Employer-sponsored child care benefits have emerged as a major trend over recent years. A 2023 article in the Wall Street Journal noted, “More Companies Start to Offer Daycare at Work,” while the Washington Post offered a few months later, “Newest Way to Woo Workers: Child Care at Airports, Schools, and Poultry Plants.”¹ The rise in employer child care benefits has been driven by a tight labor market, a supply-constrained child care sector, and in many cases by explicit government incentives. Yet the trend has received little scrutiny: Is it appropriate for employers to play a primary role in child care provision? What are the advantages and disadvantages of running child care through the employer-employee relationship, following the uneven results of providing health insurance that way? To what extent does doing so promote the idea that child care is a private, as opposed to a public, good? This report analyzes these questions—and finds the push for employer-sponsored child care needs serious reconsideration.

The turn towards employers has been coming from both sides of the political aisle. Republican-led states have been offering substantial incentives, as with Indiana establishing a $25 million Employer-Sponsored Child Care Fund.² President Biden’s administration, meanwhile, required semiconductor manufacturers to detail a child care assistance strategy for their employees as a condition of receiving Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act funding.³ The idea is very much in the air: Responding to the CHIPS child care measure, New York Times editorial board member Binyamin Applebaum suggested “this is a principle that ought to be expanded to other corporate recipients of federal handouts—and to the other components of a basic set of benefits that ought to be standard for workers in the United States.”⁴

At the moment, employer child care benefits are widespread but far from entrenched (see box below for a definition of these benefits). As of 2020, around 11 percent of U.S. workers nationwide had access to one of these benefits, although that rises to close to a third of high-salary private sector employees.⁵ Given recent movement, these numbers are likely now higher and headed further upwards: For instance, KinderCare, the nation’s largest private provider of child care, has reported a 50 percent increase since 2019 in the number of companies partnering with them for on-site centers and a 40 percent post-pandemic increase in child care tuition stipend partnerships.⁶ That means we have arrived at a pivotal moment for policymakers, advocates, and the public to discuss and decide on the proper role of employers with regards to child care.

“We have arrived at a pivotal moment for policymakers, advocates, and the public to discuss and decide on the proper role of employers with regards to child care.”

This report begins with a brief history of employer-sponsored child care benefits in the United States. Next, there is a discussion of philosophical implications surrounding employer-sponsored care. The focus then turns to the practical advantages and challenges posed by employer-sponsored care. Finally, the report looks at alternatives where employers can contribute to the child care system while avoiding the described pitfalls.

It is important to note that many, if not most employers offering child care benefits, as well as initiatives that encourage those benefits, are well intentioned. That intention should be applauded. Employers with a family-friendly orientation are important to a healthy society, and such an orientation can be reflected in other areas (like offering living wages, schedule control, and stable and sufficient working hours) as well as in unspoken corporate culture. Moreover, employers do have a key role to play in child care provision; they are undoubtedly a stakeholder, and at the moment, they are largely freeloaders in the sense that they receive gain from a child care system funded by parents and (limited) public money without paying into that system.

The argument in this report, then, is not that employees do not need or deserve benefits such as on-site child care programs, but that the benefits currently delivered by employers can be delivered—in a far more effective and fair fashion—by a fully publicly funded system into which employers contribute.

America faces a crossroads. With a broken child care system and high demand from parents, the nation can go down the path towards public funding or, alternatively, cement child care as an individual benefit to be derived from one’s employer. The employer path is appealing in its simplicity but brings with it all the negative elements seen with employer-linked health insurance. Given the large portion of the American workforce made up of low-wage workers and “gig” workers, doing so also raises the specter of increasing inequalities. Wherever one falls on this question, the next step is highly consequential, and must be taken with the thoughtfulness it deserves.

The history of employer-sponsored child care benefits, like many stories of the American child care sector, begins with the events of 1971. After President Nixon vetoed the bipartisan Comprehensive Child Development Act, hopes for a publicly funded child care solution quickly faded. An ascendant neoliberal agenda—which promoted, in short, the idea that government was the problem and free markets the answer—combined with an economic downturn to make major governmental investments unpalatable. Nixon’s assertion in his veto message that the federal government had no place in supporting child-rearing won the day.⁷

However, the need for child care continued to escalate as the economy rapidly transitioned away from one in which a single-earner family was sustainable. By 1978, 45 percent of mothers of children between ages three and six were in the workforce, as well as nearly 40 percent of mothers of infants and toddlers.⁸ By the mid-1980s, both groups were above 50 percent. No longer were only poor or widowed mothers working. For the first time, middle-class (and white) mothers were entering the labor market in droves—and they required child care.

