Ambitious Investments in Child and Elder Care Could Boost Labor Supply Enough to Support 3 Million New Jobs

It has been apparent for years that the United States could benefit enormously from a large public investment in care work--including early childcare education and elder care. A substantial investment in children would lead to a more productive workforce in the future, spurring large income gains. Investments in seniors would ensure that a decent and dignified retirement was available to all, a commitment that the United States has so far failed to sustain.

Crucially, both sorts of investment would greatly expand the opportunities for working-age adults to seek paid employment. It is well-documented by now that the employment rate of prime-age (between 25 and 54 years old) U.S. adults (particularly women) has stagnated relative to our advanced country peers, and it is equally as well-documented that the failure to invest in child and elder care is a key reason why.

Such an investment would substantially help stem the erosion of women's labor force participation in the United States relative to our advanced country peers.

This morning, the Biden campaign released a plan calling for a broad set of investments in child and elder care. Their plan would invest $775 billion over the next decade, a large increase over current levels. Such an investment would substantially help stem the erosion of women's labor force participation in the United States relative to our advanced country peers. In 1990, for example, women's prime-age labor force participation in the United States ranked 7th of 24 among the advanced economies with available data from the Organization for Economic Cooperation and Development (OECD). By 2000, the United States had slipped to 16th of 35 OECD countries, while in 2019 our ranking was 30th of 35.

In an earlier paper, we noted that closing the gap in women's labor force participation between the United States and its advanced country peers would lead to a gain of almost 5 million jobs. If an ambitious policy proposal--like the one proposed by the Biden campaign--could just halve that gap, then this would boost labor supply by roughly 2.5 million jobs.

In our earlier paper, we estimated the gains caused by a similar (but actually smaller) package of investments on just the childcare and education side. These public investments would provide support that made this care and education more affordable for families while also providing a needed boost to the pay and training of the care workforce--a workforce that is dedicated but grievously underpaid relative to the importance of their work.

We found these policies would boost labor supply by nearly 2 million by themselves, drawing on work from Blau and Kahn (2013). Given that the Biden plan includes more generous childcare and education subsidies as compared to the plan we evaluated, and given that it also includes substantial investments in elder care, we anticipate that the full labor supply boost caused by their plan could be closer to 3 million.

The potential labor supply gains by providing greater support for elder care are utterly enormous. For example, it has been shown that U.S. families provide nearly 34 billion hours of unpaid, personal work every year to provide care for older relatives. Any investment that allowed a nontrivial fraction of this work to be performed by professional care workers instead of unpaid family members would open up opportunity for these family members to search for jobs themselves.

The potential labor supply gains by providing greater support for elder care are utterly enormous.

It should be noted that many Republican policymakers are currently claiming they care deeply about the importance of spurring labor supply. This concern is the justification they often give for paring back the enhanced unemployment insurance (UI) benefits provided in the CARES Act passed in response to the economic shock of the coronavirus epidemic. But their stated concerns about the labor supply effects of these UI enhancements should not be taken seriously.

For one, in the near term, the number of jobs created in the U.S. economy will be entirely driven by labor demand, not supply. Evidence of this can be seen in the historically large job growth of the past two months, precisely when the extra $600 in weekly UI benefits was still available. In these past two months, even as enhanced UI benefits were available, an increase in labor demand (following the historic job losses of previous months) spurred historically rapid job growth (with 7.5 million jobs created in just two months), demonstrating conclusively that the constraint on job growth in this time was demand, not supply.

For another, boosting labor supply by impoverishing workers and chasing them back into any job that will take them in a depressed economy over the coming months would counteract the need to keep them safe and able to turn down work that might lead them to becoming vectors of spreading the virus. Given the recent explosion of new cases and virus spread, this is a real concern.

The appropriate time to worry about U.S. labor supply being a binding constraint on growth is in the long run after the virus is fully under control and the economy's demand shortfall is in the past. And the way to boost labor supply in an effective and humane way is not to make the safety net as stingy as possible, but instead to make public investments that broaden the range of opportunity available for working-age adults. The Biden campaign's commitment to make these investments is most welcome.