Early Care and Education as an Economic Engine

August 18, 2025

Strengthening America’s Labor Market and Securing the Future

Access to high-quality early care and education (ECE) is foundational for child development and a key determinant of parents’ ability to participate in the workforce, attain additional education and training, and advance their careers. The ECE sector is also a significant driver of economic activity, directly and indirectly. Taken together, a strong ECE system serves as a critical economic engine, supporting children and families, employers, and long-term economic growth.

Trusted Insights for What’s Ahead^®

• Access to ECE is essential for healthy child development and parents’ workforce participation, yet availability and affordability challenges continue to limit opportunities for millions of families. In 2023, the average annual cost of child care was $11,582,1 exceeding the annual tuition average for public colleges and universi- ties in the US.
• Child care issues significantly impact the workforce. In May 2025, 1.4 million part-time workers attributed reduced working hours to problems with securing reliable, affordable child care.
• ECE delivers a substantial positive economic impact, yielding strong returns on investment by improving educational and lifetime outcomes for children and driving long-term economic growth.

Recommendations

Expanding ECE access requires multipronged solutions and public-private partnerships to strengthen the infrastructure and ensure stability for families, employers, and the broader economy. Stakeholders at the federal, state, and local level should:

• Preserve and strengthen federal and state investments that expand ECE access.

• Integrate ECE resources into economic and workforce development strategies.

• Expand innovative public-private partnerships and encourage employer involvement.

• Stabilize and bolster the child care sector by strengthening the ECE workforce and upholding quality standards.

Child Care Access and the US Economy

In America, millions of families rely on ECE as a lifeline. Access enables parents, especially mothers, to actively participate in the workforce, attain additional education, support their households, and contribute to the economy. Quality ECE also provides children with valuable early learning experiences that are foundational to their educational careers and long-term success. Additionally, the ECE sector is a significant economic contributor through its direct workforce as well as broader economic activity and spillover effects.  Altogether, ECE is an economic engine and a public good.

Prior to the pandemic, nearly 63% of Americans participated in the workforce. The COVID-19 pandemic significantly disrupted employment, particularly for women with children, and laid bare the interconnectedness between access to care and the participation and productivity of parents in the workforce. Although the labor force has made progress toward recovery, challenges for working parents persist. In 2023, about 10.1% of young children lived in households where a parent faced significant job disruption due to child care issues. In May 2025, 1.4 million part-time workers attributed reduced working hours to problems with securing reliable, affordable child care. These findings highlight the ongoing need for accessible and affordable early care options to provide stability for families, employers, and the broader economy.

As a two-generation support, high-quality ECE experiences not only enable parents to work but also yield both immediate and long-term positive impacts for children. Quality early learning settings promote healthy child development, facilitate enriching social experiences, and can offer developmentally appropriate introductions to fields such as STEM and AI, fostering interest and building technological literacy for future success. With 90% of brain development taking place before children enter kindergarten, high-quality early experiences can enrich foundational academic and social skills. Research by leading economists demonstrates significant returns on investment from high-quality early learning experiences through better education, economic, health, and social outcomes.

The economic contribution of the ECE sector is also tremendous. Through both direct and spillover effects, the child care sector supported a total economic impact of $152 billion in output, $57 billion in household earnings, and 2.2 million jobs in 2022. That same year, the US child care industry generated $68.5 billion in revenue and $24.1 billion in purchases of goods and services. Over 1.5 million proprietors and workers were directly employed by the child care sector, collectively earning $32.7 billion in 2022.2

Barriers to Access

Significant challenges exist that prevent families from accessing ECE. Price is often a prohibiting factor for families who desire to access care. In 2023, the average price of child care, nationally, was $11,582. The actual expense varies by age group, care setting, and geographical location, with the average price of center-based care for an infant exceeding $20,000 in some states. For families with two children, the near average in the US, the average price of child care exceeds average mortgage payments in 45 states and the District of Columbia.3

Beyond affordability, many communities—particularly in rural and underserved areas— face limited opportunities. Approximately 60% of families in rural areas live in child care deserts, where the number of licensed child care openings falls far short of the demand.4 In urban and suburban areas, long waitlists and ongoing workforce shortages further restrict access. Parents who work nontraditional hours—such as hospital staff, public safety workers, and those in retail—face an even narrower set of ECE options that align with their schedules. These barriers impact job status, availability, effectiveness, and career advancement of working parents.

