Introducing a Federal Reserve Series on Early Care and Education: Cost, Affordability, and Racial Equity

The pandemic highlighted the important role early care and education (ECE)1 plays in the economy. Without access to reliable child care, many parents, particularly mothers, left the workforce during the pandemic and a substantial proportion have yet to return. Not only is ECE key to parental employment, aligning with the Federal Reserve’s maximum employment mandate, decades of research show that children benefit from attending a high-quality ECE program, particularly children from disadvantaged environments.

To dig deeper into some of the key issues in this sector, over the next four weeks the Federal Reserve will release a series of articles that discuss the cost, affordability, and racial equity issues related to high-quality ECE. The first three articles frame each of these issues based on existing research. The series finishes with an article that explores these topics based on findings from focus groups conducted with ECE providers and parents with young children. Here are brief introductions to each topic in the series.

Teachers are the most important component and largest cost of quality ECE

The child development benefits of ECE depend on the relative quality of ECE programs, and research indicates there is room to make gains. But how much does it cost to increase quality? Research shows the relationships between ECE teachers and children is the primary ingredient to supporting child development and that staff compensation is the largest and most important program cost in achieving a high-quality program.

Low wages for the ECE workforce make it difficult to attract and retain staff as the ECE sector faces relatively high turnover rates. In 2020, the median wage for U.S. child care workers and preschool teachers was $12.24 and $15.35 per hour, respectively. Depending on local market conditions, data generally indicate that substantial wage increases could improve the ability of ECE programs to attract and retain high-quality teachers in many parts of the country. Other quality cost drivers include facilities, child-teacher ratios, and teacher education and training.

Parents in the focus groups agreed that teacher-child interactions and learning enrichment are important considerations, but also noted that that availability and reliability of care are key factors in choosing an ECE program. Availability is particularly challenging for parents living in the estimated 40 percent of the country considered a child care desert. Additionally, families with nonstandard or unstable work schedules face particular challenges in finding reliable child care that matches the hours they need.

“For me it’s hours. I work until 7:00 p.m.… because in our area so many places close at 5:00 p.m. or 6:00 p.m., and as a single parent who also has other trials and tribulations on the back end, it makes it very, very hard.”

–Black parent in an urban area whose child under age 5 attends a home-based provider

ECE is unaffordable, especially for low-income families

When parents do find an opening at a provider, the price often exceeds their ability to pay. Child care is particularly unaffordable for lower-income families, who spend over a third of their income on child care, on average. While government-funded subsidies can help offset some costs for low-income families, subsidy amounts currently fall short of making ECE affordable for all families. Eligibility rules vary by state, and only about 15 percent of those eligible for a child care subsidy under federal rules receive one.

Child care affordability influences parents’—especially mothers’—decisions about labor market participation. For those who do receive child care subsidies, income eligibility limits and benefits cliffs pose challenges in navigating the labor market. Families must consider whether pursuing employment opportunities that pay higher wages could lead to losing subsidy eligibility, leaving them worse off financially. A parent in one of our focus groups explained the careful calculations they must make to ensure they do not earn more or less than their current income. If they earn slightly more, they run the risk of losing their child care subsidy, but they would not earn enough to pay for child care entirely out of pocket.

Families and ECE workers face racial equity challenges

While research suggests that quality ECE can reduce racial disparities, families of color struggle with accessing affordable, quality programs that meet families’ needs for diversity and cultural competence.

Racial inequities in ECE have workforce implications for ECE workers and low-wage workers. The ECE workforce is composed of majority women and disproportionately women of color. While ECE workers earn relatively low wages across the board, workers of color are more likely than white workers to hold lower-paid ECE positions. Providers in our focus group emphasized the importance of hiring racially and linguistically diverse ECE staff, but noted that they struggled to recruit workers with those characteristics. On the family side, families with nonstandard or unstable work schedules, who are disproportionately women and workers of color in low-wage service sector jobs, often struggle to find affordable child care that accommodates their work schedules.

Challenges in finding quality affordable ECE are also particularly prevalent for families seeking care that affirms racial identity and culturally diverse settings. Research demonstrates that Black children in ECE programs are disproportionately disciplined, suspended, and expelled. Families of color have noted challenges in finding a racial match or culturally competent care in the hopes of avoiding experiencing differential treatment. Parents in our focus group shared that racial and cultural match is an important factor in choosing an ECE program for their children:

“So they can identify and they don’t feel like they’re the only one, and they don’t feel out of place when they’re in the facilities; educating children and being culturally appropriate—so that’s one of the big things that I really do look at when I’m looking at facilities, all different types of children.”

