulting from that activity should be taxed. In principle, there are at least three possibilities for assigning a taxing right:

• Source: the countries where production takes place
• Residence: the countries where a company is deemed to reside
• Destination: the countries where sales take place

The generally applied tax architecture for determining where profits are taxed is now nearly 100 years old—designed for a world in which most trade was in physical goods, trade made a less significant contribution to world GDP, and global value chains were not particularly complex. … The current international tax framework is based on the so-called "1920's compromise". In very basic outline, under the "compromise" the primary right to tax active business income is assigned where the activity takes place—in the "source" country—while the right to tax passive income, such as dividends, royalties and interest, is given up to the "residence" country—where the entity or person that receives and ultimately owns the profit resides. The system has, however, evolved in ways that considerably deviate from this historic "compromise," and international tax arrangements currently rest on a fragile and contentious balance of taxing rights between residence and source countries. …

While domestic laws of each individual country set out the rules … the international taxation system is—very importantly—overlain with a network of more than 3,000 bilateral double-taxation treaties. These typically add (among other functions) a layer of definitions and income allocation rules that try to bring into alignment, and therefore can alter, the rules imposed by the individual signatories. … The key role of the international tax architecture is to govern the allocation of taxing rights between the potential tax-claiming jurisdictions to avoid both excessive taxation of a single activity and a nontaxation of a business activity.

The problem of how to allocate the profits of a multinational company across the different activities that it carries out in a range of countries is a genuinely sticky one, as each country grabs for a slice of the pie. But there are now companies that are incorporated in one country, with management and control operations in another country, and assets and jobs and still other countries.

Different chapters in the volume look at possible policies for taxation for multinational companies, including source-based taxation (although figuring out "the source" of profits is going to be tricky); residence-based taxation (although figuring out the real residence (or residences?) of multinational firm is going to be tricky); destination-based taxation (which would allocate the worldwide profits of a multinational according to where sales ultimately occur–and you can just imagine how a country with big exporters who sell elsewhere like that idea); or a formulary approach (which attempts to resolve all of these issues through a formula that includes all of these elements).

I don't mean to offer nothing here but the counsel of despair. I'm sure there are steps that can be taken to discourage companies from booking a large share of their profits in jurisdictions where almost none of their actual operation takes place. But rethinking the roots of multinational corporate taxation in a way that would be acceptable to politicians in most countries is a genuinely herculean task.

 -- via my feedly newsfeed

Black and brown workers saw the weakest wage gains over a 40-year period in which employers failed to increase wages with productivity [feedly]

Black and brown workers saw the weakest wage gains over a 40-year period in which employers failed to increase wages with productivity
https://www.epi.org/blog/black-and-brown-workers-saw-the-weakest-wage-gains-over-40-year-period/

Key takeaways:

• Wage growth for typical Black and Hispanic workers fell far short of growth for white workers over the past 40 years.
• Increasing income inequality overall and racial discrimination in the labor market both play a role in limiting wage gains for Black and Hispanic workers.
• Women's median wages have increased since 1979 but still lag those of men. Gains among women have not been equally shared, with white women seeing the largest wage increases.

Policy recommendations:

• Create "high-pressure" labor markets by running the economy hot through expansionary macroeconomic policies; prioritizing low unemployment will help spur job growth as well as wage growth, especially for Black workers.
• Prioritize anti-discrimination enforcement.
• Pass the Raise the Wage Act and the Richard L. Trumka PRO Act. These would have a range of positive benefits for workers across the board, and especially for women, Black, and Hispanic workers.

Increasing income inequality has been at the forefront of economic policy conversations in the United States since at least the 2008 financial crisis. The roots of that inequality stretch back much further, though. Growing employer opposition to unions and the shift from manufacturing toward finance as a major growth industry over many decades has resulted in a separation between worker pay and productivity that has persisted to this day.

There has been growing concern about the wage stagnation faced by the typical American worker, and increasing attention paid to the need to rectify this—to ensure that workers reap the gains associated with their increased productivity.

By the numbers

Wage growth by race/ethnicity, 1979–2020

• White workers: 30.1 %
• Black workers: 18.9%
• Hispanic workers: 16.7%

The productivity–pay gap

• Productivity growth, 1979–2020: 61.7%
• Typical worker wage growth, 1979–2020: 23.1%

However, there has not been as much attention paid to the distinct divisions that exist even among the generally undercompensated working class. While the typical worker has not seen their fair share of wage increases relative to the increase in productivity over the past 40 years, Black and Hispanic workers saw even smaller wage gains relative to their white counterparts.

