Practical Considerations

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.”¹ 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.² Similarly, more than three-quarters of businesses in the United States—nearly five million businesses in total—have fewer than 10 employees.³ 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.⁴ 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.⁵

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.⁶

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.⁷ 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.⁸

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.”⁹

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.¹⁰ 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.¹¹

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.”¹²

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.¹³ 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.¹⁴

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.¹⁵ 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.¹⁶ 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.”¹⁷

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.¹⁸ 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.”¹⁹ 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.²⁰

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.²¹ 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.²²

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.”²³ 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.”²⁴

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.²⁵ 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.²⁶ 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. ²⁷ 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.²⁸

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.²⁹ 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.”³⁰ (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.³¹ 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.³²

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.³³ Business interests are also frequently involved in lobbying for tax cuts where the money could otherwise go to neglected services like child care.³⁴ 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.³⁵

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.