–Black parent in a suburban area with a child under age 5 who attends a child care center

Parents’ and providers’ experiences with ECE

Finally, we turn to ECE providers and parents with young children to hear first-hand how they define quality and the challenges they face in providing or accessing high-quality ECE. This analysis uses human-centered design principles to identify root causes that sustain barriers to high-quality ECE. The focus group discussions were designed to bring to light perspectives about the cost, affordability, and racial equity issues that other research methods may miss.

Parents highlighted several key concerns in how they conceptualize high-quality ECE, such as safety and cultural competence, reliability and low ECE teacher turnover, and hours and locations that can accommodate their work schedules and transportation options. Many also shared how child care availability limited their employment decisions, such as choosing not to accept jobs with better wages and opportunities because they could not get their children to child care during their work hours. Overall, many parents—especially those using child care subsidies—emphasized that they felt they had few choices in selecting ECE, let alone being particular about elements of quality, as subsidized spots are in such limited supply.

Providers stressed that the interactions between ECE teachers and children are of primary importance, but they face challenges in recruiting and retaining high-quality workers. Providers recognize the importance of raising wages and improving benefits, but emphasized that this would require substantial changes in how child care is funded. Many providers expressed frustration with the current ECE market:

“I feel that early childhood education and the people who are in this field are not respected. And if we’re not respected, people feel that we don’t deserve to be paid more.”

–White center-based provider in a rural area

When asked how to address barriers to quality ECE, parents and providers emphasized that those directly involved in delivering and receiving child care should be part of a collaborative public process to develop solutions:

“We have people making decisions for us that aren’t on the front lines every single day, having to operate our businesses. And they might come up with this great idea, but operationally, it’s not possible.”

–White center-based provider in a suburban area

There was widespread agreement across parents and providers that greater public support is necessary to increase affordability and improve worker recruitment and retention so that all families can have access to quality, affordable child care.

“I think everyone should get service as long as you’re working or going to school. It is impossible to work, pay bills, and then pay full-time for more than one child.”

–Latino parent in an urban area whose three children under age 5 attend home-based child care

Read the articles in this series:

1. The early care and education sector comprises a variety of government-, non-profit-, and for-profit- operated programs. Head Start (ages 3-4), Early Head Start (ages 0-2), and state pre-kindergarten programs (most age 4, some 3-year-olds) are funded by federal and state government. Meanwhile, the majority of revenue at most child care centers, home-based family child care, and private preschool programs comes from family tuition payments. Some of these providers receive government funding, such as child care subsidy payments.


This blog post and system-wide series on child care was either produced or informed by members of the Early Care and Education work group within the Federal Reserve’s Community Development function. This work group formed in March 2020 to conduct research and outreach on ECE system challenges and considerations for addressing the needs of working families with young children through the COVID-19 pandemic and beyond. To date, this work group has produced two briefs on considerations for child care funding and implementation, and this current article series. Work group members include:

Federal Reserve Bank of Atlanta

Brittany Birken

Katherine Townsend Kiernan

Federal Reserve Bank of Boston

Sarah Savage

Federal Reserve Bank of Dallas

Anna Crockett

Xiaohan Zhang

Federal Reserve Bank of Minneapolis

Rob Grunewald

Ben Horowitz

Federal Reserve Bank of Philadelphia

Sloane Kaiser

Federal Reserve Bank of Richmond

Erika Bell

Federal Reserve Bank of San Francisco

Jessica Coria

Lina Stepick

Federal Reserve Bank of St. Louis

Saras Chung

Samantha Evans

Ana Kent

The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.

About the Authors
Rob Grunewald is an economist with the Federal Reserve Bank of Minneapolis where he conducts research on community development and regional economic issues. He holds a bachelor’s degree in economics and religion from St. Olaf College and a master’s degree in applied economics from the University of Minnesota. Learn more about Rob Grunewald
Lina Stepick was a senior researcher in Community Development at the Federal Reserve Bank of San Francisco from 2021-2022. Their research focuses on promoting a thriving labor force. They hold doctorate and master’s degrees in Sociology from UCLA as a National Science Foundation (NSF) Graduate Research Fellow and a bachelor’s degree in sociology, anthropology, and gender studies from Dartmouth College. Learn more about Lina Stepick