As sociologist Erin L. Kelly has written:

Faced with a decrease in government funding and an increased demand for child care, child care advocates and policymakers turned to employers in the hopes that businesses and other organizations would begin to support child care. One of the central recommendations at the 1980 White House Conference on Families was the expansion of “family-oriented personnel policies” including employer-sponsored dependent care programs. Reflecting their interest in privatization, the Reagan administration’s White House Office of Private Sector Initiatives hosted forums for employers, supported research on employer-sponsored child care, and otherwise provided “publicity, a sense of activity, encouragement to act.”⁹

These were not minor efforts. In 1984, during the Reagan administration, the Department of Health and Human Services’ Administration for Children and Families funded a nearly 350-page book entitled, Employer-Supported Child Care: Investing in Human Resources. The book forcefully laid out the reasons employers should offer child care benefits and gave a practical guide for how to do so, calling employer-sponsored child care “an idea whose time has come.”¹⁰

Government policy encouraged employer-sponsored child care benefits through more than just words. Kelly notes that a major 1981 tax law included the first tax incentives for businesses around child care. The legislation, which “eventually led to the establishment of dependent care expense accounts, actually was intended by its congressional advocates to encourage employers to create new child care centers.” Today, employer-sponsored child care benefits enjoy a basket of tax credits and government grant opportunities.¹¹

It is worth emphasizing that the instinct to tap employers to solve a problem the government was unwilling to solve came from multiple interested parties. The White House Conference on Families referenced by Kelly occurred under the Carter administration. As the Reagan administration pushed the idea further, many child care advocacy organizations threw up their hands and followed suit. Historian Anna Danziger Halperin recounts that:

One [National Organization for Women] Child Care Task Force Coordinator even termed employer child care a “very hot item.”…The Organization for Women Office Workers, which changed its name in 1983 to 9 to 5: National Association of Women Office Workers, lobbied individual employers to provide vouchers to their workers and referral networks to assist employees’ search for care arrangements. The organization argued that employers should be doing much more to assist their workers in the absence of more universal approaches to care.¹²

This trend continued through the 1990s and early parts of the new millennium. For instance, in 1998 President Clinton held a Rose Garden event marking the release of a new Treasury Department report on employers and child care.¹³ The report was the product of a Treasury working group that included the CEOs of important corporations like the pharmaceutical giant Eli Lilly and leading insurance company Travelers Group, as well as the head of the AFL-CIO labor union, all of whom attended the launch event.¹⁴ As then-U.S. Treasury Secretary Robert Rubin wrote in the report’s introductory letter, “The report carries an important lesson: Investments in child care can pay off in real dividends for employers and employees.” (Notably, the report was silent on the idea of publicly funded child care or any steps businesses could take in that direction.)

What we are seeing in 2023, then, is not new. The pandemic shattered the child care sector’s fragile equilibrium, and the reality of America’s broken child care system has received arguably its most sustained and widespread media attention. Yet in response to the gaping need, policymakers and advocates are again casting their eyes on employers. Notably, this strategy did not result in the creation of an effective child care system over the past 50 years, nor did anything to arrest the slide into a patchwork system of high fees, low supply, poor educator pay, and questionable quality. It is unclear why one would imagine doubling down on the strategy will have a different outcome over the next 50 years.

There are several philosophical questions at stake with regards to employer-sponsored child care. Perhaps the most pressing is this: What is child care for?

The question is more complex than it may seem. While child care is frequently cast simply as a work support—a service that allows parents to work and thereby provide for their family, while keeping businesses and the economy writ large maximally productive—that is far from its only function. A partial list of child care’s other functions include:

• Supporting child development, including laying the foundations of socioemotional and academic learning as well as civic engagement;
• Enabling parents to choose where to live and how to invest in their community, choose the work-care situation that works best for their family, choose how many children to have, and explore entrepreneurial ventures;
• Lowering parental stress, thereby improving overall parenting along with family and child health, stability, and well-being;
• Improving community health and safety as well as the health of faith communities;
• Bolstering democratic participation of parents, and in particular the ability of mothers to run for and hold elected office; and
• Providing parents access to trusted parenting resources, connections to other parents, and a community hub.

None of the above functions are tethered to a particular place of employment, casting into doubt the philosophical underpinnings of employer-sponsored child care.

A useful analog can be found in the K–12 public school system. Schools inarguably serve a work-supportive child care function: If there remains any doubt, one need only consider the experiences of parents during the first year of the COVID-19 pandemic when most schools closed for months on end.¹⁸ Having to juggle remote schooling and work caused many parents, especially mothers, to experience acute stress; parental labor force participation temporarily plummeted.¹⁹ Moreover, if there were no public schools—or if parents had to come up with the roughly $14,000 average per-pupil expenditure each year that goes into public education—the experience of parenting would look very different.²⁰ Yet there are other major roles for schools, many an age-adjusted version of the list above.

