The failed economics of care work

October 19, 2020 The American Prospect

What is something “worth” in the marketplace? Who gets to decide that? If you ask someone steeped in classical economic theory, they will tell you that something is worth exactly what someone else is willing to pay for it. They will say that the “market” decides, through the laws of supply and demand. And they will say that all of these individual market transactions come together to make up “the economy.”

It should be clear to most of us by now, but classical economic theory doesn’t actually explain how the economy works, at least not in a way that is meaningful to those who actually live in it.

Care work is a perfect example. Classical economic theorists would tell us that care work simply isn’t very valuable, and neither are the workers who conduct it. If the best way to determine something’s worth is how much people receive in payment for it, then this would be exactly right. More than one in six domestic workers, including house cleaners, nannies, home health care aides, and child care providers in their own home, are in poverty. For house cleaners, the number is even higher, with one in four not meeting the poverty threshold. There is a 40 percent wage gap between domestic workers and other workers ($12.01 per hour compared to $19.97 per hour).

But imagine a world without domestic workers. Imagine there is nobody to take care of children while parents go off to their jobs. Nobody to clean, cook meals, or take care of sick or elderly people. In a world where that was the case, the economy as we know it today simply couldn’t function.

You don’t have to think too hard to imagine a world bereft of care; the COVID-19 pandemic has created a natural experiment in this devastating reality. As child care options closed, and social distancing kept care workers home and off the job, families found themselves in a state of crisis. People with careers of their own were pulled into time-consuming domestic work, caring for children who weren’t going to school, or sick or elderly relatives without support. These people saw their productivity at work collapse. This new burden of care work fell disproportionately on women, and even more so on women of color, who are the ones most often called upon to make that difficult choice between caregiving responsibilities and employment. In the ensuing months of lockdowns, the care infrastructure and the people it employs were seen more than ever to be absolutely essential.

So if a form of work is so important that its elimination would make all other work difficult or impossible, and if it adds so much value to an economy that its removal causes massive productivity declines, does it truly make sense to say that domestic workers aren’t “worth” very much? Clearly not. So how does this make sense from an economic perspective?

What is happening here is that we have a system where there is high demand for a highly valuable service, but in which the financial benefits flow not to the ones providing the service, but rather to the ones purchasing it. And as usual, the failure of this relationship between wages and values falls disproportionately on women of color, the main caregivers and service providers, who are systemically devalued.

Let’s dig a bit deeper into this. The relationship between wages and value is often measured through productivity, or value of output, and this is extremely hard to measure in care work. The measure of productivity does not capture the positive benefits for the purchasers and the broader economy. A day care provider does more than babysit children. She provides a service and also allows for a parent to go to work. She also, through providing learning activities and social experiences, supports critical early development, benefiting a child’s future academic achievementlifetime earnings, and even their ability to stay out of the criminal justice system. None of this is included in the dollar value of care work. An AARP report in 2019 found that family caregivers provided unpaid care worth $470 billion in economic value.

Another major challenge to a traditional economic view of domestic work is that while individual worker wages are very low, the actual work can be prohibitively expensive to provide. That’s because of the high ratios between caregivers and those who receive care. While there are 16 students in an average K-12 classroom, federal recommendations and state mandates require as high a ratio as one adult for every three infants in child care, and for every three to six toddlers and preschoolers. In-home support service for the elderly is often a one-on-one experience.

That means that consumers of family care must spend far more per staff member than with traditional K-12 education. It has created the anomaly of prices that are unaffordable to the median family, and wages too penurious for workers to live on. Subsidies exist that could help both families and caregivers cope, but they are too few and far between. Only one in six eligible children benefit from federal child care block grants, according to 2015 estimates, and to become eligible for government long-term care support, elderly individuals must spend down all of their savings to qualify for Medicaid.

If the work is so important that its elimination would make all other work difficult or impossible, how can we say that domestic workers aren’t “worth” very much?

The demand for care will only grow, straining families and caregivers alike. More than 41 million workers have children under 18. In a few years, nearly 70 million people will be between the ages of 60 and 78.

