Over 100 economists urge Democrats to include affordable childcare in their $3.5 trillion spending plan

• 127 economists are urging Democrats to include affordable childcare in their $3.5 trillion social spending plan, per a letter Insider obtained.
• They include prominent signatories like former Obama economists Jason Furman and Betsey Stevenson.
• They argue including it would encourage more women to reenter the labor market and boost earnings.

Betsey Stevenson used to be a top economic advisor to President Barack Obama, but she's got a problem with how the economy treats parents: affordable childcare.

"What we have done is create a nation of kids who are underinvested in, and that feeds into not just what our potential is as an economy, but it also feeds into inequality," Stevenson said. The "fundamental flaw" in childcare today, she added, is that children aren't getting access to investments in early childhood education that they need due to the surging costs of childcare.

She's not alone. On Tuesday, she was one of 127 economists who signed a letter obtained by Insider urging Congress to to deliver on the "long-overdue investments in affordable, quality childcare" to stimulate economic growth.

It comes as House Democrats recently unveiled their plan to invest $761 billion to make childcare more affordable in their social spending bill, and the letter says lawmakers should prioritize childcare spending in any major economic spending package that Democrats assemble and pass.

Other signatories were other former Obama economists, Jason Furman and Heidi Shierholz, as well as academics from top universities including Justin Wolfers, an economics professor at the University of Michigan. Furman is now a Harvard professor and Shierholz is now president of the left-leaning Economic Policy Institute.

High-quality early childcare costs as much as in-state college tuition in many states, Stevenson told Insider, and when parents choose to stay home to take care of their children and avoid these high costs, they end up being "punished for the rest of their lives in terms of lower earnings."

"So the costs of dropping out of the labor force in order to care for your kids are very, very high for parents," Stevenson said.

Working parents lose $57 billion per year in earnings due to the cost of childcare

Last week, the House Education and Labor Committee released its initial proposals to include in the $3.5 trillion reconciliation bill, specifically $450 billion to make childcare more affordable and establish a universal pre-K for 3- and 4-year-olds, along with capping families' spending on childcare at 7% of income.

"For decades, American families and in turn economic growth have been held back by the lack of modern care infrastructure, as working families have been forced to choose between work and caregiving, hampering female labor force participation and reducing productivity," the economists wrote. "Congress must seize this opportunity to finally support families and unleash economic growth."

The economists' letter estimates the US has lost $57 billion per year in earnings due to the surge in childcare costs since the 1990s, which have disproportionately impacted women who are most often tasked with caregiving.

Erica Groshen, a senior economics advisor at the Cornell University School of Industrial and Labor Relations, said in an interview that the Democratic plan on childcare would improve labor force participation, earnings, and productivity.

Some centrist Democrats are suggesting targeting new federal assistance to low-income Americans. Groshen said that could discourage low-income families from tapping into federal childcare subsidies due to onerous documentation requirements, and produce higher administrative costs for the federal government.

Most families wouldn't spend more than 7% of their incomes on childcare, according to the House Democrats' proposal. Stevenson told Insider the idea of a 7% cap "makes a lot of sense" because "people who earn more will pay more because they can afford to pay more, and people who earn less will pay less because they can afford to pay less."

Wages would go up for childcare workers, the vast majority of whom are female and are more likely to live in poverty than their working peers, according to an analysis from the National Women's Law Center (NWLC). Another analysis from the NWLC and Columbia University researchers found that affordable childcare can substantially boost lifetime earnings for women, with Black and Latina women benefiting the most.

"Childcare is an economic problem," Stevenson said. "It is part of the infrastructure that supports society. Parents need to be able to know that their kids are going to be well cared for and well educated when they're at work in order for parents to comfortably feel like they can go to work."