Early Childhood Market Specialist
MCH Strategic Data
February 25, 2013
Sweet Springs, Missouri
and the Economy
©2013 MCH Strategic Data
Child Care and the Economy:
Reagan and Clinton to Obama
There were two periods of outstanding growth in the child care center market over the past
thirty years. Their characteristics were remarkably similar even though they occurred under two
presidents who were remarkably different.
GDP growth was about 4% per year under Ronald Reagan when the number of child care centers
increased by over 40% from 1983 to 1988. This growth sprang from a low base, since institutionalized
child care was then a young market.
GDP growth was 4% per year again under Bill Clinton when the number of child care centers increased
by about 25% from 1993 to 1999. When we consider that the market was more mature,
this growth under Clinton was no less remarkable than the 1980s boom.
We give a lot of credit to presidents when we have rising GDP, but it’s a ponderous question
whether presidents make GDP or somewhat the other way around. When a new president
walks into the oval office, there isn’t a special “GDP meter” sitting on his desk that can be adjusted
to bring on prosperity. Powerful macroeconomic forces are already in motion, but a new
president can change their direction in a positive way with sensible policies and a bit of luck.
Let’s look at a few specific macroeconomic trends:
Under Reagan, overall employment rose by 17% or about 20 million From 1983 to 1990 there was a 9.3% increase in median family
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Declining Inflation Led By Cheap Oil:
collapse of a cartel formed by oil producing countries in an attempt to control world
oil prices. Oil prices declined 50% in the ‘80s, and overall inflation went from 12% in 1981 to
2.5% in 1988. Under Clinton, inflation averaged 2.5% per year. In 1999, oil was $10 per barrel;
at the pump gas was 95 cents a gallon. The impact of oil prices is pervasive beyond the cost of
gasoline, since the manufacturing of many things is petrochemical-based.
The Reagan economic boom was favored by the serendipitous
Higher Consumer Spending:
spending percentage of GDP averaged 64.6% in the 1980s, 67.3% in the 1990s and 70.0% in the
2000s, until the recession hit.
After little change during the 1960s and 1970s, the consumer
Favorable Federal Funding:
million to $1.075 billion). At the time, this was the biggest increase in Head Start history. Head
Start was one of the few discretionary programs excluded from the Reagan budget cuts. In 1986,
there was intense debate within the Reagan Administration about welfare and work, resulting
in agreement that child care assistance was essential to enabling low-income mothers to get
and hold a job. This led to the 1988 passage of the Family Support Act (FSA) and, when Vice
President Bush became president, the 1990 passage of Child Care Development Block Grant
(CCDBG). The FSA required welfare recipients—including most mothers with preschool children—
to participate in education, training and work. The FSA guaranteed the first open-ended
entitlement for child care in American history. The original CCDBG, like the FSA, mandated that
parents have the right to choose from a wide range of child care providers, and no matching
funds were required from the states. Along with this important activity at the federal level, the
private center-based market flourished. About 90% of all centers were funded by parent-paid
fees at the end of the decade.
Under Clinton, the Head Start budget was increased seven times, resulting in a cumulative
increase of about 170%. In Clinton’s second term, the Child Care Development Block Grant
was reshaped as part of welfare reform to encourage low income mothers to work. CCDBG
might be considered as an example of a “New Democrat” entitlement that was created with
bipartisan congressional support. CCDBG funding was increased from $1.9 billion in 1997
to $3.5 billion in 2000. During the Clinton presidency, some states began to fund universal
pre-K, notably Georgia in 1993, using state lottery money, and Oklahoma in 1998, using state
formula funding. Aggregate state funding for pre-K totaled over a billion dollars in 1999. All
told, there was a four-fold increase in public funding for child care and early education during
the Clinton years. Due to the strong economy, the private sector continued to grow as well.
In 1984 the Head Start budget was increased by 72% (from $625
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At the end of the decade, 90% of all centers were funded with parent-paid tuition dollars, just
as they had been during the Reagan years.
