Wells Fargo Economist: Child Care is an Economic Issue


Economists for Wells Fargo Bank released a report in March on the impact of child care for employers and the U.S. workforce. The report highlights both the importance of child care to families and to businesses and the need for public and private investments in the child care system. We interviewed one of the report’s authors – Sarah House – to talk more about the report and about our nation’s child care crisis. 

Sarah is a managing director and senior economist for Wells Fargo’s Corporate and Investment Bank. Based in Charlotte, she covers the U.S. macroeconomy, including the labor market, inflation trends, and monetary policy. Prior to joining Wells Fargo in 2010, Sarah worked as a research associate for the Federal Reserve Bank of Richmond. She has co-authored two books, Economic and Business Forecasting (2014) and Economic Modeling in the Post Great Recession Era (2017), both published by Wiley.

For the full report, co-authored by Sarah, Michael Pugliese and Karl Vesely, click here.

Q: Where did the idea for this report come from? Why is Wells Fargo getting involved in our national conversation about child care in the U.S.?

A: From a timing standpoint, Women’s History Month was the impetus of the idea for the report. But also, we felt there was a need to look at child care from a macroeconomics standpoint, especially in light of the current labor force shortage. We know that nearly 50 percent of businesses say they have open roles that are hard to fill right now. When you look at why, we think lack of affordable, consistent child care plays a big role. 

Q: What is the impact of what you call the “current status quo” of our child care system on women, especially in the wake of the pandemic?

A: I think if you look at what industry is most central to working women, it is child care. For one thing, 96 percent of all workers in the child care industry are women, so women are directly affected as workers. But we also know that women, far more than men, are responsible for making up child care gaps. Men are taking on more and more with regard to caretaking responsibilities in general, but child care still predominantly falls on women. That means women are the ones taking that step back in their career, dropping their hours or leaving the workforce altogether. 

Q: Talk about the impact of the current child care system on employers? Why is that important from a larger economic standpoint?

A: Right now, we’re in the tightest labor market we’ve seen in decades by a number of measures. If you have a lot of families who can’t find consistent, affordable care, that has a direct impact on employers and availability of labor. So this isn’t just a women’s issue or a mother’s issue – it’s an economic issue.

Q: How do you boost THE supply OF child care?

A: When you look at why there’s a lack of child care, you also have to look at what’s happening with the child care workforce. It’s a very labor-intensive industry, and it’s an industry that is struggling with its own labor shortage. While child care costs end up commanding a very big part of families incomes, it’s still costly to run a child care program. This means child care jobs end up being very low paying, and workers are leaving the field or are less likely to become child care educators as a result. 

We need to think about cost sharing with child care more like we do in K-12 public school – as a public good. Public funding for child care would cost more in terms of higher taxes or less public spending on other programs. But we cannot ignore that there are explicit and implicit costs to the current system that are hurting businesses, including child care businesses, and families.

Q: In the report, you mention the return on investment for public policy and investment. Speak to that a little more.

A: We learned that right now, U.S. public expenditures on child care and early education are half the average of the other 37 OECD countries, even though spending for K-12 and college is in line with the rest of the group. That surprised me. 

The return for more public investment would play out now and in the future. In the short term, I think we’re going to be looking at a pretty tight labor market for a while, and we have to think about ways to reinforce labor participation right now. Currently, it all too often doesn’t pay off to have both parents working, and often the mother is the parent who drops out of the labor force. One of my favorite stats that underscores this is that there’s a 28 percent point gap between men and women with children under six who are currently working. That matters at a time when employers are struggling like never before to find workers. 

In the long term, the higher cost of child care does weigh on how many children people have. Children are our future labor force, so this speaks to how fast the economy can grow over time.