These racial disparities in pay add another dimension to conversations about gaps between pay and productivity, and about income inequality in general. While policies designed to link the typical worker's pay more closely with productivity are necessary to reduce income inequality overall, the persistence of disparities even within the working class shows us that targeted policies will be required in addition if we want to achieve the goal of true equity across the board.

Closing wage gaps for the vast majority of undercompensated workers is not a zero-sum game. The right combination of progressive class-based policies targeting income and wage inequality, alongside anti-discrimination policies targeting race-specific gaps, can have powerful effects on raising all workers' pay.

Key takeaways of this post include:

• The typical worker's wages rose only 23.1% from 1979 to 2020, while productivity increased 61.7%. For Black and Hispanic workers, wage growth was even more dismal, at 18.9% and 16.7%, respectively.
• Skyrocketing income inequality as a whole has mechanically increased measured racial gaps, and clamping down on concentrated redistribution at the top levels of the income bracket will play a large role in raising all workers' pay.
• Given that Black workers face a "double penalty" due to a combination of wage inequality and employer discrimination, policies targeting racial gaps need to be combined with progressive class-based policies.
• Women's median wages have increased since 1979 but still lag behind those of men. Gains among women have not been equally shared, with white women seeing the largest wage increases.
• A powerful multiracial coalition that draws attention to the positive-sum solidarity behind closing the pay–productivity gap can put pressure on policymakers to achieve this long overdue pay raise for the vast majority of U.S. workers.

Trends in pay/productivity over the past 40 years

Over the past 40 years, declining union density across the country has coincided with a separation between growth in wages and growth in productivity. This represents a concrete shift in the balance of power between employers and management versus the typical worker. While productivity gains created the potential for pay increases, most wage gains since the 1980s have gone to the highest-paid employees. While worker productivity grew by 61.7% between 1979 and 2020, workers' median wages grew by only 23.1% (Figure A). Meanwhile, CEO pay has skyrocketed compared with the pay received by the typical worker; the ratio of CEO-to-typical-worker compensation was 351-to-1 in 2020, and realized compensation for CEOs grew by 1,322% between 1978 and 2020.

Figure A

This delinking of pay from productivity has led to an explosion of growth-limiting inequality in the United States; that is, not only has the economic "pie" become less evenly distributed, but it has also grown at a slower pace than it could have grown under a more equal distribution.

This means that a thoughtfully selected set of policy decisions has the potential to both produce faster economic growth and reduce inequality.

Trends in racial wage gaps over the past 40 years

Racial wage disparities are a long-standing feature of the U.S. economy; little progress has been made in reducing gaps since the 1980s, when political opinion turned against affirmative action and other race-specific policy levers. The primary avenue through which discrimination affects racial wage gaps is through occupational segregation; employers tend to sort Black, Hispanic, and white workers into different occupations with differing levels of compensation and potentials for advancement.

Wilson and Rodgers (2016) conclude that, since the 1980s, racial discrimination has played the largest role in widening the gap between Black and white pay. Quillian et al. (2017) find no reduction in the level of racial discrimination in hiring against Black job seekers since 1989. These should not be surprising results, as the Equal Employment Opportunity Commission (EEOC), the federal institution tasked with investigating violations of and enforcing antidiscrimination law, has been severely underfunded for decades. Recent work by Kline et al. (2021) shows that a few large firms in the U.S. economy are prolific discriminators at a systemic level. This suggests that targeted anti-discrimination enforcement may be an effective tool to help reverse this trend.

The rise in income inequality more generally, as well as the separation between the typical worker's pay and productivity, has also influenced racial wage gaps. We know that pay increases have been concentrated at higher income levels over the last 40 years, while lower-income workers have seen much lower wage growth. Since Black and Hispanic workers are disproportionately concentrated in lower-income occupations, this unequal wage growth has fallen more heavily on those workers than on their white counterparts.

As the recovery from the 2008 financial crisis stretched into the longest period without a recession in U.S. history in the late 2010s, the slowly tightening labor market began to produce wage gains for those at the bottom of the income distribution. This is consistent with economic history: Tight labor markets (supported by expansionary monetary policy) have historically been necessary to bring about wage increases for low-income workers and have been crucial in reducing racial gaps in labor market outcomes.

