Backdoor Subsidies for Childcare Are a Bad Idea

by | Mar 6, 2023

Backdoor Subsidies for Childcare Are a Bad Idea

by | Mar 6, 2023

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When the social aspects of Joe Biden’s “Build Back Better” agenda died in Congress, it seemed that Democrats’ dreams of rolling out childcare subsidies had also perished. Yet now the media reports that Democratic lawmakers are using other legislation to achieve the same goals, albeit in one particular sector.

From The New York Times:

“On Tuesday, the Commerce Department will announce that any semiconductor manufacturer seeking a slice of nearly $40 billion in new federal subsidies will need to essentially guarantee affordable, high‐​quality child care for workers who build or operate a plant.”

In other words, the Biden Administration wants to allow funds from the CHIPS Act, a subsidy feast for the semiconductor industry, to be used by eligible companies to pay to build childcare centers, subsidize their workers’ care costs, or whatever else they deem necessary to achieve a new affordable childcare mandate as a condition of their funding.

In a Notice of Funding Opportunity (NOFO) released Tuesday, the Department of Commerce detailed the specific requirements that CHIPS funding applicants must abide by. Any applicant requesting over $150 million in CHIPS funding must provide a plan that includes access to childcare for facility and construction workers. The Department encourages applicants that request less than $150 million to provide childcare to the “greatest extent feasible.” The directive also requires that companies provide childcare that is affordable, accessible, reliable, and high‐​quality.

The White House argues that this is helpful to businesses because the absence of widely available childcare facilities constrains companies’ ability to hire parents as employees.

‘We are not asking companies to do anything outside their commercial interests…Everything we are asking them to do is good for their business,’ reiterated Commerce Department senior adviser Caitlin Legacki.

Yet Legacki’s comment begs the question: why would companies need to be mandated to do something that is unambiguously good for business?

Expensive childcare can indeed be a problem. But as we have argued repeatedly, high childcare costs and a lack of willing carers are in part a function of existing government policies, particularly at the local level.

For instance, zoning regulations prohibit home‐​based daycares, staff‐​child ratios limit the number of children any childcare staffer can care for, and restrictive licensing and educational requirements for carers limit the supply of childcare, thereby driving up prices in local markets and making it difficult for parents to access the care they need affordably.

At the federal level, immigration restrictions—such as the cap on the EB‑3 immigrant visas and prohibitions on year‐​round work for H2B visa holders—limit the number of childcare workers. Meanwhile, the J‑1 visa subjects au pairs to a variety of restrictions, including a maximum two‐​year stay, an on‐​site lodging requirement, and age and language requirements. These rules, along with state rules like those recently adopted in Massachusetts which require host families to pay au pairs the applicable local minimum wage, in addition to the usual program in‐​kind payment of shelter, food, and educational credits, make accessing affordable, consistent care more difficult for parents.

Besides increasing access and affordability of care, reforming these policies could increase fertilityboost maternal employment, and improve job matching and labor mobility across firms and industries.

Rather than overhaul these regulations, Democratic lawmakers instead seem intent on subsidizing childcare. One consequence is to drive up the price of childcare for those ineligible for subsidies—in this case, anyone with children employed outside of the semiconductor industry. The mandate, of course, will also make it more expensive for firms to achieve their semiconductor production goals for any given level of subsidy.

The CHIPS childcare requirement is part of a broader pattern, as the administration increasingly attempts to shoehorn its failed social agenda into unrelated economic legislation. As The New York Times states, this mandate

“joins a growing list of administration efforts to expand the reach of Mr. Biden’s economic policies beyond their primary intent. For instance, administration officials have attached stringent labor standards and “Buy America” provisions to money from a bipartisan infrastructure law. The child care requirement will be flexible for chip makers, but it will almost certainly divert some subsidy dollars that are meant to expand factory capacity and create jobs.”

Just last week, Commerce Secretary Gina Raimondo claimed that national security concerns justify semiconductor industrial policy. It’s not clear why mandating childcare for semiconductor plant workers is a national security concern.

Our colleagues here at Cato are skeptical that an industrial policy for semiconductors is necessary. But even if semiconductor industrial policy was a legitimate use of taxpayer funds, it seems odd to make producing chips more expensive by insisting that companies also meet childcare targets, which has nothing to do with the stated policy goal.

This article was originally featured at the Cato Institute and is republished with permission.

About Ryan Bourne and Vanessa Brown Calder

Ryan Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at Cato and is the author of the recent book Economics In One Virus. Vanessa Brown Calder is director of opportunity and family policy studies at the Cato Institute, where she focuses on polices that support family and increase opportunity.

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