Providing Childcare Support Can Help Solve Inflation
Americans are relying on the Federal Reserve to tamp down the red-hot inflation mess.
The problem with this strategy is that it relies on the Fed to hike interest rates in just the right way, slowing demand without tipping the entire U.S. economy into a recession. And the Fed’s track record on this isn’t great. Leading economists put the odds of a recession in the next two years at 35%.
But what if hiking interest rates isn’t the only way to bring down inflation? Lawmakers can use other policy tools to combat inflation, argued Sen. Elizabeth Warren (D-Mass.) on Tuesday during a Senate hearing.
“We can bring down inflation if we increase our labor supply. More workers earning a fair wage with good benefits means more productivity—and that means more downward pressure on prices,” Warren said.
That’s where childcare support comes in, Warren argued: “To get people into the workforce, working parents need childcare.” One barrier holding back the U.S. economy right now is that many workers who want to rejoin the workforce can’t do so because they don’t have access to affordable childcare.
Despite the U.S. bouncing back economically after the initial phase of the COVID-19 pandemic passed, the overall number of Americans actively working—otherwise known as the labor force participation rate—hasn’t yet recovered to pre-pandemic levels. And the recovery of women’s labor force participation rate (which peaked in 2000) lags even further behind, likely because women are more often tasked with childcare and thus have to take time out of the workforce.
But the millions of open jobs and missing workers have real-world impacts. Production can’t keep up and employers are raising wages—all of which in turn increases prices. An extremely tight labor market effectively means prices stay higher, longer.