The Effect of Childcare Subsidy Eligibility Length on Parental Labor Market and Education Outcomes

Background and Purpose: Stability in childcare arrangements is important both for children and for parents, but it can be difficult for low-income families to achieve. Families receiving childcare subsidies are particularly at risk for childcare instability, as these subsidies require constant recertification of eligibility and have a high administrative burden. In 2014, the federal government took steps to promote childcare stability amongst subsidy recipients with the reauthorization of Child Care and Development Block Grant (CCDBG), which funds childcare subsidies through the Child Care and Development Fund (CCDF). This legislation lengthened the minimum eligibility period for subsidies from 6 to 12 months, forcing some states to expand their eligibility periods in response to the policy change. This study examines whether longer periods of subsidy eligibility impact parental income, employment, or education.

Methods: I link individual-level CCDF Administrative Data, which consists of monthly data for either the population of or a representative sample of subsidy recipients in each state, to state-level policy data from the Urban Institute’s CCDF Policies Database for Federal Fiscal Years 2009 to 2015. Outcome measures include monthly household income and the reason that the household is receiving subsidized childcare (parental employment or education).

The timing of changes in subsidy eligibility periods across states provide a natural experiment, as many states changed from 6-month to 12-month eligibility periods in response to the CCBDG reauthorization. I use a difference-in-difference specification to approximate a causal estimation of the effect of lengthened subsidy eligibility periods on parental labor market and educational outcomes. I estimate models by subgroup to examine potential heterogeneity in outcomes across different populations of subsidy recipients I validate the use of these models by showing parallel pre-treatment trends, and I conduct a variety of sensitivity tests with alternate counterfactual groups and with an alternative data set, the American Community Survey.

Results: I find evidence that the policy change may have decreased incomes for parents, specifically for parents living in Nevada, and decreased the likelihood of parental employment by 4 percentage points. At the same time, longer eligibility periods increased the likelihood of parental enrollment in school by an average of 7 percentage points. I find no difference in outcomes for various subgroups of subsidy recipients. Sensitivity tests indicate these results are robust.

Conclusions and Implications: Using a quasi-experimental method, I find that more stable subsidy arrangements have either no effect or a negative effect on parental income and employment, while increasing parental education. Rather than leading directly to increased income and employment, the expansion of eligibility periods may have nudged parents into a human capital investment—which tend to be a longer-term commitment, as most educational programs are at least one year—with the assurance of increased stability in subsidy receipt. As education is generally a short-term investment for long-term gains in income, lengthened periods of subsidy eligibility may be beneficial to children and to household stability in the long run.