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Journal Issue: Financing Child Care Volume 6 Number 2 Summer/Fall 1996

Financing Child Care: Analysis and Recommendations
Deanna S. Gomby Nora Krantzler Mary B. Larner Carol S. Stevenson Donna L. Terman Richard E. Behrman

Problems in Today's Child Care System

Even with these fairly substantial levels of investment, the child care system is not without problems. The articles by Hofferth, by Helburn and Howes, and by Stoney and Greenberg detail five major areas of concern about child care: (1) complicated funding systems that vex administrators and families, (2) limited availability of services, (3) lack of affordability, (4) poor or mediocre quality of care, and (5) a poorly paid child care work force with high turnover rates. All these factors combine to create inequities in access to high-quality services across families with different income levels.

Complicated Funding Systems

The many public funding streams for child care create complexities for child care programs, administrators, families, and Congress. For example, families and providers face varying eligibility procedures for different funding streams, inconsistent reimbursement rates across programs, and inflexible eligibility criteria that do not accommodate changing family circumstances. 11 As Stoney and Greenberg detail, these issues can mean that some low-income families receive child care subsidies while others in very similar economic circumstances do not. In addition, families sometimes must change child care programs as their categorical eligibility for child care subsidies changes, disrupting the children's relationships with their caregivers.

The sheer number of funding streams and the different programs they have spawned almost guarantee at least some duplication of effort across programs and more than a little competition among programs for resources, children to enroll, staff, and space.12,13 In addition, the many programs mean that there is no single authority with responsibility for them at the state or federal levels and no single congressional committee with oversight responsibility.14

Limited Availability of Services

The question of whether limited availability is a problem—that is, whether shortages in child care services exist—has been addressed in various ways. One can determine the number of children left without adult supervision or compare the number of children who potentially need child care with the number of spaces in child care programs. More fine-grained analyses assess the number of spaces available that match the needs of the children seeking care or measure changes in child care prices to gauge whether demand is exceeding supply.

As Hofferth describes in this journal issue, the first two approaches above suggest that there is no shortage of child care in an absolute numerical sense. In 1995, for example, almost no children under the age of five were without adult supervision. Of the 21 million children under age five not enrolled in school, 40% were cared for by their parents, 31% were in center-based programs, 21% were cared for by relatives, 14% were in family child care homes (programs in which a provider cares for unrelated children in her own home), and 4% were watched by sitters (nonrelatives who care for children in the children's own homes).15

Favoring a fine-grained analysis, however, the National Academy of Sciences has concluded, "There is consistent evidence of a relatively low supply of care for infants, for schoolage children, for children with disabilities and special health care needs, and for parents with unconventional or shifting work hours."16 The child care spaces that are available, conveniently located, and affordable may not be in the settings that parents prefer or that are best for children. For example, relatively few of the spaces in child care centers are for infants,17 centers are scarce in some communities,18 and centers rarely provide care in the evenings or on weekends when shift-workers need them.19

The children affected by such situations rarely go without care; instead, they are likely to be cared for by individuals such as neighbors or relatives, who are often exempt from the state licensing regulations that govern most other child care programs. (See Hofferth in this journal issue.) While these children are not unsupervised, they may be in settings of highly variable quality.

Lack of Affordability of Care

The fact that prices for child care have been rising also provides evidence that general demand for child care may exceed supply. In this journal issue, Hofferth reports that the amount paid by parents per hour of child care remained fairly steady between 1975 and 1990, but rose markedly between 1990 and 1993.

These child care costs place large burdens on families. On average, families with a child under age five spent about 8% of their incomes on child care for all their children. In contrast, families in poverty who paid for care spent about 18% of their incomes on child care.20

The burden of paying for child care makes child care subsidies very important to families. States report long waiting lists for families seeking subsidies for child care. A 1995 report from the General Accounting Office, for example, indicated about 40,000 children on such waiting lists in Texas, 19,000 in Florida, and 7,000 in Minnesota.21

