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Speaking of the Economy
Speaking of the Economy - Kartik Athreya
Speaking of the Economy
Feb. 10, 2021

Unequal Access to Child Care

Audiences: Community Advocates, General Public, Policymakers, Workforce Sector Leaders

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Kartik Athreya, executive vice president and director of research, shares his experiences on the Back to Work Virginia Task Force, which was formed last April to develop policies and practices to strengthen the state's child care industry. Athreya also discusses the economic impact of unequal access to child care.



Jessie Romero: I'm Jessie Romero, director of research publications at the Richmond Fed. I'm talking today with Kartik Athreya, executive vice president and director of research. Kartik joined the Bank in 2000 as an economist and has been research director since 2015.

Last year, he served on the Back to Work Virginia Task Force, which was formed last April to develop policies and practices to strengthen the state's child care industry. The task force, and the role of child care in the economy, will be the subject of our conversation today.

Kartik, thanks for being here.

Kartik Athreya: Thanks for having me.

Romero: So, could you tell us a little bit about the task force? What was the impetus behind it, and what were its goals?

Athreya: The COVID-19 pandemic brought into sharp relief how important — and how fragile — our child care networks were. So the immediate impetus was to find an effective path to ensure better quality early-life child care environments for Virginia's youngest, irrespective of their family circumstances. The pandemic's disproportionate impact on people who were already disadvantaged, for us, really increased the urgency of working on this.

The goal of creating the task force was to get all the relevant parties together — the private sector, government, educators — to find ways to deliver a child care system that could get support from these groups. For us — and for me certainly — fundamentally, this is about making sure that we're not letting the next generation down by failing somehow to locate every available win-win solution out there.

Here I do want to call attention to our leader, Kathy Glazer, who has done a fantastic job. She is the president of the Virginia Early Childhood Foundation. She assembled a very large array of local stakeholders. Given the kind of consensus that we hoped to build, we needed a lot of different people at the table, and she did a fantastic job of getting that done. We at the Richmond Fed are simply one of those stakeholders.

Romero: Well, that's a great segue to my next question, which is why would the Richmond Fed be a stakeholder? Why does a central bank care about child care?

Athreya: I think, first, that central bankers have to stay abreast of all the things that influence the potential of an economic system. Reserve Banks like the Richmond Fed are also asked to care about ensuring that communities reach their potential, very explicitly. But monetary policy, by itself, is a very limited tool to influence those kinds of goals, so we need to think carefully about forces that could be holding us back, especially those that could be holding some people back much more than others.

Access to high quality child care is definitely one of them. The eminent economist Jim Heckman has stressed how "learning begets learning." This basically just says skills that you acquire or a child acquires early in life lay the foundation for them to acquire more advanced skills later in life. And it's tough to make up for what you miss early on. So some people's inability to find or afford good child care now likely sets their kids back in the longer run.

Access to child care also affects people's ability to work and deliver maximum employment as we, as the Fed, are asked to deliver. So we want to understand the obstacles that are out there to that employment.

COVID-19 exposed a particularly cruel reality, which is that the people who are most affected are the same people who earned the least to begin with. If you want, imagine a retail clerk who doesn't have the luxury that so many of us have of working from home but also doesn't earn enough to afford high-quality child care. What are her choices? Does she quit her job, or does she choose a less-than-ideal environment for her child?

Second, I think … the way that COVID and other forces are impinging on household-level decisions really makes it hard for families to provide environments in which children have the resources that they — especially at very early ages like pre-school — need. That is something we need to pay a lot of attention to.

Romero: You've done research on the factors that influence people's choices related to higher education. Could you share some about that research and how it informed your views coming into your work on the task force?

Athreya: So, I think of the data as containing a puzzle. And that puzzle is this. For several decades now, the earnings of college-educated workers have been high and actually have been rising relative to workers without a college degree. Basic supply and demand would suggest that we should see more people graduating from college so that they can earn those higher wages so that, in the longer run, these premia that are earned by the most educated go back to historical norms. But that just hasn't happened.