The supply of child care is closely tied to staffing levels, which have faced persistent shortages exacerbated by the pandemic and have lagged in recovery. Between 2010 and 2022, the child care sector experienced an average annual turnover rate of 14.9%, compared to a 9.1% rate in other occupations. Between August and September 2022, 38.3% of child care services had at least one vacancy, compared to 20.9% across other industries. Staff vacancies and turnover are often attributed to low wages, with the average hourly wage for child care workers being $14.60, compared to $15.50 for food and service workers.

Powering an Economic Engine

A well-supported, affordable ECE system can drive significant economic success for the country by enabling both the current and future workforce. Actualizing this potential requires comprehensive supports, multistakeholder engagement, and a shift from business as usual.

Federal and state investments

In recognition of ECE as a public good, investments at the federal, state, and local levels should be preserved and sustained to ensure families have access to high-quality and affordable child care options. Several existing federal programs help support this goal and should be reviewed to expand the number of families served.

The Child Care and Development Block Grant (CCDBG) provides funding to states that enables them to promote child care access for low-income families through subsidies and quality improvement initiatives for providers. On a monthly average, 1.8 million children receive subsidies, yet this represents only 15% of the 11.5 million eligible children, given current federal and state funding levels. Although they carry a cost, economic impact data suggests that child care subsidies generate net economic gains and a return on investment, particularly by enabling workforce participation among parents.

Head Start and Early Head Start are federally funded programs that provide access to early learning and promote school readiness for families in poverty spanning urban, suburban, rural, and tribal communities. Their reach extends to children in families experiencing homelessness, children with disabilities, and other at-risk populations. Head Start serves children ages three to five, while Early Head Start serves pregnant women and families with children under three. Access to both programs is limited due to insufficient funding to serve all eligible families. As of the 2022-2023 school year, Head Start only served 35.5% of preschool-aged children in poverty, while Early Head Start served only 10.9% of infants and toddlers in poverty.5

A longitudinal study led by the US Department of Health and Human Services (HHS) found the Head Start program to deliver improved cognitive skills for participants after just one year. However, a follow-up of Head Start graduates by the end of third grade found that Head Start’s academic impacts had diminished.6 Researchers suggest this “fade-out” effect is likely due to the difference in quality and rigor in elementary school where resources may be diverted to less-prepared peers, signaling the importance of ensuring quality along the entire education continuum for sustained positive outcomes.

Overall, Head Start has demonstrated several positive short- and long-term outcomes for children and their families, including increased positive parenting practices, greater educational attainment, and stronger health outcomes.7

The Preschool Development Grant Birth Through Five (PDG B-5) is a competitive federal grant program that invests in state infrastructure to strengthen early childhood opportunities, including strategies to build the early childhood workforce and integrate state early childhood systems that may otherwise operate in siloes (e.g., child care, state pre-K, IDEA Part C for Infants and Toddlers, IDEA Section 619). Some states have used PDG B-5 funds to invest in early childhood apprenticeship programs. The program is administered jointly by HHS and the US Department of Education.

The Child and Dependent Care Tax Credit is a federal tax credit that helps families offset child care expenses for children under 13. Eligible families can claim an annual tax credit based on a percentage of child care expenses, which declines as income rises. Expenses are capped at $3,000 for one child and $6,000 for two children. The credit recently received its first adjustment in over 20 years through the One Big Beautiful Bill Act, which increases the maximum credit to 50% (from 35%) of claimed child care expenses for families with the lowest incomes starting in 2026. The expansion is a welcome step forward for working families.

