The start of 2023 presented some good news for America’s economic outlook. In the first week of January, the December jobs report was released, showing unemployment edging down to 3.5 percent with over 200,000 more people employed full-time. But even with this good news, an enduring conundrum remains: our country’s stagnant workforce participation rate.
The workforce participation rate represents the number of people working or actively looking for work. This job report showed that the U.S. labor participation rate is 62.3 percent, which has not changed since the beginning of 2022 and is only 1 percentage point higher than it was at the start of the pandemic. This means roughly 38 percent of Americans who could be working are detached from the labor market because they believe there are no jobs available for them, or they are facing personal challenges that make it hard to retain employment. As a result, these individuals have stopped looking for work altogether, leaving employers desperate for talent and policymakers wondering where everyone went.
There are many factors contributing to this social phenomenon. But one place to look for workers is in their homes with their kids. Today, many families with young children must choose among bad options: spending a significant portion of their income on child care, finding a cheaper, but potentially lower-quality care option or leaving the workforce altogether.
While finding decent and affordable child care has always been a challenge, it’s been exacerbated in recent years due to increased demand from families for child care services, the rising cost of these services and the shortage of skilled workers and quality facilities. Now it is one of the top reasons why workers, especially women, are not just leaving, but staying out of, the labor market. This is harmful for a myriad of reasons, not least that our country needs this talent to fill open jobs and keep our economy competitive.
Hopes were high that President Biden’s Build Back Better plan would address this issue federally. But in the end, the child care provisions were not included. Last month’s appropriations package did include substantial funding increases for the Child Care Development Block Grant (CCDBG), which received $8 billion, a 30 percent increase in funding, and for Head Start, which received $12 billion, an 8.6 percent increase.
As welcome as the new funding is, these programs serve a small portion of American families. The CCDBG and Head Start resources are targeted at low-income families and, even then, the CCDBG serves only 15 percent of eligible families, and Head Start serves roughly one-third of eligible three-to-five-year-olds and 7 percent of eligible children under three. They don’t touch most working parents or solve the problem at scale. As a result, states are developing solutions on their own.
Consider Kentucky. The Bluegrass state has the seventh-lowest workforce participation rate in the nation, at 58 percent. Additionally, its female workforce participation declined significantly in 2020 and is still a full point below what it was pre-pandemic. As a strategy to get Kentuckians re-engaged in the workforce, the state’s General Assembly passed the Employee Child Care Assistance Act.
The bill, which was signed into law by Gov. Andy Beshear last spring, creates a pilot program supporting employers that enter into an agreement with a child care provider to subsidize the cost of services for an employee. If an employer enters the agreement, the state can match the employer’s contribution up to 100 percent. This allows employers to effectively double the size of an employee benefit, helping them to attract and retain talent while making child care more affordable for working families.
While employers in the state are not required to participate, Kentucky leaders believe industry, especially small and mid-size businesses, will do so to help solve their talent pipeline problems. Kentucky is also confident about its approach because it was modeled after Michigan’s pilot program, MI Tri-Share. An initiative spearheaded by Gov. Gretchen Whitmer, MI Tri-Share similarly promotes splitting child care costs through partnerships with employers. In Michigan, the cost of an employee’s child care is shared equally among the employer, the employee and the state, with coordination provided regionally by a state facilitator hub.
Notably, both the Michigan and Kentucky proposals won bipartisan support, despite divided government in both states. They reflect political compromises in which Republicans acknowledge that investment in high quality child care is integral to economic development and growth, and Democrats accept the idea of public-private cost-sharing to pay for it.
Kentucky plans to launch the pilot in July 2023 and has allocated $15 million to the program. Michigan is seeing some initial success, with the program spreading from nine to 59 counties in the first 18 months. There are three times more employers participating in the program than at the beginning of the initiative, and, as a result, more families and their children are receiving services. Philanthropic resources are also flowing in to support MI Tri-Share’s expansion and sustainability.
As we watch Kentucky and Michigan to see the effects of these initiatives on the labor market, it is exciting to see bipartisan support for policies that are testing new models to solve long-term challenges. At the federal level, Congress is trying to enact change, but most bipartisan efforts focus on investing in or reauthorizing existing programs like the CCDBG — offering tweaks to the status quo rather than proposing widespread reform.
While child care affordability is just one piece of the labor shortage puzzle, it is an important one, forcing parents and guardians to make difficult decisions between work and caregiving, leaving U.S. employers without the skilled workers they desperately need and stalling economic growth in many states and regions. It is time for federal and state leaders to develop fresh solutions that curb the cost of child care to reboot our nation’s workforce participation rate and solve a challenge that has been hurting working families for far too long.
Taylor Maag is director of workforce policy at the Progressive Policy Institute and leads PPI’s New Skills for a New Economy Project.