In a recent paper that I co-authored with Jan Eberly of Northwestern University, we examined how risk influences people's decisions about enrolling in college. Lots of students who enroll in college don't graduate, but only graduates get the big payoffs in terms of earnings and trajectories for higher earnings. So this risk of not completing means that many would-be students may not enroll and wouldn't enroll, even if the payoff went up, quite a bit. This implies that if technology continue to favor those with the most education — as labor economists find that it has been for almost 100 years now — we might well live in an increasingly unequal world. Those who finish college will get more and more for a degree they'd have done anyway, while others will tread water.

We also find that the risk of not completing college looms largest in the minds of those with little wealth. For them, college is a really risky thing unless they are really sure they will graduate. And that's hard to be sure of for many people.

In working on that paper, we learned about other strands of work that really stress the gaps in information that people have about career and educational pathways. Some of that now provides a spur to our focus at the Bank on better understanding human capital investment.

We also learned how critical preparation is to succeeding at college. And that takes me back to Heckman's adage that "learning begets learning." If kids are missing out on critical early learning, it can affect their ability to take advantage of what college has to offer. Getting it right now has implications 20 years down the road.

Romero: You mentioned that Kathy Glaser was able to bring together a variety of different stakeholders and perspectives on the task force. I was wondering if you could talk a little bit about the perspective you brought as an economist.

Athreya: One lesson that I feel the world would be a better place if everybody understood of economics is that — we say it in a nerdy way — statutory incidence can be very different than economic incidence. Well, what does that mean? It means that we can decide as a society to say group X — whether that is corporations, individuals [or] whoever — has to pay a tax. But what that fails to recognize, in many instances, is that individuals who are asked to pay the bill aren't necessarily the ones who end up paying the tax. Lots of other things like prices change.

What we need to trace very carefully is that, when we ask individuals or corporations to pay for something, we have to be careful that they're not shifting that [cost] ultimately to other groups that initially wouldn't want to bear the burden of that tax. That takes a lot of work to figure out.

One of the things I brought to the task force was a keen awareness or nervousness that when we talk about who ought to pay for something, we need to be really careful to do the analysis. It goes much further than just saying we need to ask a particular group to help support an initiative, say for child care.

Romero: You're also a parent. How did that influence your views? Are there any differences from when you're wearing your economist hat?

Athreya: Perhaps it's apocryphal, but the late great economist Dave Cass is rumored to have said: "As a parent, you have only one job: Make your children patient." I think that's excellent advice, and the models that we work with bear that out.

Skill building is really about doing something now to get something later. Education, work habits, being able to get along with people — these are all things for which the payoffs are not just in the here and now, but they are really about getting payoffs later. But your willingness to incur those kinds of costs and those kinds of efforts right now hinge on how much you weight that future. The more patient you are effectively, the more you are willing to make those investments and then have a situation later on that is navigable.

Romero: Did you learn anything while serving on the task force that changed or influenced your views?

Athreya: I think it's fair to say that I grew up a little bit.

Working with the experts from so many walks of life in Virginia, I did understand better the burden of building consensus in the world at large. It takes much more than just the right idea. It takes the communication of that idea, it takes the solicitation of support across broad sets of stakeholders. This is hard work, and this is not something that I had a lot of experience in.

I was surrounded by people who internalized this much earlier in their lives and were very good mentors and landed us in a better spot. That was, for me, a really important takeaway from my experience.

Romero: The task force announced a goal of child care for every Virginian, regardless of income, by 2030. If that goal could be achieved, what are some potential implications for Virginia's economy?

Athreya: While I won't try to summarize everything in one single number, I think about all the low-wage workers who have been absolutely ravaged by the storm of COVID-19. If improving our child care system means only making it easier for that group of people to weather future storms, any investment that I think we could make right now would easily be worth it.

Romero: That's an important point — the pandemic had really different effects on different groups of people. We're especially seeing that in the education sector.

Those disparities are going to be the subject of an event series the Richmond Fed is holding called "District Dialogues," which kicks off February 18. Folks can register for that on our website. And, we'll actually be talking to you, Kartik, during the second session. I'd really encourage people who are interested in this topic to check that out.

We look forward to talking to you then, and thank you so much for talking to us today.

Athreya: Thank you.