For instance, schools provide learning that helps give children the skills and knowledge to be productive contributors to society, and they provide a common experience that undergirds our democracy. There is a reason that Thomas Jefferson argued in his 1778 Bill For the More General Diffusion of Knowledge that:

Experience has shown, that even under the best forms, those entrusted with power have, in time, and by slow operations, perverted it into tyranny; and it is believed that the most effectual means of preventing this would be, to illuminate, as far as practicable, the minds of the people at large.²¹

That is not an economic case, nor is it a case that maps onto employer sponsorship of schooling. Indeed, suggestions that employers be responsible for offering employees benefits to defray the cost of the third grade—or, better yet, to offer an on-site elementary school—come across as farce. Yet despite child care carrying a similar (albeit not identical) rationale, running child care through the employer-employee relationship draws little comment.

Embracing child care solely as a work support can also lead to what I have termed the “minimum viable child care fallacy.”²² Simply put, if all one wants is a place for children to be so that parents can work, then there is no need to build a high-quality system of choice with well-compensated educators. In fact, sustaining a healthy child care system—which is inherently more expensive than a minimal one—begins to eat into the raw economic return on investment. The logic of a robustly funded and universal system is, I assert, not compatible with a view of child care that considers it appropriately provided by employers to their employees. This is one of several reasons why the U.S. spends nearly $800 billion in public money every year on K–12 education versus a mere $34 billion on child care.²³

Services like schools and child care stand in stark contrast to benefits that are entirely tethered to work. Worker’s compensation insurance is a good example. It exists as insurance against injuries sustained on that particular job. There is no other function, and no reasonable application for worker’s compensation outside of the employer-employee relationship.

In fact, employer-sponsored child care benefits join worker’s compensation insurance as part of what scholars consider the “private welfare state.” This is not an oxymoron; as the historian Michael Katz has explained, “employee benefits fit within the framework of the welfare state because they have been encouraged by the federal government, which allows employers to deduct their cost from taxes, and are regulated by federal legislation. Without them, the public welfare state would have assumed a very different form.”²⁴ (For instance, New Zealand does not have employer-linked worker’s compensation insurance but instead a public Accident Compensation Corporation that covers all residents.²⁵)

While private welfare can make sense in some situations, it can be deeply troublesome in others. The canonical example of private welfare in the United States is health insurance. As I have written in a different medium:

We’ve been at this crossroads before, with health care. During World War II, companies began offering health insurance as a perk. This was done to get around wage caps established in 1942 to prevent the economy from going haywire as companies competed for the suddenly shrunken labor force. Coming out of the war, President Harry Truman proposed a national health-insurance system akin to what would become the U.K.’s National Health Service. The plan failed under opposition not just from business interests but from several major labor unions that had become invested in the idea of employer-sponsored insurance—a decision whose effects the country still feels today.²⁶

While we will look in the next section at the practical problems with replicating the health insurance model, it is worth sitting for a moment with the distinction between public and private provision of services. There is a suite of services that American society has decided create enough widespread benefits to be paid for through taxation and distributed widely: Examples include not only public schools but libraries, parks, fire departments, roads, and so on. By contrast, there is a suite of services that society has decided do not meet this threshold and instead individuals are expected to obtain on their own, perhaps with some assistance from their employer. Examples here include not only health insurance but transportation, gym memberships, and pet care.

Indeed, reliance on the private welfare state is at odds with much of the messaging coming from advocates and legislative champions for child care. For years, these groups and individuals have been pushing the idea that child care deserves major public investment because it is a public or social good as opposed to a private one. A typical example comes from U.S. House Minority Whip Katherine Clark (D-Mass.), who said in 2023 regarding COVID-19 pandemic funding for child care, “The reality is we have a long way to go to build a child care system that works for working families. But this relief funding has proved what’s possible when we invest in child care, when we treat it for what it is: a public good.”²⁷

Such language explicitly attempts to place child care in the same category as schools and roads, while promotion of employer-sponsored child care benefits furthers its place as a private good. The lack of reckoning with this inherent contradiction speaks to the lack of reflection about what philosophy is necessary to build an effective child care system that works for all involved.

Philosophy aside, an emphasis on employer-sponsored child care benefits raises a bevy of practical concerns that deserve a sharp look.

Employer-sponsored child care benefits disproportionately reach higher-income “white-collar” workers. This is due to a combination of it being easier to provide benefits to this population—they are a smaller group, tend to turn over less frequently, and generally work during “standard” hours and days—and because the return on investment is greater given their ostensibly less fungible skill sets. (Put another way, it is easier and cheaper to replace a warehouse worker than a lawyer.) As the scholar Audrey Latura has written, “If employer child care remains a benefit only for socioeconomic elites, we should expect to observe a development parallel to that of the U.S. health care system, where lower wage workers have fewer and less generous benefits—but with the compound effect of disparities by gender.”³³ This is not a new observation; even the 1984 Administration for Children and Families book promoting employer-sponsored child care warned an unintended consequence could be creating a “child care ‘rich’” and a “child care ‘poor.’”

