South Carolina's Child Care Industry

Donald L. Schunk

Did you realize that this industry is an important economic driver for the state? Here's how—and why.

Photos are courtesy of S.C. Office of First Steps to School Readiness.

Overall, the child care industry in South Carolina has an estimated $787.2 million impact on the state's economy.

Closing the per capita income gap between South Carolina and the rest of the nation has long been among the major goals of economic development in the state. Important economic development efforts have focused on improving the quality of education and labor skills in the state. South Carolina has an impressive system of technical colleges that is widely recognized as being beneficial in luring industry to the state. Additionally, despite budget cuts in the early 2000s, the state has kept education funding in general as a relatively high priority. However, a commitment to early childhood care and education has largely been lacking.

The importance of early childhood care and education is beginning to be more widely understood. Research by prominent economists, such as Nobel Prize-winning economist James Heckman, and Rob Grunewald and Art Rolnick at the Minneapolis Federal Reserve Bank, has gained traction in recent years across the country. More locally, the recent ruling of Judge Thomas W. Cooper, Jr., in the case of Abbeville District School, et al. v. South Carolina, et al., focused heavily on the importance of early education, especially for children from low-income families:

The child born to poverty whose cognitive abilities have been largely formed by the age of six, in a setting devoid of the printed word, the life blood of literacy and other stabilizing influences necessary for normal development, is already behind . . . (E)arly childhood intervention at the pre-kindergarten level and continuing through at least grade three is necessary to minimize, to the extent possible, the impact and the effect of poverty on the educational abilities and achievements of those children.

These analyses of the longer-term benefits of quality early education have led to many efforts to provide an economic development context for child care and early childhood education. In addition to the longer-term benefits of quality care and early education, child care itself is an important economic industry. The child care industry is comprised typically of small local businesses spread throughout the state. Like any other small business, child care facilities provide jobs and income that support spending and tax revenues in South Carolina. Also, like any other business, child care facilities are linked to other firms and industries in the state by their purchases of inputs including supplies, real estate, food, insurance, maintenance, and many other goods and services, thereby supporting business activity at other establishments. Additionally, child care businesses play a supporting role in the economy by enabling more than 75,000 parents to participate in the state’s labor force.

The purpose of this article is to analyze the many economic impacts of the child care industry in South Carolina and to provide a background for considering child care and early education in an economic development context in South Carolina.

The industry as defined here includes licensed and registered child care facilities, including centers, family homes, and group homes, as regulated by the South Carolina Department of Social Services. Given this definition, there are other important segments of the industry that are necessarily excluded, such as publicly funded pre-K and Head Start programs, as well as informal child care arrangements. While these arrangements may entail similar economic benefits, data limitations force their exclusion. In this regard, then, the analysis provided here is necessarily conservative. The full range of economic activities associated with the child care industry certainly exceeds the estimates provided throughout this report.

The size of an economic industry is typically based on estimates of a core set of metrics. The most common measures include estimates of the number of firms in the industry, the number of workers, the amount of income earned by those workers, and the value of total industry output, often measured by an estimate of gross receipts for the industry. Estimates of these metrics for South Carolina’s child care industry can indicate the absolute magnitude of child care as an economic industry and can also be used to compare child care to other industries in the state.

According to the S.C. Department of Social Services (SCDSS), as of January 2006, there were 1,453 child care centers, including 1,091 licensed centers and 362 licensed or registered church facilities; 1,570 licensed or registered family homes (capacity of up to 6 children); and 279 group homes (capacity of 7 to 12 children) listed as regulated facilities. This represents a total of 3,302 child care facilities licensed by SCDSS and excludes another 200 licensed Head Start programs.

These data on licensed facilities form the basis of the industry estimates given in Figure 1. Overall, there are an estimated 2,835 child care facilities actually in operation in South Carolina, with an estimated enrollment of 118,169 children aged 0-12 years. (The estimate of the number of child care facilities actually in operation is based on data from Janet Marsh’s 2001 study, South Carolina Child Care: Survey of the Workforce 2000, which determined that 92 percent of listed centers and 81 percent of listed homes are actually in operation.) A total of 15,159 employees earning $228.4 million in annual wages are estimated to work at these facilities, in both direct care giving and other supporting positions. Finally, annual gross receipts of these child care businesses are estimated at $489.8 million.

Child care businesses play a supporting role in the economy by enabling more than 75,000 parents to participate in the state's labor force.

The child care industry impacts the South Carolina economy in many ways. The industry is composed of many small businesses operating across the state, employing people and providing them with income, and purchasing other nonlabor inputs from businesses. The operations of child care facilities allow for parents to be members of the state’s labor force and also allow them to be more productive workers. These impacts can all be considered immediate impacts of the child care industry – ways in which the presence of child care providers influence the economy of South Carolina today.

However, there are also important long-term impacts from the provision of child care. Child care workers can have a significant influence on the children themselves. Children receiving high-quality early care may well go on to become more qualified and productive members of the workforce and society in general. These are considered to be the long-term impacts of child care. In a recent issue of the Business & Economic Review, Noble (2005, vol. 51, no. 3) provided an overview of the evidence on long-term benefits of quality early education programs. Therefore, the remainder of this article focuses on the shorter-term economic impacts of the child care industry.