Anomalous wage 'growth' in 2020: The impact of the COVID-19 pandemic on wage data

The onset of the coronavirus pandemic and its ensuant recession cut the long expansion abruptly short.  In the year after the recession, the effect on the typical worker's wages was counterintuitive, however. Median wages increased across the board during 2020, to a greater degree than in any single year since 1998. In fact, most of the wage gains relative to 1979 for Black and Hispanic workers came in 2020—but not for the reasons one might hope. The wage "growth" on the surface masks the bad news we already knew: Millions of people lost their jobs in 2020, including large numbers of low-wage workers.

Wage growth in the late 1990s and late 2010s was driven by a historically tight labor markets and low interest rates, but job losses drove the spike in 2020. There was a dramatic shift in the composition of jobs being measured, as low-income jobs disappeared to such a degree that the wages left to be measured were mechanically higher.

The service-sector workers hit the hardest by the pandemic and recession were not only those with some of the lowest wages and fewest labor protections, but they were also among those at highest risk for contagion. Given that risk, combined with closures of schools and child care centers, it is not surprising that many workers did not or could not return to their prior jobs when the economy began to reopen.

Meanwhile, those in middle- and high-income occupations were able to convert some or all of their work to remote work much more easily than those in low-income occupations, due both to the inherent nature of the work and the flexibility of work arrangements that comes with having a higher-status job. Therefore the median wage skewed upward toward these middle- and high-income workers.

Real wage raises continue to be long overdue for most workers, which is cause for deep concern. We have yet to see a sustainable increase in bargaining power on behalf of American workers as a result of the pandemic. And without lasting and direct policy changes, any rises in wages workers may have experienced in 2020 are likely to be transitory rather than concrete, permanent increases.

Women's pay and productivity pre- and post-2020

While women have seen more significant wage gains than men, percentage-wise, over the past 40 years, their wages have neither caught up to men's wages (Figure B) nor have they kept pace with the overall increase in economywide productivity. Among white, Black, and Hispanic men and women, Black and Hispanic women had the lowest median wages in both 1979 and 2020.

Moreover, women did not experience wage gains equally over the last 40 years. Among women in all racial/ethnic groups, white women received the largest wage increases across all periods. In fact, the gap between white women's wages and Black and Hispanic women's wages has widened dramatically between 1979 and 2020: In 1979, white women were paid around 6.9% and 14.3% more, respectively, than Black and Hispanic women. By 2020, these gaps had widened to 19.7% and 31.3%.

Figure B

The 2020 pandemic and recession only exacerbated these disparities, impacting women especially severely. Black, Hispanic, and Asian American/Pacific Islander (AAPI) women have long been overrepresented and underpaid in service and care industries (as are women in general), and these industries were among the hardest hit during the pandemic. Women are also more likely to work in state and local public sectors—including a large number working as educators; these public-sector occupations also faced huge levels of unemployment due to public health closures.

With schools and child care centers closed for in-person services, millions of women also left the workforce to care for their children. The lack of safe and affordable child care made the situation especially untenable for low-income households. Even before the unprecedented 2020 shock, women's wages were lagging their productivity as well as lagging behind men's wages, with Black and Hispanic women facing a triple penalty of rising income inequality alongside racial/ethnic and gender discrimination. Women's pay–productivity gap, and the racial and gender disparities within that gap, will only persist—and may widen—without targeted and deliberate policy interventions.

Inequality restricts the economy's potential for growth, but equity can have benefits across groups

Even in the wake of 40 years of increasing income inequality, in general and with respect to race, we can choose to design economic policy that promotes both equity and economic growth. We can grow a healthier economy by curbing the exorbitant growth of compensation at the top of the earnings ladder and giving workers at lower- and middle-income levels more direct control over their working conditions and pay. When paired with well-enforced anti-discrimination laws and material consequences for those who violate those laws, the potential exists for growth that is equitable across class and racial lines.

There may still be conflict when pursuing a growth path that is racially fair and class conscious. Pursuing equity implies a change in relative position for white workers with respect to Black and Hispanic workers, as well as for men with respect to women workers. There will also be resistance from the most highly paid strata of employees toward a more even distribution across workplaces. The fact remains, however, that our pace of productivity growth provides the means for workers across groups to benefit and for those who have been barred from receiving their fair share to finally do so.