Moreover, there is a large swath of workers who are categorically ineligible for, or otherwise unlikely to be able to access, such benefits. That includes freelance and “gig” workers, who do not have an employer of record from which to derive benefits. While exact numbers are difficult to come by, experts estimate there are at least 60 million Americans engaged in freelance work.³⁴ Similarly, more than three-quarters of businesses in the United States—nearly five million businesses in total—have fewer than 10 employees.³⁵ These companies are unlikely to have the resources needed to offer substantial fringe benefits. Finally, even among large companies, part-time workers (usually those working less than 30 hours a week) are frequently ineligible for benefits.

There are other inequalities that emerge within employers that do offer child care benefits. In particular, on-site centers commonly (though not always) benefit employees who work at company headquarters as opposed to frontline workers.³⁶ Researchers Lena Hipp, Taryn Morrissey, and Mildred Warner have further reported that:

Program participation is unevenly distributed. The peripheral workforce, that is, low-status hourly workers, part-timers, and temporary employees, is often not eligible to participate in these programs, and managerial and professional workers fear career repercussions when participating in work–family programs. Furthermore, in cases where all employees are eligible for employer assistance, employees differ in their likelihood to participate. In particular, the child care needs of low-skilled workers are quite diverse and may not be met by a one-size-fits-all approach, such as an on-site center operating during standard hours. In addition, there may be institutional factors—specifically, a lack of information regarding the benefit and stigma in participating in work–family benefits—that reduce the likelihood of employee participation in employer-provided policies among both low- and high-status employees.³⁷

These challenges do not arise in a universal, publicly funded system of inclusive child care options. It is clear that employer-sponsored child care benefits are not—and can never be—a fair way to provide access to child care.

The phenomenon of “job lock” is most commonly talked about with regards to employer-sponsored health insurance benefits, although it can refer to any employee benefit. As a Government Accountability Office (GAO) report defines it, job lock is:

the term used to describe the concept of workers staying in jobs they might otherwise leave for fear of losing access to [benefits like] affordable health coverage. By definition, job lock, to the extent that it exists, is considered a negative phenomenon for an individual worker because it keeps them from making their preferred labor mobility choice, such as to change jobs, start a business, reduce work hours, or exit the labor force to stay home with children or retire.³⁸

Job lock is a well-established condition; for instance, the GAO notes “one study found men with employer coverage were about 23 percent less likely to leave a job compared to those who also had access to coverage through a spouse.”

While the universe of potential recipients of child care benefits is far smaller than those who need health insurance, there is every reason to think that job lock occurs with child care benefits. Instead of “lose your job, lose your health care,” the equation is “lose your job, lose your child care.” In some ways, this latter situation is even worse—at least for parents and children, as job lock is favorable from an employer perspective—for two reasons. First, there is no equivalent of Continuation of Health Coverage (COBRA) or the Affordable Care Act marketplaces for employees to rely on for bridge coverage; instead, parents are thrust immediately into the failed child care market where supply is often nil and waitlists can be months to years long.³⁹ Second, young children thrive on caregiver reliability and their development is mediated through trusted relationships; multiple transitions in child care settings is correlated with increased risk for behavioral problems and other negative outcomes.⁴⁰

Beyond impacts on individual employees and their children, job lock can have economy-wide ripple effects. The Washington Center for Equitable Growth has noted that, “A parent’s child care needs may be similar whether they are working at a semiconductor plant, an auto factory, a fast-food restaurant, or a retail store. But if only one of these employers offers government-supported child care benefits, then it can create less competitive and less productive overall labor market conditions.”⁴¹

Employer-sponsored child care benefits, then, are not entirely benign: There are real downside risks.

Employer-sponsored child care does nothing to address the fundamental challenges within the child care system, nor does it promote a pluralistic system of choice. Child care labors under tight economic strictures: The service is very expensive to provide because of the number of personnel needed to maintain a low child-to-adult ratio.⁴² Staffing costs frequently take up 60 to 70 percent or more of a program’s budget. Even though programs charge parents high fees—frequently $10,000 or more per child per year—most operate on exceedingly thin margins. The only way they can function is by offering low wages and poor benefits, which is why the median child care wage is around $14 an hour (roughly $29,000 a year) rivaling that of dog walkers or parking lot attendants.⁴³

In short, what is needed in the system is more funding. Employer-sponsored child care benefits do not meaningfully meet this need. As the journalist Annie Lowrey has explained, “Without a lot more public spending, care for children under five will never be affordable and amply available to parents, while also offering decent compensation to employees. The math does not work. It will never work. No other country makes it work without a major investment from government.”⁴⁴

Employer stipends or subsidies merely replace a portion of child care programs’ inadequate revenue with employer money instead of parent money; the overall equation does not change. Contracting with community-based programs to reserve slots for employees, or to allow employees to cut in line on waiting lists, similarly does nothing to build out supply, stabilize and ensure a high quality workforce, or address the other underlying economic challenges.

