Childcare funding as stimulus

Women, especially mothers, have left the labor force during the pandemic at higher rates than men. One of the main culprits behind this trend involves increased caregiving needs caused by childcare challenges and school closures, which have fallen disproportionately on mothers. Research suggests the caretaking challenges introduced by the pandemic make it harder for families to adapt to job loss and that easing mothers back into the labor force could be crucial to our recovery. Congress should consider a temporary — but substantial — increase in childcare and school funding as a way to stimulate the economy.

There is little doubt the pandemic has disproportionately affected the labor force attachment of mothers. According to data analyzed by the Dallas Federal Reserve, the initial shock of the pandemic impacted men and women somewhat similarly, but labor force participation declines have persisted among mothers. The labor force participation rate was three percentage points lower for mothers in September 2020 compared to February.

Between July 23 and August 7, 2020, we surveyed working-age adults and found similar effects.  Women, according to our survey, experienced a steeper decline in labor force participation than men following the start of the pandemic.

AEI’s Employment and Safety-Net Survey allowed us to assess the implications of childcare on employment specifically. We found that rates of full-time employment declined much more sharply among mothers than childless women between the beginning of the pandemic and late July 2020. Most striking, however, was the 25-percentage-point decline in full-time work among mothers of young children (0-5) who used childcare prior to the pandemic.

We found this change in full-time employment was concentrated
among parents of young children (0–5) who used childcare before the pandemic
but did not have any in place when we surveyed them in late July 2020. Of
course, employment loss reduces the need for childcare in many cases, which partially
explains this trend. But the results also highlight the importance of childcare
in supporting full-time employment among mothers.  

Researchers Titan Alon, Matthias Doepke, Jane Olmstead-Rumsey, and Michèle Tertilt explained in their August 2020 NBER working paper why this might hurt the long-term economic recovery. They argue that caretaking responsibilities have reduced “within-family insurance” present during regular recessions. They explain:

“Women whose husbands become unemployed still increase their labor supply in the initial period of the [pandemic] recession, though only by half as much as in a regular recession. However, this insurance effect becomes smaller in subsequent periods. As the pandemic recession progresses, many of the women who initially worked part time drop out of the labor force to meet childcare needs, which makes it more difficult to find a job and expand employment later on. Family insurance continues to exist in the sense that women whose husbands are unemployed work more than others, but this takes the form of not cutting hours rather than increasing hours. Families are able to soften the blow of falling earnings, but truly compensating for income losses by working more is not feasible for most couples during a pandemic recession.”

The authors further explain that the inability of women to
compensate for men’s employment loss results “in a strong transmission from
income shocks to reduced consumption”. They suggest their findings “imply that
economic stimulus measures are likely to be highly effective” during a pandemic
recession, such as increasing childcare availability and opening schools.

“We observe that opening schools would immediately mitigate the economic impact of the pandemic by reversing more than half of the decline in labor supply brought about by the recession. The impact on labor earnings is even larger: losses in labor earnings are reduced by about two-thirds. This large economic impact underscores the key role of increased childcare requirements for the drop in economic activity during the pandemic, and shows that reopening schools is much more effective, in economic terms, than reopening specific sectors with small shares of aggregate employment shares (such as gyms, bars, and restaurants).

The pandemic has yielded devastating results for mothers’ employment, the long-term effects of which are still unknown. Research suggests stimulus efforts could do a lot to hasten the recovery by helping mothers reenter the labor force. Congress should consider increasing childcare and school funding in the coming months.

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