Addressing inequality and racial disparities beyond the pandemic

Moving forward, policymakers cannot settle for a pre-pandemic economic status quo. As we've seen, prior to 2020, the gap between productivity and compensation has been widening dramatically since 1979, with especially strong racial and gender disparities. Without sustained investment in raising wages, compensation, and benefits; improving working conditions; and eliminating labor market discrimination, all workers will continue to see their pay dwindle even as their vital labor boosts the economy. There are several short- and long-term policies and economic strategies to close the pay–productivity disparities:

• Tight labor markets: Running the economy hot with "high-pressure" labor markets through expansionary macroeconomic policies and a prioritization of low unemployment can help spur job growth as well as wage growth, especially for Black workers. Concerns over inflation and overheating should not get in the way of strengthening the economic recovery and making sure all workers are seeing the gains.
• Anti-discrimination enforcement: Persistent labor market discrimination and occupational segregation plays an outsize role in how Black and Hispanic workers experience the labor market and employment. Despite educational attainment or job experience, many Black and Hispanic workers are less likely to be hired for certain jobs than less qualified white peers; this is also true for women workers relative to their male counterparts. Pursuing only race-blind or universal economic policies will miss addressing this insidious and engrained phenomenon. Therefore, anti-discrimination enforcement, such as by the EEOC, is crucial.
• Pro-worker legislation: Immediately passing the Raise the Wage Act and the Richard L. Trumka PRO Act will have a range of positive benefits for the workers who have seen their pay stagnate over decades. Higher wages and stronger access to unionization and collective bargaining can help level the playing field and give working people negotiating power with their employers.

Most workers have seen their wages stagnate even as their productivity has risen. Black workers face a double penalty as the forces of growing inequality and racial discrimination reinforce each other.

Recognizing and rectifying the pay–productivity gap is crucial as we strive toward racial and economic justice for Black and brown workers. Economic recovery in the short term, and equity in the long run, will only be achieved when direct policies target income and wage inequality and are paired with anti-discrimination and other measures to close race-based gaps. Through this class- and race-conscious approach, all workers will receive the benefits of the economic strength and prosperity they have built.

 -- via my feedly newsfeed

On Dialectics

Engels:




"From that time forward [Economics as an objective measure of social motion and development] , Socialism was no longer an accidental discovery of this or that ingenious brain, but the necessary outcome of the struggle between two historically developed classes — the proletariat and the bourgeoisie. Its task was no longer to manufacture a system of society as perfect as possible, but to examine the historico-economic succession of events from which these classes and their antagonism had of necessity sprung, and to discover in the economic conditions thus created the means of ending the conflict. But the Socialism of earlier days was as incompatible with this materialist conception as the conception of Nature of the French materialists was with dialectics and modern natural science. The Socialism of earlier days certainly criticized the existing capitalistic mode of production and its consequences. But it could not explain them, and, therefore, could not get the mastery of them. It could only simply reject them as bad. The more strongly this earlier Socialism denounced the exploitations of the working-class, inevitable under Capitalism, the less able was it clearly to show in what this exploitation consisted and how it arose, but for this it was necessary —"







Lenin: from Notebooks

1) The determination of the concept out
of itself [the thing itself must be consid-
ered in its relations and in its develop-
ment];

2) the contradictory nature of the thing
itself (das Andere seiner[1]), the contra-
dictory forces and tendencies in each phe-
nomenon;

3) the union of analysis and synthesis.

Such apparently are the elements of
dialectics.

One could perhaps present these ele-
ments in greater detail as follows:




the objectivity of consideration
(not examples, not divergencies, but
the Thing-in-itself).
X
the entire totality of the manifold
relations of this thing to others.
the development of this thing,
(phenomenon, respectively), its own
movement, its own life.
the internally contradictory tenden-
cies (and sides) in this thing.
the thing (phenomenon, etc.) as the
sum and
#
unity of opposites.
the struggle, respectively unfold-
ing, of these opposites, contradictory
strivings, etc.
the union of analysis and synthesis—
the break-down of the separate parts
and the totality, the summation of
these parts.
the relations of each thing (phenome-
non, etc.) are not only manifold, but
general, universal. Each thing (phe-
nomenon, process, etc.) is connected
with every other. X
not only the unity of opposites, but
the transitions of every de-
termination, quality, feature, side,
property into every other [into its
opposite?].
the endless process of the discovery
of new sides, relations, etc.
the endless process of the deepening
of man’s knowledge of the thing, of
phenomena, processes, etc., from ap-
pearance to essence and from less pro-
found to more profound essence.
from co-existence to causality and from
one form of connection and reciprocal
dependence to another, deeper, more
general form.
the repetition at a higher stage of
certain features, properties, etc., of
the lower and
the apparent return to the old (nega-
tion of the negation).
the struggle of content with form and
conversely. The throwing off of the
form, the transformation of the con-
tent.
the transition of quantity into quality
and vice versa ((15 and 16 are examples of 9))