Hypothetically, on-site child care centers add more supply to the system than would exist without them, as employees using the on-site programs would free up spaces in community-based programs. However, since child care is what the U.S. Treasury Department calls a “failed market,” that is not necessarily how it plays out in practice.⁴⁵ As of January 2024, the child care sector remains down nearly 30,000 educators from pre-pandemic levels, so on-site programs introduce new competition for a scarce pool of staff.⁴⁶

Since programs’ ability to serve children is tied to having enough staff to meet minimum ratios, this amounts to squeezing on different sides of the same too-small balloon. Insofar as on-site programs end up poaching staff from community-based programs, it may also exacerbate inequalities. They certainly do nothing to improve the overall quality of the system. (Direct payments to community-based programs avoid this pitfall, another reason it is recommended further below as one of the best interim options available to employers.)

What’s more, employer-sponsored child care benefits tend to be biased towards more formal types of child care, namely child care centers. Experts generally agree that an effective child care system is pluralistic and includes both secular and faith-based centers; family or home-based child care programs; family, friends, and neighbor caregivers; nannies and au pairs; and stay-at-home parents.⁴⁷ Employer-sponsored benefits do little to nothing for several of these categories, in essence reducing the choices available to parents.

Even within the center-based segment, employer-sponsored benefits disproportionately flow to large for-profit corporate child care chains. The two companies that dominate in the employer space are KinderCare, which is owned by a Swiss private equity firm, and Bright Horizons, which used to be owned by the private equity firm Bain and is now publicly traded on the stock market.⁴⁸ Stephen Kramer, CEO of Bright Horizons, was quoted in late 2023 as saying “we are seeing a real renaissance in increased interest for on-site centers.… coming out of the pandemic, interest has certainly eclipsed what we have seen in our history.”⁴⁹

Concerns have been raised about how the profit motive plays into these companies’ decision-making, and their political activity has at times opposed major public child care investments that could threaten their business model through mandated reductions in parent fees or increases in educator wages.⁵⁰ This is a familiar playbook. As Brendan Ballou, former U.S. Special Counsel for Private Equity at the Department of Justice and author of Plunder: Private Equity’s Plan to Pillage America, wrote, “Quite simply, Congress works for few constituencies harder than it works for private equity.”⁵¹ Ballou notes that private equity lobbying on legislation related to companies they own is frequently both large and misaligned with the public interest. For instance, private equity firms spent $54 million in 2019 to successfully oppose legislation that would have curbed surprise medical bills, to say nothing of the many members of Congress whose campaign coffers they regularly line.

To the extent that employer-sponsored benefits increase investor-backed chains’ market share, then, the offerings may make the road to a publicly funded system that much steeper.

Employers have been known to change their minds when it comes to the benefits they offer employees. This can occur when economic conditions change, or when there is a change in leadership.

An infamous example happened when Elon Musk took over Twitter (which he later renamed X). In November 2022, Musk sent out an internal memo revoking a series of benefits including subsidies for home internet, stipends for professional development, and a child care allowance.⁵²

Events as dramatic as Musk’s takeover are not required to drive shifts in benefit policy. In January 2024, facing financial headwinds, Google revealed it was closing the child care center by its headquarters and laying off the center’s 73 staff.⁵³ Similarly, in July 2022, Hackensack Meridian Health Systems—New Jersey’s largest health care provider and one of the state’s biggest employers—announced it was shuttering its on-site child care centers. The reason given was financial. In a letter, hospital leadership wrote:

The current child care landscape is rapidly changing, putting a great deal of financial and staffing pressures on organizations that offer child care services. In addition, there is a heavy capital commitment needed to maintain the child care facilities.…After deliberate and careful consideration of all options, we have determined that it is in the best interest of our patients and communities to focus our efforts on our core mission of patient care.⁵⁴

The decision drew a firestorm of criticism from health system employees, and within a month Hackensack Meridian reversed the decision.

Not every staff is so lucky, however. In October 2023, the Carle Foundation Hospital in Urbana, Illinois, announced their on-site center would be closing at the end of the year. Their explanation mirrored Hackensack Meridian’s: “We must make the necessary decisions to continue to meet the needs of our patients and maintain the level of care our communities deserve.”⁵⁵ This time, however, no reversal was on the horizon. One nurse told a local news station, “It’s kind of an insurmountable stress. It’s somewhat unbelievable. You become family with the teachers at day care. Your children learn them, you learn them. You become a family.”⁵⁶

In general, economic pressures create substantial risk for benefit changes. In a December 2022 survey of 500 companies conducted by Care.com, fully 30 percent said they planned to cut back child care benefits if a recession took hold.⁵⁷ Even if that number was off by half, it demonstrates how volatile employer-sponsored child care benefits can be.

A frequent response to concerns about employer-sponsored child care benefits is, “Why not both?” Why not have employer-sponsored child care alongside community-based care? The answer is that unlike issues in which both-and is additive, the embrace of employer-sponsored child care comes with serious opportunity costs. Beyond the philosophical opportunity cost of accepting the premise that child care is merely a work support and private benefit—after all, if employers can handle it, why come up with billions in public funding?—there are practical and political opportunity costs as well.