The Obama Economic Recovery
Since 1900, eleven presidents have served second terms; but only three have presided over
an economy that was stronger than their first term. After starting in a very deep hole, Barack
Obama may be the fourth, unless unforeseen events derail a slowly emerging recovery.
The economy was in free-fall when Obama took office. GDP dropped by 5.1% and 8.7 million
people lost their jobs in the first four consecutive quarters. By comparison, there was a 2.7%
drop in GDP during the recession of 1981-1982 when 2.8 million people lost their jobs (Department
of Labor). The 2008-2009 recession had the deepest collapse and is having the slowest
recovery since the Great Depression. History books are already calling it “The Great Recession.”
Now the housing market has hit bottom and is decidedly improving, helped by a stabilized
banking system and record low interest rates. Households and businesses are continuing to
de-leverage. The economy is slowly adding jobs. Inflation is low. Leading think tanks have
projected about 2% GDP growth for 2013. While this is a huge improvement over the 5.1%
drop of the recession’s first year, it is not enough to bring on the kind of growth in private
child care that the nation had during the Reagan and Clinton recoveries. As President Obama
begins his second term, the economy is expanding at half the growth rates of the 1980s and
1990s, and median family income has steadily declined, while the cost for a year of preschool
has dramatically increased.
Real GDP growth averaged 2.4% in 2010, 2% in 2011, and 2.1% in 2012. As 2012 ended, unemployment
was still near 8%, median family income had declined for the fourth straight year,
a gallon of gas cost four times what it did in 1999, and both business and consumer spending
were weak. The impact was greatest in the private sector, which accounts for three out of
every four child care centers. MCH Strategic Data estimates that for every private center that
was newly licensed, roughly two centers closed or went bankrupt over the past two years; and
overall enrollments are down 14% since pre-recession levels.
According to the most recent 2013 projections by The Conference Board, GDP will average 1.4%
in the first quarter and 1.5% in the second quarter before improving to 2.4% in the third quarter
of 2013. Historically, the private sector has not grown when GDP was less than 3%.
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Federal Funding Under Obama
It is logical that the federal government would come to the rescue. That has been its traditional
role in organized child care, starting with the funding of Head Start in 1965. The roughly 25%
of the market that is now publicly funded is driven by federal rather than state or local funding
initiatives. Public preschool funding is about 70% federal and only 30% state and local, whereas
public K-12 school funding is only 10% federal and 90% state and local.
Federal funding for preschool programs was extremely favorable from 2009-2011, due to a
huge one-time funding boost from the American Recovery and Reinvestment Act. On top of
regular federal allocations, the recovery act provided $2.1 billion for Head Start and Early Head
Start, $2 billion for the Child Care and Development Block Grant (CCDBG), and $10 billion for
Title I. This “stimulus” was the early childhood market’s sunshine for over two years.
Funding at the federal level continued to be benign in 2012 with the appropriation of $60 million
for CCDBG and $424 million for Head Start to maintain services for over 50,000 Early Head
Start infants and toddlers that had been funded under the recovery act.
Federal funding won’t be nearly as robust in 2013. At best, $70 million may be appropriated for
Head Start and $40 million for CCDBG.
However, in his State of the Union address, President Obama proclaimed that the time has
come to implement universal pre-K for 4-year-olds. This may lead to a substantial increase in
funding in 2014 if it does not get bogged down in an austerity-driven congress.
Obama’s Universal Preschool Proposal
As of this writing, it has been a mere week since the president’s speech, yet there has already
been a virtual avalanche of commentary from experts and advocates. Along with surprise and
delight are controversy and confusion.
The president’s words gave new hope to middle class families struggling to pay for tuitionbased
preschool in spite of flat or declining income and the rising cost of care. Most received
the impression that the president was calling for taxpayer–funded universal preschool.