In brief, dialectics can be defined as the doctrine of
the unity of opposites. This embodies the essence
of dialectics, but it requires explanations and develop-
ment.

(The totality of all sides of the
phenomenon, of reality and their (re-
ciprocal) relations—that is what
truth is composed of. The relations
(= transitions = contradictions) of
notions = the main content of logic,
by which these concepts (and their
relations, transitions, contradictions)
are shown as reflections of the objec-
tive world. The dialectics of things
produces the dialectics of ideas, and
not vice versa.)

Corporate America Is Lobbying for Climate Disaster [feedly]

Corporate America Is Lobbying for Climate Disaster
https://www.nytimes.com/2021/09/02/opinion/corporate-taxes-biden-spending-bill.html

Why does Mickey Mouse want to destroy civilization?

OK, that's probably not what Disney executives think they're doing. But the Walt Disney Company, along with other corporate titans, including ExxonMobil and Pfizer, is reportedly gearing up to support a major lobbying effort against President Biden's $3.5 trillion investment plan — a plan that may well be our last chance to take serious action against global warming before it becomes catastrophic.

To say what should be obvious, the dangers of climate change are no longer hypothetical. The extreme weather events we've recently seen around the globe — severe drought and forest fires in the American West; intensified hurricanes, catastrophic flooding in Europe; heat waves pushing temperatures in the Middle East above 120 degrees — are exactly the kinds of thing climate scientists warned us to expect as the planet warms.

And this is just the beginning of the nightmare — the leading edge of a wave of disasters, and a harbinger of the crisis heading our way if we don't act quickly and forcefully to limit greenhouse gas emissions.

What can be done to avoid catastrophe? Many economists favor broad-based incentives to limit emissions, such as a carbon tax. There's an interesting, serious economic debate over whether that's really the best policy, or at any rate whether emissions taxes would be a sufficient policy on their own. As a practical matter, however, that debate is moot: Carbon taxes, or anything like them, won't be politically feasible any time soon.

ADVERTISEMENT

Continue reading the main story

What might be politically feasible — just — is a set of more targeted measures, in particular an effort to decarbonize electricity generation. Generation is, in economic terms, a relatively soft target, because near-miraculous declines in the cost of renewable energy mean that we already have the technology needed to move away from fossil fuels fairly cheaply. And electricity generation isn't just directly responsible for about a quarter of U.S. greenhouse gas emissions; if electricity becomes a clean power source, that would open the door to large reductions in emissions from vehicles, buildings and industry via widespread electrification.

The good news is that Biden's proposals would provide a big push toward decarbonization. As the climate journalist David Roberts points out, there are two major climate-related elements in these proposals: a set of fines and subsidies that would give power companies strong incentives to stop burning fossil fuels, and expanded tax credits for various forms of clean energy. These policies would fill only part of environmentalists' wish lists, but they would be a very big deal.

The bad news is that if these proposals aren't enacted, it will probably be a very long time — quite possibly a decade or more — before we get another chance at significant climate policy.

Let's face it: There's a good chance that Republicans will control one or both houses of Congress after the midterm elections. And at this point climate denialism has a deathlike grip on the G.O.P. — a grip unlikely to loosen until complete catastrophe is upon us, and maybe not even then. Look at the way anti-mask-mandate, anti-vaccine-mandate Republican governors are doubling down in the face of soaring Covid-19 hospitalizations and deaths.

So the Democratic reconciliation bill that will either succeed or fail in the next few weeks may well be, in effect, our last chance to do something meaningful to limit climate change.

