Treasury Dept. Report Highlights Market Failures in America’s Child Care System

The U.S. Department of the Treasury has released a comprehensive report titled "The Economics of Child Care Supply," which identifies systemic failures within the nation's private, market-based childcare system. The findings reveal that the current model leaves parents facing unaffordable costs while providers struggle with razor-thin profit margins and workers endure low wages. This analysis serves as a call for increased public investment to address the sector's fragmentation and ensure the long-term vitality of the American economy.

The Treasury report characterizes the U.S. childcare market as a "highly fragmented industry" composed primarily of small, single-establishment firms that struggle to remain solvent. In 2019, the sector was valued at $60 billion—roughly 0.25% of GDP—yet the 10 largest providers served less than 6% of children, highlighting a decentralized landscape of non-profits, for-profits, and home-based caregivers. Most for-profit facilities operate on profit margins of less than 1%, meaning even a brief dip in enrollment can be catastrophic. Because childcare is labor-intensive and cannot be automated, wages represent 50-60% of provider expenses, yet the industry is plagued by low pay and high staff turnover.

The report underscores a significant disparity in public funding, noting that the U.S. ranks 35th out of 37 OECD countries for investment in early childhood education relative to GDP. This underinvestment has direct consequences for the labor market; a 2018-2019 National Survey of Children’s Health found that parents of two million children under age five had to quit, decline, or significantly alter their jobs due to childcare barriers. Furthermore, aggregate U.S. female workforce participation has remained flat since 2000, while other developed nations have seen growth, suggesting that childcare accessibility is a primary driver of this stagnation.

In terms of market composition, the report notes that nearly 13 million children under age six received non-parental care for an average of 30 hours per week as of 2016. Home-based care remains a critical component, with 5.2 million providers caring for 12.3 million children under age 13 in 2019, offering the flexible hours necessary for parents with nontraditional schedules. Despite the existence of federal support through the Child Care and Development Block Grant (CCDBG) and Head Start, the Treasury concludes that the current system is "crumbling." The report advocates for policy interventions, specifically citing the Build Back Better Act, to rectify these market failures and establish a more sustainable, high-quality childcare infrastructure.