Temporary Assistance for Needy Families (TANF) is a federal block grant allocated to states and tribes to provide support, including monthly financial assistance, to families with low incomes raising children. States have the option of transferring up to 30% of TANF dollars to the CCDBG program and can also spend TANF funds directly on child care services.

At the state level, significant support and investments have focused on improving the accessibility and stability of ECE opportunities. More than half of US governors identified ECE as a priority in their 2025 State of the State addresses.8 Several states have shifted governance structures to better support ECE, including the creation of stand-alone agencies. Forty-four states and territories have Early Childhood State Advisory Councils, which are designed to address and prevent fragmentation across early childhood systems. Many states have universal preschool programs, while others have implemented initiatives to strengthen the quality and accessibility of child care programs, such as expanding child care subsidies and establishing a state early childhood trust fund.

The Georgia Pre-K program, which began in 1992, is one of the largest state-funded pre-K programs in the US. The voluntary program is open to all four-year-old residents of the state and currently serves more than 73,000 children, approximately 54% of the eligible population. In 2020, New Mexico established an Early Childhood Trust Fund as a long-term investment in early learning and care in the state. The fund provides child care subsidies, universal Pre-K access, and support for early care worker wages. This critical resource helped the state maintain programs and expansions initially funded by temporary federal COVID-19 relief dollars.

In Vermont, Act 76, passed in 2023, strengthens child care access in the state including by expanding child care subsidies. The Smart Start Illinois initiative, launched in 2023 as a multiyear plan, aims to provide universal preschool, bolster child care quality and wages, and enhance supports for vulnerable families. Among other provisions, the program delivers financial support to child care providers to help make staff wages more competitive through workforce grants.

Linking ECE and workforce development

ECE is a critical component of any effort to increase labor force participation and educational attainment as a means to boost economic growth. The US child care system is increasingly recognized as essential economic infrastructure, vital for supporting the workforce and driving both regional and national economic development. To ensure its vitality, strategies for economic and workforce development should integrate efforts to expand ECE accessibility.

Most state and local workforce development boards coordinate with the agencies that administer the Child Care Development Fund (CCDF) and TANF to address ECE access for working parents. In Texas, the state workforce development board is unique in directly administering the CCDF. The Texas Workforce Commission also leads the Child Care Investments Partnership program, which helps coordinate partnerships among local workforce boards, businesses, child care providers, and other stakeholders to address local child care needs using both public and private funding.

The federal CHIPS and Science Act of 2022 is a national example of integrated policy. The law, intended to boost semiconductor manufacturing in the US, requires companies receiving CHIPS funding to address child care access for their employees. This integration recognizes the link between child care access and workforce participation.

Globally, many countries acknowledge the economic benefit of ECE access. This is evident in wide-reaching strategies and practices to support ECE, including through public investments and employer engagement. In the Nordic countries, child care is highly subsidized regardless of family income, resulting in more than 95% of children ages three to five enrolled in child care. In Iceland specifically, where women have among the highest rates of labor force participation in the world, both universal and income- assessed child care subsidies are available for families with children between six months and 15 years old. In 2021, Canada recognized early learning and child care as an economic issue, committing federal dollars to establish a Canada-wide Early Learning and Child Care System with the goal of reducing child care fees to an average of $10 per day. While it remains a work in progress, parent fees across Canada have already been reduced by 50% or more, with over half of provinces and territories reaching the $10 per day goal.

Innovative public-private partnerships

In many areas, employers and other private stakeholders are engaging in solutions to support ECE access, particularly for their employees. In some cases, their involvement is incentivized by state programs. Expanding innovative public-private partnerships and employer engagement has proven effective in widening access to ECE.

Several states have initiatives and incentives to encourage more employers to provide child care assistance for their employees. Twenty-six states offer tax incentives for employers who provide child care benefits. The Michigan Tri-Share Child Care Program splits the cost of licensed child care equally between the employer, the employee, and 

the state. In North Dakota, the Working Parents Child Care Relief program matches employer-paid child care benefits of $150 or $300 per month for working parents who earn low wages with children under the age of five enrolled in licensed child care. Iowa has a state-operated Child Care Business Incentive Grant to incentivize employers to support child care, including through the development of on-site child care facilities.

