The Best Answer for Child Care

By , Todd Steen is assistant professor of economics at Hope College in Holland, Michigan.

MORE than half of all mothers with children under the age of six currently are in the labor force. Even so, many mothers still are prevented from working by the scarcity and high cost of quality child care. Until recently, employers and public policymakers paid little attention to the many women who wanted to work - or work more hours - but could not because of family responsibilities. Rapid labor-force growth, fueled by the post-World War II baby boom and the influx of women into the work force, made it less pressing for businesses to take a hard look at child-care issues.

The situation will become more acute in the 1990s as the ``baby bust'' generation - the relatively small number of persons born between 1964 and 1975 - continues to reach working age.

Child-care benefits for employees are one response by companies to the onset of the expected labor shortages. Employers have a range of options available, including on-site child care, information and referral services, and child-care accounts paid through salary reductions.

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I believe flexible child-care spending accounts financed by salary reductions hold the most promise for both workers and companies in the 1990s. To see why, let's examine one of the more publicized alternatives: on-site child care.

Nearly 1,000 employers, roughly half of them hospitals, now provide on-site or near-site child-care services. These centers allow employees parental visits during lunch and coffee breaks. This type of child care probably is seen as quite advantageous by the worker.

Firms, however, see a number of negatives in on-site child care. It's expensive. And it may only be practical for large organizations with stable numbers of employees who wish to use the center over a period of years.

On-site child care also can be viewed as discriminatory since it is useful to only a fraction of the workers. Then there is the issue of liability in the case of child injury or abuse.

For these reasons, on-site care is not likely to be a major way for firms to help employees with child care in the 1990s.

Information and referral services are another option. About 500 organizations now provide such services to employees about child care. This method likely will become quite prominent in this decade as companies attempt to show they appreciate the difficulties of balancing work and family responsibilities.

While the information is free, workers pay for the actual child care themselves.

A flexible child-care spending account financed by salary reductions appears to be among the best approaches right now.

Under this federal-tax mechanism, employees can reduce their salaries by an amount specified at the beginning of the calendar year and use the excess money to fund a child-care reimbursement account. Thus, child-care expenses are paid from pre-tax earnings, a substantial discount for any employee.

Currently, the maximum salary reduction allowed for child care is $5,000. While this is adequate for most persons now, the allowable salary reduction should be indexed to the rate of inflation. Child-care costs surely will continue to increase, perhaps even faster than the rate of inflation.

Flexible spending accounts place few constraints on workers on the type of child care they choose. They are also relatively easy and inexpensive for employers to administer.

This method provides the most bang for the buck and is likely to become a highly significant method of employer assistance for child care in the 1990s. It is most beneficial when combined with a child-care information and referral service that can be provided in-house or sub-contracted.

The United States is undergoing a major transition from a labor-surplus to a labor-shortage economy. Expansion of child-care benefits must be a priority for businesses in coping with the range of personnel problems they will face in this decade.

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