The first cost is public funding directed to employer incentives. As mentioned, Indiana has established a $25 million Employer-Sponsored Child Care Fund. This follows the example of neighboring Iowa, which in 2022 made a similar $25 million outlay.⁵⁸ In recent years, Wisconsin spent $10 million on a program allowing employers to purchase slots at local programs for their employees, and Kansas passed a law expanding the eligibility and amount of their tax credit for employer-sponsored care, authorizing up to $3 million a year in credits. ⁵⁹ Again, this is a trend in both Republican- and Democratic-led states. As of this writing, the Massachusetts legislature has been advancing a bill to establish an Early Education and Care Public-Private Partnership Trust Fund, and the New York legislature set aside $50 million for employer child care tax incentives.⁶⁰

These efforts represent significant sums at the state level. For instance, in FY23 Iowa received about $71 million in federal Child Care and Development Block Grant funding, the main source of child care funding used to provide subsidies to lower-income families and otherwise support states’ child care sectors.⁶¹ At the same time, in 2022 Iowa chose not to access an additional $30 million in federal child care funds. Regarding that decision, the Des Moines Register reported that, “The governor’s office says the loss of that money is the result of a deliberate decision to avoid having to commit $3 million in matching state funds towards child care.”⁶² (Note: The money Iowa used for its business incentive grants could not have been used as matching funds because it was taken from federal pandemic relief funding.)

While Iowa is only one example, it is instructive. A simple counterfactual where the $25 million was used not for employer-sponsored child care incentives but simply to boost the existing child care system would have resulted in a 35 percent increase in the state’s base child care outlay. That funding could have been used to increase the number of Iowans eligible for subsidies, increase the subsidy rate to providers, or give direct funding to programs to improve staffing capacity and stave off potential fee hikes or closures. Instead, the state is doubling down on business incentives while refusing to come up with $3 million out of an $8.21 billion state budget to draw down $30 million in federal funds.

By emphasizing employer-sponsored child care, legislators—particularly Republicans, who tend to prefer business-led approaches in many public policy areas—are given an easy “out” on the hard work of creating a child care system that works for all constituents. Political science scholars draw a useful distinction between legislators’ “responsiveness” to public opinion and their “congruence” to what specific policy the public may want.⁶³ In colloquial terms, legislators often like to look like they are responding to public demands while following their own preferred policy path. Given all the shortcomings of employer-sponsored child care detailed in this report, it is unlikely the public would prefer investments that are narrow, exclusive, unfair, and fickle over those that are broad, sustainable, and support a choice-based system. However, legislators can pass incongruent policies, claim a win for their constituents, suggest they’ve taken care of the problem, and move on.

This can be the case in Democratic-led states as well. In late 2023, New York Governor Kathy Hochul—the same governor who touted $50 million in child care business tax incentives—vetoed a bill that would have decoupled child care assistance from a rigid system that relies on the specific number of hours worked. This policy is widely considered to be punitive for lower-income families, single mothers, parents working non-traditional hours, and others who have unpredictable schedules, making it exceptionally difficult for these parents to attend doctor’s appointments or pick up children from school. It also imposes onerous administrative burdens on families, requiring them to meticulously track and document hours worked. Yet when Hochul vetoed the bill, she cited the cost—which advocates peg at $40 million.⁶⁴

The other political opportunity cost comes from giving corporations (and, by extension, corporate child care chains) growing power over the child care conversation. The more child care is run through businesses, the greater the relative influence those businesses will have on the issue. Corporate attitudes towards major child care policy proposals are checkered at best: For instance, the U.S. Chamber of Commerce put up a six-figure ad campaign against the Build Back Better Act, legislation that contained $400 billion in child care funding.⁶⁵ Business interests are also frequently involved in lobbying for tax cuts where the money could otherwise go to neglected services like child care.⁶⁶ And, as mentioned, private equity-backed child care chains are not necessarily aligned with the rest of the sector: After Sen. Joe Manchin killed the Build Back Better Act, several chain executives showered him with campaign donations.⁶⁷

Finally, there is a temporal opportunity cost. Beyond funds, the time, energy, and attention given to the issue comes from a finite pot. Every meeting spent with a legislator focused on employer-sponsored child care is a meeting not spent focused on the need for a publicly funded system. Every time a policy or advocacy organization has a convening or releases a brief about employer-sponsored child care is capacity that could otherwise be used to advance a publicly funded system. Even the time taken to write, edit, and produce this report—and for you to read it—has an opportunity cost.

Put together, it is clear the question of employer-sponsored child care benefits versus a publicly funded system is not reducible to the question of “Why not both?” They are substantively different paths. If employer-sponsored child care is to be promoted, it should be done with a full understanding of the costs involved.

What, then, is the proper role for employers with regards to child care? I suggest a three-pronged answer.