In his state-of-the-union and other speeches, Mr. Obama promised to work with states to “make
high quality preschool available to every child in America.” On a personal note, he recalled how
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tough it was for him and Michelle to find good care at affordable cost. He praised Georgia and
Oklahoma because “they have worked to make a preschool slot available to nearly every parent.”
In spite of these populist statements, the White House fact sheet makes clear that only parents
earning at or below 200% of the federal poverty line would get help. Alternatively, this goal could
be accomplished by expanding the eligibility requirements for the Child Care Development Block
Grant to include the lower middle class. The CCDBG, scheduled for reauthorization this year, mainly
uses parent vouchers that parents can redeem for the child care arrangement of their choice.
Like other federal programs, the president’s new program would support underprivileged children,
expand child care—especially Early Head Start—and increase the availability of home
visits by nurses and social workers. In addition, the plan would incentivize but not require states
to extend the plan’s provisions to all children, regardless of family income.
Crucial questions remain about costs and how the plan would work, including integration
with other federal programs serving young children—like CCDBG, Head Start, and the preschool
part of Title I.
The Cost/Benefit Aspects of Preschool
Fundamental to the president’s proposal is his conviction that a preschool education can
change lives in positive, long-term ways. He sources this to a cost/benefit study that is now
being called into question by leading social policy think tanks, ranging from the progressive
Brookings Institute to the conservative Heritage Foundation.
The president reported that high quality preschool saves $7 for every $1 spent. That calculation
came from the Perry Preschool Project, a high-cost 1960s “boutique” program serving
about a hundred extremely low-income and low-IQ children at an estimated cost of $18,000
per child in 2012 dollars. It was a multidimensional, multiyear program administered by a
team trained by the High/Scope Foundation. The cost/benefit projections of the Perry project
and other highly enriched programs like Abecedarian and Chicago Child-Parent Centers
should not be extrapolated to low-cost state pre-K like the programs in Georgia and Oklahoma
that were extolled by the president.
For decades, child care advocates cited cost/benefit studies to influence governors and legislatures
to increase funding for existing pre-K programs and start new ones. Estimates of future
cost savings ranged from $2 to $13 for every dollar spent. These studies projected that the
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cost of child care would be recovered many times over due to higher wages and lower rates of
school drop-outs, delinquency and jail time; and less need for costly remedial education. Other
advocates have embellished on this. New York Senator Chuck Schumer declared that universal
preschool would result in less teen unemployment, pregnancy, smoking, and more.
Two well-funded non-profit organizations—Pre-K Now and NIEER—frequently cited these
studies as they led the charge in preschool funding advocacy over the past dozen years. Aggregate
state pre-K funding more than doubled from 2000 to 2008. By the end of this run-up,
39 states were funding 51 state pre-K programs.
The Great Recession changed everything, replacing hopeful cost/benefit projections with a
brutal economic necessity to “de-leverage or die.” At the recession’s darkest point, consumer
spending and business investment were freezing. State governments were forced to address
huge budget gaps due to plummeting state sales tax and sagging personal income tax receipts.
Almost all discretionary state spending was affected. Three states scrapped entire pre-K
programs, and overall spending for state pre-K programs fell by more than $700 per child, according
to the National Institute for Early Education Research (NIEER).
A perhaps wiser and harder-headed preschool advocate seems to be emerging. Maria Fitzpatrick,
professor of policy analysis at Cornel University, said the cost of programs ranging from
$16,000 to $41,000 per child is too high for state governments to fund for 4-year-olds of all residents.
In a new opinion paper, Russ Whitehurst of Brookings Institute said: “Perry and Abecedarian
were small hothouse programs (less than 100 participants) run by very experienced,
committed teams.” He said that generalizations of their research findings to statewide one-year
programs for 4-year-olds are “prodigious leaps of faith.”
Can Pre-K Transform K-12 Education?
Another one of the president’s premises is that preschool makes K-12 education better. According
to available evidence, this is not happening in Georgia and Oklahoma, the two “universal”
pre-K states the president visited last week to drum up support for his program. These states
offer the most extensive statewide pre-K programs, serving 60 to 70% of all 4-year-olds.