Editors' Picks

'Sexist,' 'Racist,' 'Classist': Georgia 8th Grader Challenges School Dress Code

The Navy SEAL Who Went Rogue

13 Delicious, Original Ways to Eat Eggs for Dinner

Continue reading the main story

ADVERTISEMENT

Continue reading the main story

Why, then, is corporate America mobilizing against the bill? Because Democrats are proposing to offset new spending partly with higher taxes on corporate profits, and to a lesser extent by using the government's bargaining power to negotiate lower prices for prescription drugs. This approach is necessary as a political matter: If taxes must be raised, the public wants to see them raised on corporations. But corporations, not surprisingly, don't want to pay.

So corporate opposition to the Biden plan is understandable. It's also unforgivable.

And maybe something can be done about it. Republicans, I fear, are completely unreachable at this point. But corporations and the handful of Democrats tempted to carry their water may still be susceptible to pressure.

After all, we're no longer living in the era when William Henry Vanderbilt, the railroad tycoon, declared, "The public be damned." Today's corporations want to be seen as socially responsible; they run gauzy ads proclaiming the good they do.

But it's hard to think of anything more irresponsible than torpedoing efforts to avoid a civilization-threatening crisis because you want to hold down your tax bill.

So the corporations joining this effort need to be named and shamed. So do the handful of Democratic "moderates" carrying their water. ("Mercenaries" would be a better term for politicians opposing measures that they should know are both necessary and popular.)

Remember, this isn't an ordinary policy dispute, which can be revisited another day. This is zero hour, and those who don't do the right thing now won't get a second chance.

 -- via my feedly newsfeed

A “Medicare Funding Warning” from the Trustees [feedly]

A "Medicare Funding Warning" from the Trustees
https://conversableeconomist.wpcomstaging.com/2021/09/02/a-medicare-funding-warning-from-the-trustees/

The trustees of the Medicare program have published their annual report, the imposingly titled 2021 Annual Report of the Boards of the Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. The annual report came out considerably later than usual, about five months after the statutory deadline, and I suspect there's a story there. But here, I'll focus on the projections themselves. The trustees write:

The Trustees are issuing a determination of projected excess general revenue Medicare funding in this report because the difference between Medicare's total outlays and its dedicated financing sources is projected to exceed 45 percent of outlays within 7 years. Since this determination was made last year as well, this year's determination triggers a Medicare funding warning, which (i) requires the President to submit to Congress proposed legislation to respond to the warning within 15 days after the submission of the Fiscal Year 2023 Budget and (ii) requires Congress to consider the legislation on an expedited basis. This is the fifth consecutive year that a determination of excess general revenue Medicare funding has been issued, and the fourth consecutive year that a Medicare funding warning has been issued.

Two points are worth emphasizing here. One is that this "Medicare funding warning" was not created by COVID. As the report notes, the trustees have now been issuing the warning for the last four years. If you did not notice the Trump administration responding with proposed legislation to address the problem, along with Congress taking up such legislation on an expedited basis, that's because it didn't happen.

Second, this issue isn't about COVID. Yes, COVID had lots of short-term effects on Medicare, as the report describes. For example, the drop in employment as a result of the pandemic recession reduced Medicare payroll taxes. But on the expenditure side, the rise one would expect in expenditures related to COVID was actually offset by declining Medicare spending in other areas. The trustees write:

Spending was directly affected by the coverage of testing and treatment of the disease. In addition, several regulatory policies and legislative provisions were enacted during the public health emergency that increased spending; notably, the 3-day inpatient stay requirement to receive skilled nursing facility services was waived, payments for inpatient admission related to COVID-19 were increased by 20 percent, and the use of telehealth was greatly expanded. More than offsetting these additional costs in 2020, spending for non-COVID care declined significantly … This decline was particularly true for elective services.

Medicare's funding problems were apparent before the series of "Medicare funding warning" alarms started going off a few years ago. To understand the scope of the problem, it's useful to sketch the structure of the program. Part A is Hospital Insurance. Part B is Supplementary Medical Insurance–that is, all the other non-hospital care. Part C is Medicare Advantage, where Medicare pays a flat annual premium for the recipient to enroll in a private health care plan that can provide hospital, non-hospital, and in some cases prescription drugs as well. In Part A and Part B, Medicare uses fee-for-service payments to providers. Part D is the Prescription Drug Benefit that was enacted in 2006.

As the trustees note: " In 2020, Medicare covered 62.6 million people: 54.1 million aged 65 and older, and 8.5 million disabled. About 40 percent of these beneficiaries have chosen to enroll in Part C private health plans that contract with Medicare to provide Part A and Part B health services. … Total Medicare expenditures were $926 billion in 2020." To put that number in perspective, total Social Security spending in 2020 is approaching $1.1 trillion, while total defense spending is a little under $800 billion."