As Helburn and Howes report in this journal issue, center-based child care is typically more expensive than other forms of care, and so it is perhaps not surprising that there remain sharp differences in rates of enrollment in center-based child care programs across families of different income levels. Hofferth reports that in 1991, 45% of three- to five-year-olds from poor families attended child care centers, as compared with 75% of children from families with incomes of more than $50,000 per year. This disparity is important given the evidence that enrollment in high-quality center-based early childhood programs can help set disadvantaged children on a path of success in school and later life.22

Poor or Mediocre Quality

The quality of child care programs has been measured extensively in the United States, as Helburn and Howes report in this journal issue. Generally, results indicate that children prosper cognitively, emotionally, and socially in programs with fewer children per group or per adult staff member, with caregivers who are sensitive and responsive to children, with well-educated and well-paid staff, and with low staff turnover. Unfortunately, child care programs with these characteristics are rare.

Among children of all income levels in child care centers, about 15% are thought to be in child care centers of such poor quality that their health or development is threatened. 7 Such settings might have clear safety hazards such as broken glass on the floor or poor sanitation practices, unresponsive caregivers, or few toys for the children. About the same percentage of children are thought to be in child care centers that actually promote child development—that is, they are in programs that have the positive characteristics described above. The remaining 70% are in centers that are only mediocre—neither helpful nor harmful. Infants are in some of the worst settings: In a 1993 study of centers serving children of all ages, the care in 40% of the classrooms serving infants was judged to be possibly injurious. Children in settings that are less well regulated than centers—in family child care homes or in the care of relatives, for example—may fare even worse.23 (See Helburn and Howes in this journal issue.)

Among children enrolled in center-based programs, those children from families with the lowest and highest incomes are usually in programs of higher quality than are children of the working poor or lower-middle class.7 Researchers speculate that this pattern of quality reflects how child care is financed: It is the working poor and lower-middle-income families who can neither obtain access to direct subsidies for child care services nor afford to purchase higher-quality care. It is their children, therefore, who are most likely to be relegated to poor-quality centers.

Although research about the importance of quality care generally is quite compelling, it is less helpful in detailing the precise levels of quality that are necessary to generate positive developmental outcomes for different groups of children. For example, research indicates that children from low-income families may be more negatively affected by poor-quality care and may benefit more from higher-quality care than children from higher-income families,7,24 but research has not specified the critical threshold levels of quality for either income group. This concern with necessary levels of quality is important when considering any financing reform for child care because considerations of quality and comprehensiveness of services are the main determinants of child care costs.

A Poorly Paid Work Force

The quality of children's experiences in child care is largely shaped by their interactions with the child care work force, and the cost of care is largely driven by the wages staff are paid. Hofferth reports that by 1990, nearly half of all child care teachers had a four-year college degree or better, although they reaped little financial return for their education. There are virtually no differences between the wages earned by child care workers of varying levels of education and experience.25 Child care providers' wages are among the lowest of any profession,26 and they have fallen in recent years. In 1990, the annual earnings of teachers in child care centers averaged $12,399, a decline of 25% since 1976, after adjusting for changes in cost of living.


Low staff wages obviously can cause problems for child care staff who need to earn a living, but low wages are also associated with poor-quality child care, which has negative implications for children. Low wages lead to high rates of child care staff turnover, which means that children may have little chance to form stable and nurturing relationships with the adults who care for them. In a study of child care centers, close to 39% of all child care staff (including both teachers and aides) left their jobs in 1993, 27 in contrast to a 10% turnover rate among employees in all professions in 1992. 28

A World That Never Was

Solutions to these child care problems are difficult to craft because the problems are interrelated, and solving one may aggravate another. If wages increase, costs increase, which means that families may have even more trouble paying for care. If quality increases (perhaps by requiring better trained staff or by decreasing the number of children each staff person can care for), then again, costs are likely to rise, decreasing both affordability and availability of care. The economist Victor Fuchs summarizes the situation: "To want simultaneously to hold down the cost of care, reduce the child/worker ratio and increase the pay and qualifications of child care workers is to wish for a world that never was and never will be."29

We agree that costs must increase if positive change is to occur, but we believe that the problems identified above are serious enough to warrant that change—and its attendant costs.



  • Additional funding is needed to change and improve the child care system.