Longitudinal studies have been done in both states. Neither showed impressive educational
progress, as measured by the National Assessment of Educational Progress (NAEP). The Georgia
report notes that “by the end of first grade, children that did not attend preschool had skills
similar to those of Georgia’s preschoolers.” In Oklahoma, NAEP scores have actually declined
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since the state began offering universal pre-K in 1998. Yet both Georgia and Oklahoma require
their pre-K teachers to have college degrees, and both programs are highly rated for quality in
terms of NIEER’s 10-point rating system. Georgia is rated 10 with an average cost of $4,226 per
child and Oklahoma is rated 9 with an average cost of $7,852 per child.
Florida is the third state to fund a voluntary universal pre-K program. Implemented in 2006, the
program offers choice between either a three-hour school year program, or a summer program
of up to 10 hours per day. Florida makes even more extensive use of the private center infrastructure
than either Georgia or Oklahoma—paying only about $2,500 per child for the school
year program—and the state does not require a BA degree for pre-K or preschool teachers.
NIEER gave the Florida VPK program a low rating of 2, yet Florida’s NAEP scores are higher than
either Georgia’s or Oklahoma’s, as shown:
The overarching question is how academic should preschool become? The president implied
that all preschool teachers should have 4-year teaching degrees, and he wants to integrate
pre-K with the teacher-directed pedagogy of K-12 education. This would be a radical departure
from a century of child development theory, starting with Maria Montessori’s observations
about how children learn and codified in the NAEYC’s guidelines for developmental appropriateness.
Long an advocate of child-centered learning, the National Association for the Education
of Young Children will undoubtedly weigh in on this important issue.
NAEP Fourth Grade Reading and Math Proficiency Scores
for Leading Universal Pre-K States 2009 vs 2011
Reading Math NIEER
2009 2011 2009 2011
Florida 226 225 242 240 2 $2,500
Georgia 218 221 236 238 10 $4,226
Oklahoma 217 215 237 237 9 $7,852
National Average 220 220 239 239 8 $4,000
Source: National Assessment of Educational Progress
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A Cost/Benefit Study of Head Start
About half of Head Start 4-year-olds are in school classrooms, often in blended programs. A
comprehensive HHS study titled “Third Grade Follow-up to the Head Start Fiscal Impact Study”
concluded that Head Start does not have positive effects beyond the first year. Brookings Institute
termed the study “one of the most ambitious, methodically rigorous and expensive federal
program evaluations carried out in the last quarter century.”
The study is a blow to preschool progressives, bringing into question whether there are enough
shorter-term benefits to make Head Start cost-effective. The Head Start model costs at least
twice as much as the average cost per child in a state pre-K program. Among the three states
with the most extensive UPK programs—Florida, Georgia and Oklahoma—the average cost is
about $4,200 per child for school year pre-K.
In order to improve Head Start, the Obama administration is putting up for competition some
of its contracts with local Head Start grantees (often with a community action agency or public
school district). Russ Whitehurst of Brookings Institute termed this “a half-measure at best.” He
favors the development of a ratings system available to the general public, and letting parents
receiving Head Start subsidy choose out of all state-licensed early childhood institutions in
their neighborhoods. This would be similar to how CCDBG’s parent voucher system works.
“Let low-income parents shop,” said Whitehurst. “Have the state provide good information to support
parents in making choices, and assure that all providers meet minimal quality standards.”
What Should Be the Cost of Universal Pre-K?
Like many of life’s questions, the answer is…
cost are teacher credentialing requirements and use of the private center infrastructure.
We will return to both of these factors.
A decade ago, the Council for Economic Development (CED) estimated that it would cost U.S.
taxpayers $33.2 to $41.5 billion annually to provide pre-K to all three- to five-year-olds not
enrolled in kindergarten. CED projected it would cost between $4,000 and $5,000 per child to
provide a part-day (4-6 hours) school year program. This translates to $5,120-$6,400 per child
in 2013 inflation adjusted dollars.