In economic terms, this is simply not a stable market.

But that’s not all. As noted earlier, traditional economic assumptions state that the price of a product or service is equal to how much the consumer is willing to pay. But this doesn’t tell the whole story. Very often, domestic care isn’t a luxury, it’s a necessity—whether that’s to care for a sick or elderly family member, or to allow both parents to keep their jobs and keep their heads above water. In economic terms, this means that the price is “inelastic,” meaning that the price doesn’t change much in response to demand.

For example, consumers of health care will typically spend whatever it takes, assuming they have the resources, to be treated. Other types of care are similar. Thus, prices might not be a particularly good or useful “signal” in the care economy. Consumers of care are not likely to be willing to sacrifice quality for savings, if they can afford it. Who would willingly select substandard care for their children or grandparents? So when it comes to domestic work and the care economy, like we see in health care, we can’t really rely on the “market” to work its magic by counting on consumers to comparison-shop and drive prices down through competition.

Similarly, classical economics assumes that people are making choices with perfect information, comparing costs and benefits to maximize their self-interest. Each piece of this assumption fails under the reality of our current care system. Patchwork systems of providers for both in-home and center-based care services include government, small-business owners, private companies, and family members. Families face different leave policies from employers, and different allowances depending on their city or state, which leads to incomplete and ever-changing information. The cost of care is often too high for low- and middle-income workers. And the ultimate “low-cost” option, providing in-home care to loved ones, is often impossible to do while maintaining a full-time job, making it the most expensive option of all.

This crisis is magnified for women, and especially for women of color, who must face the dual discrimination of sexism and racism, which is often larger than the sum of its parts. There is a long history of Black women as domestic workers who are not given protections in the workplace and lack supports to care for their families at home. This continues today. More than half of domestic workers are Black, Latina, or Asian American/Pacific Islander women. At the same time, a large majority of Black and Latina mothers are contributing significantly to keeping their households afloat. Women of color are more likely to be single parents than white women, meaning the decision between caregiving in the home and entering the labor market is more likely to fall on them. Women of color are disproportionately represented as workers and business owners in the child care market.

Another way this market fails is highlighted by the existence of family care deserts, those areas of the country where supply of care is low even though consumers are willing to pay for it. A 2018 report found that more than half of Americans are living in child care deserts, where there is an insufficient supply of licensed child care. There is no state or federal government mechanism to spread around caregivers to all the areas of the country that need it. In areas where day care is scarce, there’s a measurable 12-percentage-point drop of mothers in the workforce, which affects not only personal finances but overall economic vitality.

As schools implement remote classes during the pandemic and day care facilities remain closed, policymakers pushing to reopen the economy are ignoring the care constraints faced by millions of workers. Even for those parents and caretakers returning to work remotely, there will be decreased performance as they juggle caregiving responsibilities at home. A recent survey found that parents are losing on average one full day a week due to child care needs. Workers returning to brick-and-mortar jobs will have to cut hours, resign, or try to find another solution. In a survey of parents over the summer, one in eight had to reduce hours or leave jobs due to child care needs.

How this is playing out is no surprise. The wealthy can afford babysitters, nannies, and home learning “pods” with professional support, but low- and middle-income households are increasingly choosing burdening themselves with care work as facilities remain closed, and bearing the economic impact of that decision.

So if only the rich and upper class can afford quality care, and in the process, providers don’t have quality jobs and can’t afford to pay their own bills or advance up the economic ladder, is that truly a functioning market? The answer is clearly no.

Oscar Wilde famously quipped that “the cynic knows the price of everything and the value of nothing.” Today he might say the same about classical economists.

Caregiving infrastructure is a perfect example of something that is being failed by a classical economic view of value, and it needs to be taken out of a market that will continue to view it through that prism. Actual people value domestic work. Actual people value the care economy. The economy is made up of these actual people, not the models that classical economists use to try to predict what actual people “should” value. Treating caregiving as a public good, and making sure that the actual caregivers receive their fair share, could help us assign value to this work where it belongs.

Read on The American Prospect.