A growing number of employers are supporting working parents by providing on-site child care facilities, contracting with local providers for child care slots, and/or subsidizing the cost of care. For example, Corning Inc. has subsidized child care for employees since 1980. The company currently funds local community daycare centers accessible by employees and the community. Aflac offers on-site child care at its headquarters and provides child care subsidies for employees at other locations.

Advancing ECE quality and workforce

A critical factor in ECE access is the strength of the sector itself, which took a significant blow during the pandemic and has yet to fully rebound. To stabilize and bolster the child care sector, targeted efforts are needed to strengthen the ECE workforce and uphold quality standards.

Many states are taking innovative approaches to address high turnover and persistent workforce shortages in ECE, which are often attributed to low wages and limited benefits for ECE professionals. For example, Iowa used American Rescue Plan dollars to create a Child Care Solutions Fund that combines state funding with private dollars including philanthropy and business to enable child care providers to boost staff wages, which in turn supports hiring and retention. This initiative continues today at the local level, where community Child Care Solutions Funds match employer contributions. The Governor has proposed reinstating a statewide version with state revenue matching funds to increase child care worker wages. New York offered Workforce Retention Grants to child care programs, providing incentives for existing workers to stay and attracting new employees through sign-on and referral bonuses. Although this program expired following the exhaustion of pandemic-era funding, it can serve as a model of investments in the ECE workforce. Louisiana, a leader in child care tax credits, offers a School Readiness Directors and Staff Tax Credit to supplement early educator wages and reduce staff turnover.

Most states also direct quality rating improvement systems (QRIS) to encourage and incentivize high-quality practices and, in some cases, formal training and credentialing of early care professionals. Typically, providers are assigned ratings based on their alignment with state-defined standards, which are tied to subsidy reimbursement rates in some states. State QRIS programs continue to evolve based on stakeholder feedback, and many include initiatives to help child care providers boost quality. In an effort to sustain the benefits of early learning, some states have also adopted preschool-through- third-grade policy frameworks that emphasize cross-level collaboration and sturdier bridges between early childhood programs and K-12 schools. States should continue to advance and incentivize quality and alignment with the K-12 continuum to optimize the value of ECE for all children.

The strength of the ECE workforce and quality of programs are also tied to training and credentials. Several national and state-level initiatives help educators gain the skills and knowledge required for high-quality care, including the Child Development Associate (CDA) credential, the Teacher Education and Compensation Helps (TEACH) early childhood scholarships for educator training, and ECE apprenticeship programs. While the value of such programs has been demonstrated, several roadblocks hamper credentialing efforts, including limited awareness of credentialing opportunities, low confidence, and time constraints among some ECE staff. Historically, low wages for ECE workers have undermined both the recruitment of training participants and the retention of program completers as evidenced by the nearly 50% turnover rate of the Pennsylvania TEACH program in the late 1990s. However, the national initiative now boasts greater outcomes, including a more than 90% workforce retention rate among completers following intentional strategies to incorporate greater financial support and compensation into the program. Across different ECE workforce initiatives, higher compensation, stipends, and professional development have proven to positively increase workforce retention.9 As investments are made to boost training for ECE educators, key factors related to recruitment and retention must also be addressed.

Conclusion

ECE is a powerful economic engine and an essential public good, supporting children’s development, enabling parents to be productive contributors to the workforce, and strengthening local and national economies. However, persistent challenges— including affordability, accessibility, and workforce shortages—continue to restrict its potential. Policymakers and stakeholders can overcome these barriers by working to preserve and ensure the sustainability of federal and state investments that reinforce early child care and education access, fostering innovative public-private partnerships, integrating ECE into economic and workforce development strategies, and strengthening the ECE workforce and infrastructure. Doing so delivers a two-generation benefit—ensuring families have access to quality, affordable ECE and children have opportunities for foundational early development. Such comprehensive efforts are essential for the current and evolving economy, as well as the long-term well-being of our communities and nation.