The Effect of Child Care Costs on the Employment and Welfare Recipiency of Single Mothers

Abstract

1. Introduction For all mothers of young children, entering the labor market is strongly linked with the need for child care. Opportunities for caring for children while in the labor market are few in a developed economy. In many cases, the husband or another family member serves as caregiver, but approximately 50%Ic of preschoolers with a working mother are cared for by nonrelatives (Casper 1997). Some of these arrangements involve a substantial amount of money. In 1993, the average weekly cost of care was $59 for home-based care, $68 for center-based care, and $48 for care provided by a relative. This can represent one-fourth of earnings for single mothers working full time at the minimum wage (Kimmel 1994). Such substantial money expenditures, coupled with transportation needs both to work and to day care, as well as the uncertainty of many child care arrangements, are expected to keep many mothers of young children out of the labor market. Thus, the relationship between employment and child care for these mothers is thought to play a strong role in the link between welfare recipiency and child care. Welfare programs before and after welfare reform have targeted child care as a barrier to employment.1 Before welfare reform, child care subsidies were available to some recipients through federal Title IV-A funding sources for child care (AFDC/JOBS, At-Risk, Transitional Child Care) and through the Child Care Development Block Grant. These funds often came with matching requirements from the states. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) consolidated all these funds into state block grants, thereby permitting the states to design their own child care assistance schemes. States may supplement federal child care block grants with state dollars, but there is no longer a required state match. Thus, while the total federal dollar amount allocated to child care in Temporary Assistance for Needy Families (TANF) exceeds former federal Aid to Families with Dependent Children (AFDC) child care commitments, because TANF requires less in state matching expenditures, it is unclear what will happen to total child care expenditures as welfare reform evolves. Early postreform evidence suggests that while overall child care spending at the state level has increased, the increase is less than would have occurred had the matching requirements been retained. A recent study of welfare leavers reports that few are receiving subsidies (Schumacher and Greenberg 1999), and only 1.24 million of the approximately 10 million children eligible for federally funded support received assistance in 1997 (U.S. Department of Health and Human Services 1999). Underlying states' expenditures on child care subsidies are their subsidy eligibility guidelines, participation in such subsidy programs by the eligible population, and availability of subsidized slots or funds for those families applying for such funds. Only a small percentage of families eligible for subsidies based on the federal maximum income limits receive such support. Federal guidelines as outlined in PRWORA stipulate that federally financed child care subsidies can be made available to families with incomes up to 85% of the state's median income. However, as of July 1999, only five states had set their eligibility guidelines at the federal maximum. In addition, participation by the state-defined eligible group is quite low, partially because of a lack of information. City officials in San Francisco have used an innovative peer outreach program to increase participation by the eligible population, and by the start of 2000, the city was enrolling 50% of the estimated eligible population, an enrollment rate twice the statewide average (Heymann 2000b). Extensive data on post-TANF behavior are not yet available, nor will they be for some time. However, there is some evidence that workers continue to report that availability and cost of child care are barriers to self-sufficiency. …