For most families, using paid child care services in Indiana doesn’t make sense. It costs more than parents can earn by working.
The Indiana Legislature has struggled mightily with child care issues. Doing anything meaningful with legislation and spending is surprisingly expensive. I have no magic solutions to offer in the short term, and only a policy suggestion for the long term.
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Indiana has daycare and preschool programs available for low-income families. These are the Child Care Development Fund Voucher Program and On My Way Pre-K. There are about 1.3 million Hoosiers under the age of 14 and more than 60,000 who are eligible for these programs, which have low participation rates – there are only 7,000 students in the pre-K program.
Statewide, there are spaces for just 183,000 children in licensed daycare centers. There is no way of knowing how many of the 1.3 million children under the age of 14 are cared for by their family. But at least one survey found that child care costs absorbed about 10% of the family budget in 1 in 3 Indiana counties.
Designing low-cost child care is the big challenge.
Daycare regulations are not the problem
Indiana licenses child care programs and establishes staffing regulations. I have heard complaints about the cost of these regulations and I tend to be friendly to criticism of regulatory costs. However, the most expensive child care rules address staffing requirements.
I’m no expert on child care settings, except for a memorable stint as a Sunday school teacher. Indiana allows one caregiver to supervise up to four babies or five toddlers. That seems to be near the ceiling – and well outside my skill level.
The problem isn’t really regulation, but plain old supply and demand.
Last month, two colleagues and I published a study on child care supply and demand in Indiana. The work, with Dr. Dagney Faulk and Madelyn Ponsier, a recent Ball State graduate, lasted almost a year. Our findings will surprise many observers.
We performed a statistical test that measured the effect of changes in child care employment on women’s labor force participation. Our model found that increasing child care employment by 10% would increase the labor force participation rate of women ages 25 to 34 outside of child care by 0.4%. This same increase in child care professionals had an effect about two and a half times greater on women aged 35 to 44.
Of course, some men provide childcare at home, but this is primarily an issue that concerns women’s experience in the workforce.
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An interesting feature of our findings is the proximity between outcomes and child care program staffing ratios. Mothers between the ages of 25 and 34 are more likely to have younger children who require more supervision. Their older sisters, ages 35 to 44, are more likely to have older children who require less supervision.
Thus, the addition of childcare workers has a much greater effect on the labor force participation of people aged 35 to 44 than the population aged 25 to 34.
This part of our work is considered useful as a measure of the provision of childcare services. To delve deeper into this question, we delve deeper into the effect of wages on people’s willingness to work in childcare. We found that to increase child care employment by 10% would require an across-the-board wage increase of about 8% for child care workers. Economists call this labor supply elasticity.
This industry is unusual in the size of the wage increase needed to boost employment. This makes sense when comparing child care worker salaries to other sectors with similar educational requirements.
In 2022, the last full year for which we had data, the average child care worker earned $13.20 per hour. That same year, the average retail worker earned $5.10 more per hour and the average transportation and storage worker earned more than twice as much as child care workers.
The typical child care professional has an abundance of options available in the job market that pay much better for similar skills. Any increase in the availability of childcare will require more people, and the only way to do this is through substantially higher wages.
There is no evidence that Indiana has an inadequate number of training programs for child care providers or that there are too few people willing to do this work. There is clear evidence that wages are too low to expand child care.
It is always good to remember that salaries bring together the supply and demand for work.
Daycare is not worth the cost for many families
We also analyze demand for childcare services. This part of our study was a simple exercise in accounting for a family’s financial decision regarding child care. Our example was a family of four, with one spouse earning $57,000 per year, which is slightly outside the upper limit for child care support.
The question: how does the decision to work pay off for this family?
Child care costs were $5.28 per hour, per child – the average across the three cities surveyed. So we wanted to illustrate the net hourly wage a spouse can earn when we subtract income, payroll taxes, and child care costs. The results are shocking and enlightening.
For hourly wages below $15 per hour, this family loses money with a second spouse working. As wages increase to $21 per hour, which is approximately the average wage for working women in Indiana, the take-home pay increases to just over $3 per hour.
In order for this mother to take home $7.25 an hour – the minimum wage – she would need to earn almost $27 an hour, or more than her husband.
No wonder so many families choose not to use paid child care services.
This does not mean that there are no political options. They are simply not straightforward child care policies. If Hoosier workers were paid better, the child care issue would resolve itself. Wealthier families could afford higher child care costs and this would increase wages for child care workers.
Direct subsidies seem impractical in a legislature that consistently cuts, not increases, education spending. My rough calculation is that child care subsidies will cost about half a billion dollars per under-five age group, and half that amount for children ages 5 to 14. So, up to $4.5 billion a year if every child participated.
The real, lasting solution to our child care problems is a long-term effort to better educate workers, who can then earn a higher wage. Indiana’s child care problem is really an educational performance problem, nothing more or less.
Michael J. Hicks is director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University.
This article originally appeared in the Indianapolis Star: How much does daycare cost in Indiana? Too much for most families.
