NCPA - National Center for Policy Analysis

Child Care Costs, Employment, and Welfare: Do Subsidies Work?

June 20, 2003

Are availability and cost of child care significant barriers to self-sufficiency for single mothers on welfare? A new study in the Southern Economic Journal says yes.

The average weekly cost of child care for a working mother ranges from $48 to $68 depending on whether the child is cared for by a relative or in a center. This cost can represent one-fourth of the earnings of a single mother working full-time at minimum wage, a burden that may encourage some low-income single mothers to continue to receive Aid to Families with Dependent Children (AFDC).

Using data from the latter half of 1994 (before the late 90s economic expansion in which state welfare caseloads dropped dramatically), researchers determined the impact of federal child care subsidies on the probability of AFDC recipiency and the probability of being employed. Among their findings:

  • If all single mothers received a 10 percent child care subsidy, the level of AFDC recipiency would fall from 40.1 percent to 34.9 percent, and their employment rate would rise from 48.5 percent to 52.8 percent.
  • A 50 percent subsidy would further reduce the AFDC recipiency rate to 12.5 percent and would boost the employment rate to 74.7 percent among single working mothers.

The net cost of subsidizing child care for low-income mothers would be cut by the savings incurred from lower AFDC recipiency rates: When work becomes more profitable and convenient for low-income women, they are more likely to leave the welfare rolls.

Thus, subsidizing child care costs for all single working mothers could be an important policy (along with existing federal welfare regulations like work requirements and time limits) to lower welfare rates and encourage self-sufficiency through work.

Source: Rachel Connelly, et al., "The Effect of Child Care Costs on the Employment and Welfare Recipiency of Single Mothers," Southern Economic Journal, January 2003.

 

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