The only real solution to America’s child care needs is a system of choice that is funded by a permanent stream of public dollars. Estimates of how much is ultimately needed at a national level range from around $100 billion to $250 billion per year.⁶⁸ (As a reminder, in 2023 the U.S. spent close to $800 billion per year in public funds on K–12 public schools—about $14,000 per child—versus $34 billion on the more expensive service of child care.) As one benchmark, the Organisation for Economic Co-operation and Development (OECD) recommends nations spend 1 percent of their GDP on child care (inclusive of all early care and education settings such as pre-K).⁶⁹ America is currently near the bottom of the table at roughly 0.3 percent of GDP; the OECD and European Union average is 0.7 percent, with peer economies like France exceeding the target.⁷⁰ For the United States to meet the 1 percent GDP goal, it would need to spend about $230 billion a year.

While it is hopefully clear by now there is danger in giving corporations too much clout around child care, active participation from the business community—as well as identifying pay-fors that include employer sources—is required to gather the political will to pass those levels of investments.

There is precedent here. In 2023, Vermont passed a major expansion of child care funds, Act 76, which created a nearly $125 million annual funding stream.⁷¹ The funds allow the state to subsidize the care of more than 7,000 additional Vermont families every year (a significant increase for a small state) and increase the per-child subsidy reimbursement rate to providers by more than a third. On a per-capita basis, Vermont now puts into child care more state money than any other state in the nation.

Act 76 is primarily funded by a payroll tax levied on all Vermont businesses in the amount of 0.33 percent paid by employers and 0.11 percent paid by employees. Importantly, businesses themselves were instrumental in advocating for this tax, including testifying in favor before the Vermont legislature. As one article about Act 76 noted:

The advocates [from the group leading the effort, Let’s Grow Kids] organized a group of seven business leaders and educated them on the systemic issues of child care, as well as the potential returns on investments for their businesses…

They then asked those leaders to look at the state’s revenue sources. The business owners chose the payroll tax as the best option. Then they told legislators.

“Each of them said, ‘Tax me,’” [Let’s Grow Kids CEO Aly] Richards said. “Vermont makes more money, I make more money, my employees make more money, and we pay off this payroll tax surcharge basically, before half the year’s over. That was the sort of final thing that pushed us over the finish line.”⁷²

Similarly, when the small, conservative rural town of Warren, Minnesota, was facing a child care shortage in 2022, business leaders rallied to ensure voters passed a half-cent sales tax to generate $1.6 million to build and operate a city-owned, nonprofit-run child care center. Minnesota Public Radio reported:

Business leaders pushed hard for the tax. They understood how a shortage of child care was limiting economic growth.

“It’s the number one factor,” said Phil Thompson who chairs the Warren Economic Development Authority and owns an accounting and crop insurance firm that employs about 30 people.⁷³

This type of vocal advocacy—one that goes beyond platitudes and leans into measures that raise dedicated tax dollars—is where businesses should be pouring their child care energy. This can involve both donations to advocacy organizations, as well as direct political activity.

It is worth noting that, generally speaking, corporate interests have vastly more political influence than child care advocacy groups. No child care advocacy group spends more than $500,000 a year on federal lobbying, and there are only a handful at the federal or state level with a legal entity set up to make campaign contributions.⁷⁴ On the other hand, corporate executives are frequently top political donors, and at times even personal friends with legislators. One study looked at political giving from 400,000 corporate leaders at 15,000 of the largest U.S. companies. It concluded that “the corporate leaders…gave 19 percent of the total dollar amount recorded by the [Federal Election Commission] between 1999 and 2018. While less than 1 percent of all Americans donated during that period, 40.5 percent of corporate execs did.”⁷⁵

Businesses, then, have a critical role to play in the fight for an effective child care system: It’s hard to see how we achieve a publicly funded system without their influence, or with their influence being used to oppose new revenue streams in favor of employer benefits.

That said, there is a reasonable argument that advocacy is a long game, Congress is gridlocked, and employers are suffering the ill effects of inadequate child care here and now. The best short-term action is to expand the capacity and sustainability of community-based programs through grants and offers of in-kind services.

An example of this type of investment is what Corning Inc. does for its hometown of the same name. Fast Company reported in 2021 that “the company invests $2.5 million a year to fund five local community day care centers that care for 400 children. Corning employees as well as community members have access to the centers.”⁷⁹ Corning has been making these investments since the 1980s, making it one of the most durable examples of an employer supporting inclusive community-based child care. Knowing that not every company is as stable as Corning, ideally such support would come with a lengthy contractual commitment, perhaps of 10 years, to guard against the fickleness described in the previous section.

Importantly, direct support of community-based programs does not have to be limited to child care centers. The Fast Company article goes on to explain that:

Companies can also work with the local non-profit child care resource and referral agency to create a grant program for local in-home day care providers. For instance, [Chris Sharkey, president of Corning Enterprises at Corning Inc.] is working with the Chemung County Child Care Project to create a grant program for in-home day care providers in Steuben County, where Corning Inc., is located, and nearby Chemung County. The program allows new providers to apply for funds to pay for items that would allow them to meet licensing requirements such as smoke and carbon monoxide detectors, fire extinguishers, and sprinkler systems. “Even a modest investment of $500 can make a difference to an in-home provider,” she said.⁸⁰

In some cases, employer investments are made with more specific intentions, such as offering enough funds that providers can extend their hours to help employees of companies who do not work a traditional nine-to-five schedule.

