Report: State loses out on $4.2B annually due to child care shortage

The lack of affordable child care options in the state is costing the state—not just on an individual level, but also in terms of “economic potential,” according to a new study from the Indiana Chamber of Commerce and Early Learning Indiana.

The price tag is $4.22 billion each year, of which $1.17 billion can be linked to annual loss in tax revenue. Other costs to economic productivity include the 57% of parents with young children who miss work or class because of child care problems. Or the 40% of parents, mostly women, who left the workforce “as a direct result of child care-related issues.”

“Child care access and affordability issues continue to hold back the Hoosier workforce and future economic growth for our state,” said Indiana Chamber President and CEO Vanessa Green Sinders in a statement. “This report brings into focus just how important it is to solve these child care challenges. While daunting, we see creative solutions emerging across Indiana and we’re confident that through sustained advocacy and collaboration, we can keep making progress to help our citizens and employers.”

This struggle drags down the state’s economic performance and hampers future job growth, the study concludes. Relative to other states, Indiana ranks 27th in the nation for labor force participation—the same rank the Hoosier State has for its unemployment rate, which sits at 3.5%.

The organizations note that high-quality child care has another benefit: boosting the future academic performance of the state’s youngest Hoosiers. Studies have linked high-quality child care with improved literacy rates—the same scores that plummeted in recent years following the COVID-19 pandemic.

“Hundreds of thousands of Hoosier children need high-quality early learning experiences to thrive in school and beyond,” said Maureen Weber, the president and CEO of Early Learning Indiana, in the release. “For the business community, this report shows a two-fold impact as parents are forced to leave today’s workforce while tomorrow’s workers cannot reach their full potential. We will continue our work with partners in government, business and the philanthropic community to ensure high-quality early learning opportunities for all Indiana children.”

The study, which includes several personal stories from surveyed families, is part of a nationwide partnership with the U.S. Chamber of Commerce Foundation analyzing the “untapped potential” of more than a dozen states.

Recent reform at the state level—including philanthropic efforts—“are promising,” the report adds, but “the survey results show that there is more work to be done to maximize Indiana’s economic potential.”

Though the state has thousands of providers and seats available but not enough. Only 61% can be served with existing capacity.

Quantifying the economic impact

Broadly speaking, the $4.22 billion in untapped economic potential falls into two categories: workplace disruptions—such as worker absenteeism and employee turnover—and lost tax dollars from unearned wages.

Parents missed an average of 14 days of work related due to child care disruptions per year—absenteeism that cost employers $906 million annually. Others left the workforce entirely, whether voluntarily or involuntarily, and turnover cost employers another $2.14 billion.

“The $4.22 billion in lost economic value for Indiana each year is not an abstract number. Each dollar lost due to insufficient child care is a dollar that will not be used to fund a single mother’s education, provide for a child, or put food on a struggling family’s table,” the report said. “The annual loss to the state of Indiana is certainly eye-opening; compounded over decades, and measured in terms of unaddressed human need, it becomes staggering.”

One-in-four parents reported quitting a job due to child care issues, while another 21% said they dropped from full-time work to part-time employment. Another 15% were fired, 11% turned down a promotion and 19% turned down a job offer.

Those who leave the workforce or interrupt their schooling due to child care issues damage their earning potential down the road.

“Women bear the brunt of the child care-related economic losses; women with children earn slightly less than males with children earn, even after controlling for job and qualifications. The study revealed that women are also more likely than men to quit a job to care for a child…,” the report found. “Translated, this means women are not only leaving the workforce at higher rates but are also being penalized with a higher opportunity cost for doing so.”

The survey ends by posing a question to stakeholders, including government officials, businesses and parents: “What could Indiana do with an additional $4.22 billion each year?”

Report findings

Survey results completed by 609 Hoosier parents of children under the age of six were gathered in March 2024 for the report and then used to craft a model to estimate the economic cost of the child care shortfall. Though the study broke down some data by gender, it did not do so for race or ethnicity.

Just over three-quarters of those parents, or 77%, paid for child care, telling researchers they primarily picked their provider based on affordability. Low-income families are defined as those earning under $30,000 while high-income families earn more than $100,000.

The average high-income household paid $895 per month for child care, compared to $544 each month for a low-income family. The middle-income families spent the least, at $496 per month. Combined, families spent an average of $677 per month.

According to the U.S. Department of Health and Human Services, a household should devote no more than 7% of their income to child care. But poorer families often spend more. The average annual cost of child care is closer to $8,000 annually.

In general, families in Indiana elect to place their child under the care of close family members at least some of the time. Parents in lower income tiers are most likely to report that their children are under the care of a parent, stepparent, or guardian. Such households often forgo a second income, electing instead to subsist on one parent’s salary,” the study concluded.

“Overall, high-income earners have a wider range of care options available to them relative to low-income earners, and high-income parents are more likely than other groups to be using multiple child care solutions at the same time.”

Two-thirds of parents got some sort of tax break or government assistance, such as vouchers or tax credits. Just one-quarter of parents reported employer support—whether directly through subsidies or indirectly with flexible working options. Incentivizing employers to support child care options has been a big focus for the chamber, which has sponsored such efforts in the past.

Over one-quarter of parents “experienced employment changes” due to issues with their child care, or 27%. However, that response changed based on a family’s income. One in five, or 20%, of high-income families experienced an employment change compared to 36% of low-income families.

In terms of employer support, parents said flexible hours and remote work were the most appealing to close child care gaps. Such amenities, traditionally only available to higher-wage earners, have reportedly reduced turnover and improved employee satisfaction.

Additionally, 11% of parents—including 12% of fathers—planned to leave their employment in the next year. Again, low-income families were more likely to be planning a career change than their high-income counterparts. Other parents reported dropping from full-time student status to part-time learning to accommodate inconsistent child care availability.

Most high-income families were satisfied with their child care arrangements, or 88%, compared to 74% of middle-income families and 66% of low-income families. Fathers also reported being more satisfied with their arrangements than mothers.

Additionally, parents utilizing Head Start or Early Head Start programs reported the highest satisfaction, at 87%, followed by parents using child care centers and families relying upon nannies or au pairs—both at a 82% satisfaction rate.

Recent momentum

The conclusion doesn’t include any proposed solutions to the state’s child care shortage—something that lawmakers have struggled to address in recent years.

Actions taken in 2024 include increasing the maximum number of children allowed at unlicensed homes and extending licensing requirements. A separate law authorized a pilot program for “micro centers,” lowered age limits for child center staff and allowed child care employees to access state benefits for their own child care needs.

Those bills explicitly focused solely on deregulation and other proposals that didn’t include a budget line and authors vowed to return to the issue in the 2025 budget-writing session.

However, the General Assembly will return in January with smaller reserves as well as long-term Medicaid funding problems and might not prioritize actions to close Indiana’s child care gap—though both the Republican and Democratic candidates for governor have discussed the state’s child care issues in their campaigns.