The problem with this strategy is that it relies on the Federal Reserve to raise interest rates the right way, slowing demand without plunging the entire US economy into recession. And the Fed's record on this is not very good. Leading economists put the chance of a recession at 35% over the next two years.
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What if raising interest rates was not the only way to reduce inflation? Lawmakers can use other policy tools to fight inflation, Sen. Elizabeth Warren (D-Massachusetts) said Tuesday during a Senate hearing.
“We can reduce inflation if we increase our labor supply. More workers earning fair wages with good benefits means more productivity, and that means more downward pressure on prices,” Warren said.
That's where child care assistance comes in, Warren explained: "For people to get into the workforce, working parents need child care." One of the obstacles currently holding back the US economy is that many workers who want to re-enter the workforce cannot do so because they lack access to affordable child care.
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Even though the United States has recovered economically after passing the initial phase of the COVID-19 pandemic, the total number of working Americans, also known as the labor force participation rate, has not not yet determined and has returned to pre-pandemic levels. And the recovery in female labor force participation (which peaked in 2000) is lagging even further, probably because women are more often caring for children and therefore have to take time off from the labor market.
But the millions of job vacancies and missing workers have real impacts.
Production cannot be maintained and employers raise wages, which in turn raises prices. An extremely tight labor market means prices stay higher for longer.Removing more workers from the margins, especially stuck-at-home parents, can help. About 4.8 million Americans lost their jobs in the first two weeks of April because they cared for young, out-of-school children, according to the latest US Census Bureau Household Pulse Survey released last week.
Millions more parents have had to take unpaid leave or PTO days or reduce their hours because they were unable to secure child care arrangements. Many are parents of young children under the age of 5 who are not yet eligible for COVID vaccines.
“When a parent has no alternative or option for childcare, they cannot work. Everything stops for them. Financially, it's a disaster for them and for the company,” Walt Rowen, small business owner of Pennsylvania-based Susquehanna Glass Co., said during Tuesday's hearing.
Warren and other Democrats support Biden's Build Back Better legislation that would help provide direct support to families to reduce the cost of child care and to providers to help with operating costs and hire more workers. But the legislative package remains stalled in Congress.
Solving the problem of childcare would particularly promote the participation of women in the labor force. Consider that single women make up half of the workforce, says William Spriggs, professor of economics at Howard University and chief economist for the AFL-CIO.
Even if federal support for child care were to increase women's labor force participation rate by just four percentage points, which some estimates predict, that's an additional two percentage points of the total labor force. . "That's a lot of workers. That's a lot of production,” says Spriggs.
That would change the equation for the Federal Reserve to decide whether the United States is in a tight labor market and whether it needs to take more action to slow the economy. "If Congress doesn't build the infrastructure for everyone to work, then the Fed's hands are kind of tied," Spriggs says.