It is worth noting how qualitatively different these investments are from solely pursuing on-site child care centers or stipends: First and foremost, community investments add new money into the system without enhancing inequalities. In situations where employer offices are not located near any community-based providers, employers could either supplement on-site centers with community investments or work with community partners to start new programs in the vicinity.

For large companies with a national footprint and geographically dispersed facilities, intensive community investments may not be feasible. These companies are more apt to turn to stipends as opposed to (or in addition to) on-site centers. As those stipends do nothing to help with child care supply, staffing, or quality, employers may consider matching a percentage of the stipend that goes to employees with funds that go directly to the employee’s child care provider.

While still inferior to a publicly funded and universal system, businesses’ direct support of community-based programs can be a positive intermediate step.

As I have tried to emphasize throughout this report, implementation of a publicly funded child care system does not necessitate employers abandoning on-site child care centers or other child care benefits. For certain employers, such as hospitals, having on-site programs makes enormous sense. Instead, these programs can become part of the broader system, and companies should start thinking now about what that looks like.

France offers a good example. The French child care system is solid if imperfect: France exceeds the OECD target of spending at least 1 percent of GDP on child care services, and the country maintains an admirable network of high-quality crèches for younger children before they enter école maternelle, the nation’s universal pre-K system, at age three.⁸³ A 1989 New York Times article entitled “How France Is Providing Child Care To a Nation,” quoted a member of a visiting U.S. delegation as saying, “We have seen the future, and we’re behind.”⁸⁴

France has on- and near-site workplace child care centers, currently making up slightly less than 10 percent of formal child care facilities.⁸⁵ These are known as crèche d’entreprise. A subset, crèche inter-entreprise, are shared among several employers. Employers do contribute to operating costs since these have reserved slots for their employees (although some have community slots as well), but between public subsidies and tax breaks, employers only end up on average covering 17 percent of the slot cost.⁸⁶

Importantly, these programs are fully incorporated into the broader French system. While there is also an ongoing controversy in France about the involvement of investor-backed for-profit child care chains, crèche d’entreprise generally operate under the same government regulations as community-based programs. As one article explains:

Parents’ financial contribution is calculated based on a scale and varies depending on the household’s resources. The place in a company crèche costs parents the same as the municipal crèche, on average 220 euros [$240 USD] per month.⁸⁷

The presence of public funding, then, may actually help employers expand the reach of their on-site programs. Similarly, child care stipend dollars will go farther—or can be repurposed—in a system where child care fees are affordable or even free for many employees. Businesses should have a sense of how they want to fit into a publicly funded system. As they are doing so, business leaders should engage with policymakers to explain what they need to make a smooth transition.

By preparing to integrate into such a system rather than stand isolated, employers can ensure their self-interest remains aligned with the interests of their employees, communities, states, and the nation as a whole.

Employer-sponsored child care benefits carry an inherent tension. They do help—sometimes tremendously—the small circle of recipients. Many employers are unimpeachably sincere in their intentions to support employees. Yet there is a real tradeoff against the philosophical and practical efforts being made to build an inclusive, fair, high-quality, publicly funded system that works for all involved. It is arguably like taking painkillers for cancer. They can ease the pain for a while, but the body gets sicker, and the temptation to overly rely on painkillers only grows.

The rush to embrace employers as a key pillar of child care provision therefore should not be done lightly nor uncritically. The issue of child care generally has received far less scrutiny and philosophical engagement than one like K–12 education: There are entire books, courses, and degree programs dedicated to the philosophy of education that have few child care equivalents.

This is a moment to defy that relative lack of analytical depth and civic debate. Defaulting to the path of least resistance will have serious consequences. Today’s stopgap measures can easily become tomorrow’s status quo. What’s more, the next 10 years may well represent a final opportunity for America to determine how it wants to position child care and support its families. Declining birth rates, an aging society, plus rising costs of pensions, health care, and social safety net programs—all set within a context of increasing climate disruptions—are likely to divert attention as well as resources.

Employers might have a role in an idealized child care system. It is my contention that whatever direct role they play must be subordinate to their active support of a publicly funded system. Employers are not a sustainable core solution for the problem of child care. This is not their fault; on philosophical and practical grounds, employers are misaligned with the child care needs of American families, child care educators, and children. Public or social goods are simply not delivered through the employer-employee relationship. Rights are not conferred via fringe benefits. Any current or future efforts to promote employer-sponsored child care must reckon with these tensions if we are to have any hope of achieving a nation with a healthy, prosperous economy and healthy, prosperous families.