Paying the Price of Regulating Childcare

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Scholars argue that increased regulation in the childcare industry has unintended consequences.

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Women’s labor force participation has risen drastically since 1975, spurring the increased use of nonparental childcare services and, in turn, sparking a widespread interest in ramping up regulations governing the provision of childcare.

But are there any downsides to regulating the childcare industry more harshly?

It turns out that, according to some experts, stricter regulation can actually create a number of unintended consequences. In a report published by the IZA Institute of Labor Economics, Umair Ali, Chris M. Herbst, and Christos Makridis argue that imposing harsh regulations may lower the quality of childcare while making it more expensive for families.

Childcare regulations generally seek to ensure minimum standards of quality throughout the industry. For example, these rules typically establish child-to-staff ratios and maximum classroom group sizes. Such regulations also set rules requiring minimum experience and education levels for program directors and staff.

The imposition of minimum standards can positively influence the quality of care that providers offer. Children who attend high quality childcare programs demonstrate superior cognitive, language, and social development as compared to children who do not benefit from such programs. But beyond a certain point, these standards can be counterproductive, say Ali, Herbst, and Makridis.

In recent years, many states have intensified their rules for how childcare providers should operate.

In response to demands for greater transparency and higher quality from a growing workforce of parents, new state regulations were accompanied by often-duplicative rules issued by the federal government and localities. Following the onset of the COVID-19 pandemic, some states made further changes to standards for child-to-staff ratios and maximum group size. The Centers for Disease Control and Prevention continue to issue updated regulatory guidance for operators of childcare centers that include recommendations on mask use and social distancing, ventilation, and protecting children with special needs.

Yet, Ali, Herbst, and Makridis note that some labor economists argue that these newer regulations on child-to-staff ratios and group sizes had little impact on the quality of childcare and instead negatively impacted U.S. labor market choices. Other experts similarly assert that more strenuous industry regulations do nothing in the way of improving quality and merely raise the prices of childcare.

According to Ali, Herbst, and Makridis, harsher regulations have reduced the demand for skilled labor within the childcare industry. The struggle to hire and retain skilled teachers and staff has long plagued the industry, but the problem was amplified during the pandemic.

Providers have increasingly sought to recruit lower-skilled teachers and staff as a means of cutting hiring costs while attempting to comply with stricter ratio and group size rules. These responses put many childcare programs at risk of providing lower-quality instruction. Although teachers’ skill levels could be a noisy proxy for teacher quality, research nonetheless affirms that high-quality teachers yield positive effects for early childhood development.

Beyond the temptation to hire childcare workers with lower levels of skill and education, some providers have responded to increasingly complex regulations by skimping on operations and violating other state-imposed education regulations as they bend under the weight of compliance, suggest Ali, Herbst, and Makridis. They find that increasing the number and intensity of childcare regulations has the unfavorable effect of raising the chances that providers would take shortcuts to help mitigate the costs of their compliance with new rules.

Tougher industry-wide regulations can also decrease labor force participation among women with primary school-aged children, note Ali, Herbst, and Makridis. Recent data indicate that new regulations imposed on childcare providers during the pandemic led to negative impacts on parents’ overall workforce involvement. These negative impacts disproportionately affected working women, who are more likely than men to care for young children.

Specifically, COVID-related childcare regulations limiting the number of children allowed in a center at a given time caused mothers’ labor force participation to fall two percentage points, Ali, Herbst, and Makridis explain. Such results were particularly significant for women whose youngest child was ten years of age or younger, which compounds data showing that women in this category have long been less likely to participate in the labor force.

Ali, Herbst, and Makridis argue that the quality of childcare will continue to fall as industry regulations become more strict, as evidenced by providers’ responses to impending regulations enacted as a result of COVID-19.

If more stringent regulations are imposed on providers due to the global health crisis, Ali, Herbst, and Makridis contend that such changes will have long-lasting detrimental effects for the labor market while doing little to enhance the quality of childcare.