Regulation limits many aspects of opportunity and upward mobility. While analysts have highlighted the adverse impact of specific regulations — such as zoning, rent control, and occupational licensing — public discourse has given less attention to the costs and consequences of childcare regulations for families and care providers.
Yet past and current research underscores these costs and consequences, particularly the impact of regulation on families and children. Previous research indicates that the high costs of regulation prompt families to withdraw their children from more developmentally enriching childcare settings. As with many regulations, less advantaged families and children disproportionately absorb the adverse effects of childcare regulation.
This outcome is consistent with the fact that research links restrictive childcare regulations to significantly higher costs. These costs fall hardest on lower-income families, as they have less discretionary income and therefore cannot absorb the high costs of regulation.
In new research for AEI’s Center on Opportunity and Social Mobility, I find that in states with the most restrictive childcare ratios, the average price of infant care is $22,362, while in states with the least restrictive ratios, it is $10,837. Toddler care is also more expensive in restrictively regulated states: in states with the most restrictive childcare ratios, the average price of toddler care is $20,196, while in the least restrictive state, it is $7,254. Past research suggests that just loosening these requirements by one child per staffer would reduce costs by 9 to 20 percent.
While low-income families undoubtedly absorb the consequences of regressive regulation, regulation also has adverse effects on would-be childcare providers, who often are immigrants and otherwise come from less advantaged backgrounds. Requirements for educational credentials necessarily limit the pool of providers, and artificial limits result in increased costs over time.
Washington, D.C. provides an early case study of the impact of restrictive regulation on childcare markets. In 2016, D.C. introduced new requirements compelling childcare providers to have a college degree to care for children. Two daycare providers and one parent subsequently sued D.C.’s Office of the State Superintendent of Education (OSSE), and the regulation was tied up in court for years. However, the new rule took effect for center directors at the end of 2022 and for teachers at the end of 2023. (Notably, OSSE implemented emergency regulations that partly relaxed the requirements around this same time.)
Still, since then, the number of licensed childcare centers has declined by nine percent. While there were reportedly 377-378 licensed childcare centers in D.C. in 2021 and 2022, the number of licensed childcare centers declined to 343 in 2023, the first year following the initial partial implementation of the new requirements. In contrast, the number of licensed childcare centers increased by 3.7 percent nationally during this period.[i] The number of childcare providers in D.C. remained essentially unchanged in 2024.[ii]
It’s difficult to say for sure what this change means, at least partly because information on the long-term licensed childcare center supply for D.C. is unavailable.[iii] For example, it’s possible that D.C. providers believed the new regulation would take effect and adapted in advance of implementation. However, that seems unlikely: D.C. officials backtracked on the rules throughout the six years following the regulation’s initial introduction, which likely gave parents and providers hope that officials were capitulating in the face of public criticism and legal challenge.
On the face of it, the provisional supply decline suggests that D.C.’s outcomes align with broader patterns nationally. Across the U.S., states with restrictive educational credentials have higher average care prices than states with no or minimal educational credentials, likely due to restrictive regulations resulting in limited supply.
D.C. provides a preliminary reminder that childcare regulation can have adverse effects on the childcare market and by extension, families. Presumably, supply could continue to flatline or even decline in D.C. as childcare providers struggle to hire carers who comply with greater requirements. If so, this will result in upward price pressure relative to a no-regulation counterfactual as demand for childcare grows.
Yet childcare regulations extend far beyond child-staff ratios and educational credentials alone. The cumulative regulatory burden that providers face is heavy. It’s no surprise that these costs are passed on to childcare consumers, who happen to be families with children. These families rely on care to maintain jobs and afford other essentials, and costs levied on providers are ultimately costs families absorb.
You can read more about childcare regulation and affordability here.
[i] Note that elsewhere Childcare Aware states that national supply increased 1.3 percent during this period.
[ii] Prices increased 7 percent in the two years following the partial implementation of the regulation, or substantially less than the national increase during this period. However, major countervailing policy factors are likely at play: ARPA childcare funding (Child Care Stabilization Grants and supplemental Child Care Development Fund funding) expired in 2023; this funding subsidized childcare providers’ wages and operating expenses, and its loss meant providers across the nation needed to cover costs by quickly raising prices. During the same period, D.C. launched the locally-funded Early Childhood Educator Pay Equity Fund, which disburses around $70 million annually in an effort to close the pay gap between child care staff and K-12 staff (staff compensation is the number one cost driver for child care providers), doubled subsidy payment rates for child care providers, and launched a D.C. Child Care Stabilization Targeted Grant. D.C.’s new childcare subsidies eclipse the reported $50 million in federal and local funds that D.C. distributed earlier in the pandemic, and provide a replacement cushion for local providers.
[iii] Unavailable via Childcare Aware.