The previous section provided measures of the size of the child care industry. Perhaps as important is an understanding of how the child care industry blends in with the overall economy. That is, measures of absolute size are useful, but it is necessary to also see the role that the industry plays within the state’s economy and the interrelationships with other industries in the state. Economic input-output analysis can be used to understand these inter-industry relationships.

Based on a standard approach to economic impact analysis, the $489.8 million in direct gross receipts to the child care industry leads to an additional $141.8 million in indirect effects and an additional $155.6 million in induced effects.

The pattern of indirect effects across different industries is based on the pattern of input purchases by child care providers, as well as the additional rounds of supplier linkages beyond the first tier suppliers to the industry. In this case, these indirect effects are felt most strongly in industries including: nonresidential construction, power generation and supply, food manufacturing, plastics manufacturing, accounting and bookkeeping, other financial services, legal services, laundry services, and management services. Overall, the child care industry in South Carolina has an estimated $787.2 million impact on the state’s economy.

In terms of jobs, the child care industry itself accounts for 15,159 jobs. There are an additional 1,279 jobs due to indirect effects and 1,721 jobs due to induced effects. In total, 18,159 jobs in the state can be attributed to the operations of child care facilities.

Finally, looking at household income impacts, $228.4 million is direct income for workers at child care providers. Indirect linkages account for an additional $41.4 million, and the induced effects are another $51.3 million. In total, the impact of the industry on household income is estimated to be $321.1 million annually (in 2005 dollars). The total impacts of the child care industry are summarized in Figure 2.

This input-output analysis of the child care industry reveals that the operations of child care providers, like other small businesses in South Carolina, have a substantial impact on output, jobs, and income in the state. Like every business, these child care providers make a variety of input purchases, both labor and nonlabor, for the purpose of producing their output -- child care services in this case. This flow of funds from providers then has ripple effects throughout the economy. Indeed, the indirect and induced effects of the child care industry work through every sector and every region of South Carolina.

As an industry, there are some characteristics unique to child care. In addition to influencing business activity via industry linkages and employee spending, the provision of child care services is critical in enabling additional economic activity. Clearly, by providing care for nearly 120,000 children, child care providers play a critical role in allowing parents to be members of the state’s labor force. In this sense, child care providers are a necessary piece of the economic infrastructure of South Carolina. Just as a transportation network, utilities, quality education, and a health care system are vital for supporting economic activity, so, too, is the availability of child care.

Overall, it is estimated that the 118,169 children enrolled at child care facilities represent 75,628 working parents. At an average annual income of $31,9401, these working parents have an estimated combined income of $2.4 billion annually.

In addition to supporting membership in the labor force, child care also allows parents to further their education. Given the structural shifts in the South Carolina economy that amplify the importance of education and acquiring labor skills, the ability to enhance individual human capital is vital for both individual well-being and for the economy as a whole. In this way, a child care system that enables parents to attend school is also a necessary component of the state’s infrastructure.

From the perspective of businesses, the availability of stable child care arrangements for employees can have a substantial impact on costs and profitability. Working parents with access to reliable child care services typically experience reduced absenteeism. For the employer of these workers, reduced absenteeism implies the worker can be more productive and produces a potential benefit in terms of both boosting revenues and lowering costs.

Similarly, firms that in some way play a role in providing child care can experience greater employee retention and improved recruitment of quality workers. While the incidence of direct employer-provided child care services remains low, especially for smaller firms, there are ways that businesses can assist working parents. These can range from monetarily assisting workers with child care, to helping workers locate quality care, to referring workers to local agencies that can provide assistance.

This report has provided a profile of the child care industry in South Carolina and discussed both the short-term and the long-term economic benefits of the industry as it stands today, and also focuses on making high-quality early education and care available. The major themes of this analysis can be summarized as follows:

• Child care supports the regional economy. Gross output of and employment in the South Carolina child care industry is larger than apparel manufacturing and call centers; gross receipts for the industry are nearly four times that of tobacco farming.

• Child care supports working families. Just as roads and bridges support commerce, child care enables families to not only work but also remain productive, engaged employees. Working parents are the backbone of our economy. They not only assume key jobs, but they collectively earn an estimated $2.4 billion annually—a substantial economic contribution to our state.

• High-quality child care enables children to succeed in school and life. Long-term research consistently underscores that high-quality early childhood care and education can improve educational achievement, improve financial well-being, reduce crime, and reduce reliance on public assistance.

Child care investments can help pay for themselves, in the short term, by generating economic activity and taxes on both income and the purchase of goods and services. And if investments are made in high-quality child care, then even deeper, long-term returns can be generated from children who are able to contribute to and grow the state's knowledge economy.

The South Carolina child care industry embodies both strengths and challenges. The good news is that expected future trends in our state's population growth indicate that the child care industry should see only modest increases in the demand for services. However, major challenges lie in the industry's need to increase the quality of care and early education, and to do so in a way that ensures child care remains affordable and accessible to all families. ¨

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1 U.S. Bureau of Labor Statistics, State Occupational Employment and Wage Estimates, 2004..