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Economic Development and Human Capital

Hard-hit child care industry may need multisector response to revive and thrive

Anna Crockett

The COVID-19 pandemic has brought new urgency to the longstanding challenge of child care accessibility in America. Because the child care sector enables many parents to work, developments that threaten the quality, quantity or affordability of that service could discourage the post-pandemic return of many parents—women in particular—to the labor force and ultimately weaken U.S. productivity and economic growth.

How can the nation respond to the immediate challenge and, at the same time, promote a child care industry in which care is reliably high quality, accessible and affordable for all families? As with other major challenges of our day—whether it’s the digital divide, disadvantaged youth or economic opportunity for all—child care is a complex issue whose many moving parts can be addressed through the coordination of public, private and nonprofit sector activity. Many multisector partnerships are already working to realize a better-functioning child care system, but more needs to be done.

Child care: the heartbeat of our economy

Child care—early childhood care and education—is essential for the majority of young children whose parents work. For nearly 70 percent of children under age 6, all resident parents were in the civilian labor force in 2019, according to the Kids Count Data Center, a project of the Annie E. Casey Foundation. Millions of U.S. workers have lost their jobs during the pandemic. When they are ready to return to work, their child care options may be few.

In a June 2020 survey of 5,000 child care centers in the U.S. and Puerto Rico, 40 percent of respondents said they expected to close by the end of 2020 without additional public assistance. The survey by the National Association for the Education of Young Children also found that roughly half of child care programs—mostly small businesses—had closed at some time during the pandemic and those that remained open incurred added costs for staff and supplies. It’s unclear whether the December 2020 stimulus legislation, which allocated $10 billion in relief for the child care industry, arrived in time to salvage some of these businesses.

Even for providers that outlast the pandemic, achieving long-term financial stability won’t be easy. Child care is a public good whose provision enables parents to work (or build their human capital through education and training). However, it tends to be a low-margin business that nevertheless costs more than many families are able to afford. A 2020 Federal Reserve System brief details how the pandemic further threatens the affordability, availability and quality of child care.

When child care providers close or are otherwise inaccessible, parents are forced to make difficult choices. Some parents who must work have found ways to juggle child care during the crisis, but others, chiefly women, have simply left the labor force. A number of factors have contributed to this troubling trend, including the disproportionate share of women in the hard-hit service sector (notably retailers, restaurants and salons). But research also links the pandemic-induced lack of child care to an unprecedented decline in the share of working mothers—especially Black mothers—in the U.S. and to their much slower return to the workforce relative to women without children.

Women accounted for the vast majority of the nation’s steep job losses in December 2020—the first monthly decline in employment since April. They lost 196,000 jobs, representing 86 percent of the net 227,000-job decline, according to recently revised Bureau of Labor Statistics data. Overall, about 550,000 more women than men have exited the labor force over the past year.

The long-term effects of this workforce exodus on the U.S. economy are of serious concern given that labor force participation is a key determinant of economic growth. The labor force participation rate took years to recover after the 2007–09 Great Recession, particularly among economically disadvantaged groups. If those who left the labor force during the pandemic are to return once the virus is under control, they will need available and affordable child care.

This is where innovation is key.

How to address the child care crisis

Even before the pandemic, public, private and nonprofit groups were collaborating to find innovative solutions to the child care challenge. While some solutions may lie outside the scope of these multisector partnerships, such collaborations can still do much at the state and local level to help rebuild the child care industry.

One such innovation is the shared services alliance. Because many child care providers are mom-and-pop shops without specialized expertise, they may struggle to handle business-operations issues that would be less of a problem at larger firms. Shared services alliances allow these small providers to tap centralized sources for accounting, maintenance and professional development so providers can better focus on their core mission of child care provision. This has the potential to simultaneously lower costs and improve quality, as noted by observers such as the U.S. Chamber of Commerce Foundation.

While shared services alliances can be self-funding through membership dues, many alliances require seed funding to get started. Several communities throughout the country have adopted the shared services model. In 2018, Texas-based Children at Risk detailed the proven benefits of shared services and how they might be implemented in Texas.

The Federal Reserve Bank of Dallas did an assessment to identify multisector partnerships in Texas working to improve the child care industry. We collected examples of existing partnerships and suggestions on how various sectors can contribute. The following are two examples of shared services alliances in the state.

Shared services models

Pre-K 4 SA and United Way of San Antonio and Bexar County

“In San Antonio, our shared services alliance has provided an opportunity for child development centers to collectively access needed resources, [including] a collaborative community of like-minded professionals working toward increasing program quality across the city.”
— Larrisa Wilkinson, Pre-K 4 SA

Pre-K 4 SA is a publicly funded provider of early childhood care established in San Antonio in 2012. In the first half of 2019, Pre-K 4 SA and the United Way of San Antonio and Bexar County started a shared services alliance. Today, 17 child care providers are part of this alliance. As the “hub agencies” of the alliance, Pre-K 4 SA and the United Way leverage funding sources, operate the substitute teacher pool and handle the software that the alliance’s providers use for business needs.

Larrisa Wilkinson, director of professional learning and program innovation at Pre-K 4 SA, notes that the alliance has created a network for providers to share information and help one another. The agencies are also collecting data as they go to demonstrate the effectiveness of the alliance and attract more funding for providers.

Collaborative for Children and Texas A&M University

The Houston-based Collaborative for Children and the Bush School of Government and Public Policy at Texas A&M University partnered to create a statewide business accelerator program for child care providers. The program will offer online modules to 5,000 child care providers from throughout the state to help them teach business skills. The curriculum is based on needs that providers listed in an earlier survey.

The accelerator program is funded by a grant from the Texas Workforce Commission. The first full cohort is beginning the eight-week program in 2021.

Other inventive ideas

Employers can benefit from child care as well as the workers themselves. As we’ve seen during the pandemic, employee retention is more difficult without readily available child care. One example of how to engage the business community on this topic comes from Fort Worth.

Best Place for Working Parents

In 2020, the Fort Worth public–private partnership Best Place for Kids! created a “Best Place for Working Parents” business designation based on categories like core benefits and family resources. Citing the high cost of turnover and millennials’ interest in family-friendly employers, Best Place for Kids! makes a business case for family-friendly policies. Their top 10 policies include onsite child care, child care assistance and backup child care.

Interested employers take an online assessment to determine whether they are eligible for the Best Place for Working Parents designation. Those that are eligible receive digital badging to demonstrate their family friendliness in marketing materials. Designated businesses can also see how they compare to similar employers.

The Best Place for Working Parents model is already being replicated in Dallas, Austin and San Antonio.

The need to innovate and invest

The COVID-19 pandemic has exposed our economy’s heavy dependence on the child care industry as well as the financial vulnerability of many child care providers. A healthy child care industry is critical in reinvigorating our economy once the pandemic ends.

It will take coordination among the public, private and nonprofit sectors to foster the innovation that is necessary to reimagine the child care industry for the better. The nonprofit consulting group Opportunities Exchange provides valuable resources on how to start a shared services alliance, and business executives can look to membership organization ReadyNation on how to promote greater investment in child care.


Anna Crockett

Anna Crockett

Crockett is a community development analyst at the Federal Reserve Bank of Dallas.

The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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