Of course, none of these parts of Medicare are funded in exactly the same way, which complicates talking about them. For example, Part A has a trust fund that is almost entirely funded by "Hospital Insurance" payroll taxes. Because this is the legislated source of funding for Part A, it's possible for this trust fund to run out of money, which is currently projected for 2026. Indeed, the trustees have been sounding the alarm that the trust fund has fallen below a standard of short-term financial solvency every year since 2003.

However, the "trust funds" for Part B of Medicare, the Supplementary Medical Insurance, and for Part D, the prescription drug benefit, cannot go bankrupt. The reason is just a matter of bookkeeping–if this "trust fund" falls short, then legally the bills will be paid out of general federal revenues. Indeed, Presto! Bankruptcy for Part B is impossible! In 2020, general federal revenues pay for about 80% of Part B spending, and individual premiums cover most of the rest. For Part D, the prescription drug benefit, general federal revenue covers about 75% of all spending in 2020, with a mixture of individual premiums and state-level contributions covering most of the rest. For Part C, the Medicare Advantage plans, there is no separate source of funding–instead, money is switched over from the payroll taxes, individual premiums, and government payments that support Parts A and B.

A desire to cut through these legislative distinctions and get to the bottom line helps to explain the phrasing of the warning from the trustees: "[T]he difference between Medicare's total outlays and its dedicated financing sources is projected to exceed 45 percent of outlays within 7 years." What exactly are the "dedicated funding sources" for Medicare? As the trustees write: "Dedicated financing sources consist of HI payroll taxes, HI share of income taxes on Social Security benefits, Part D State transfers, Part B drug fees, and beneficiary premiums."

For Medicare, let's simplify the picture by looking at the entire program, not the separate parts. Under what seems like the inexorable pressures of higher health cares spending, Medicare is evolving in ways that have received little public attention.

Back in 2000, Medicare spending was about 2.2% of GDP. In 2020, total Medicare spending is about 4% of GDP. Looking out 20 years to 2040, total spending is projected at 6% of GDP. It's worth noting that these projected long-term costs are likely to be conservative. The actuaries who produce the underlying calculations are required to focus on projections under current law. Thus, Congress has for some years been playing a merry game of legislating cost reductions (like lower payments to Medicare physicians) that don't kick in until five or ten years down the road. These cost reductions don't actually take place; instead, they keep getting postponed. A cynic might say that their only real purposes is to pretend do so something about future costs.

Back in the year 2000, general federal tax revenues were about 28% of Medicare's income, while payroll taxes covered 60% and individual premiums covered 9%. Now in 2020, the share of Medicare's income from payroll taxes has fallen to 34%; to counterbalance that change, the share from individual premiums has risen to 15% and the share from general revenues has risen to almost 47%.

Looking ahead, the share of Medicare income covered by payroll taxes is projected to keep falling to 25%, while the share covered by individual premiums is projected to rise to nearly 20% and the share from general federal revenues will reach about 50%.

In short, just 20 years ago, Medicare was a much smaller program primarily (60%) funded by payroll taxes. Looking ahead 20 years, it is a much larger program, funded primarily by a combination of general revenues (50%) and individual premiums (20%). This shift is really what the "Medicare funding warning" from the trustees is all about.

The working assumption over Medicare's funding warning seems to be that any shortfalls will just be covered by general fund revenues. For the short-term, this is a workable if inelegant solution. But over longer time horizons, it becomes a problem. Higher general fund spending competes with other budgetary priorities. Higher health insurance premiums for the elderly competes with the rest of their household budget, too.

Continuing to ignore possible solutions is short-sighted. On the issue of climate change, a number of people are strongly in favor of taking near-term and fairly costly steps for a long-run benefit. They offer harsh criticism to anyone who says: "Maybe the underlying assumptions are wrong. And if they are correct, we'll worry about it later." But fiscal predictions of the Medicare actuaries are based on much simpler calculations than models of atmospheric climate change and its effects on Earth and the economy. The effects come sooner. And the same basic lesson holds: If you take wait to take action as the long-term problem arrives, the steps needed at that time are going to be substantial or even extreme. Taking actual real steps in the near-term helps to avert the need for extreme steps later."

 -- via my feedly newsfeed