Since 2002, the 4-year-old population has increased by about 6% to its current level of about 4.1
million, yet the number of fours enrolled in federal and state funded programs has increased by
it depends. The two most important factors influencing
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over 60%. Over 2 million 4-year-olds are served by 60 state and federal programs. All together,
this means that about $23 billion has already been budgeted and will be spent this year alone,
even without the universal program the president wants.
Greatly increased state pre-K funding has provided more complete data than was available to
the CED with which to determine the cost of a universal program for 3’s and 4’s. We calculate
that in 2013, expenditures would average $7,045 per child, or about $21 billion, to provide
national pre-K for 70% of the 4-year-olds. The 70% number is consistent with participation in
voluntary UPK programs like those in Florida, Georgia and Oklahoma.
Our per-child cost is significantly
from the CED study. Several variables factor into our increased expenditure. First, the CED estimate
was for 8.2 million children (all 3’s and 4’s), reflecting a greater economy of scale than our
estimate for 2.9 million 4-year-olds. Second, our estimate assumed a 6.5 hours per day schoolyear
program compared to CED’s 4 to 6 hours per day school year program.
Our $21 billion estimate for serving 2.9 million participating 4-year-olds is based on actual budgeted
cost of $11,600 for New Jersey’s court-ordered full-day, full-year “Abbott” program, to a perchild
low of $2,500 to fund Florida’s 3-hour per day school year program.
On the other hand, our per-child cost is significantly
of $10,331 per child offered by the National Institute of Early Education Research. NIEER’s estimate
assumed credentialed 4-year college teaching degrees and did not factor in possible cost
efficiencies from partnership arrangements with the private sector.
In order to determine our cost-per-child estimate, we took into account economies of scale,
teacher salary data, quality differences and cost of living data. We anticipated savings from
continued acceptance of Child Development Associate (CDA) Credentials and two-year college
degrees, as well as some 4-year degrees.
Going forward, we assume that the Obama preschool program regulations would allow states
to make even greater use of the private center infrastructure in order to relieve pressures on
K-12 schools, offer optimal parental choice, and quickly roll out the program.
higher than the inflation-adjusted per-child cost projectedper child per hour in all states that fund pre-K. This ranges from a per-childlower than the inflation adjusted estimate
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Public School/Private Center Partnership
In the K-12 market, there is a hard line between public schools and private schools when it
comes to money. Public schools are funded with tax dollars and private schools are funded with
parent-paid tuition dollars. In the preschool market, the public/private bifurcation becomes a
mixed delivery model of schools and centers. Schools contain costs by outsourcing pre-K services
to licensed private centers, compensating them on a per-child basis. The private centers
need the business. The parents need flexible choices. It is arguably a win/win/win situation.
Proponents stress that funding private centers that meet state guidelines is the only cost-effective
way to fund universal pre-K. This is already basic in so-called “universal” pre-K programs
in Florida, Oklahoma and Georgia—plus 27 of the other states that fund pre-K. Over 13,000
private centers are currently receiving the state money, according to MCH Strategic Data. Many
child care center owners and directors, as well as school administrators, are wondering if there
will be an expansion or constriction of this outsourcing in the president’s new preschool proposal,
or whether these decisions will continue to be left to the states.
Here are the assumptions in favor of more pre-K funding to private centers:
1. Paying private centers is more economical for school systems than having to build more classrooms,
hire more teachers, and buy furniture and equipment appropriate for preschoolers.
2. Centers are attuned to providing the kind of child-centered school-readiness program
that the NAEYC says is more developmentally appropriate than the teacher-directed pedagogy
3. Most centers offer a mixed-age environment for serving families with multiple siblings.
4. Complying with state guidelines raises the level of professionalism, promotes fiscal stability,
and creates more jobs.
5. There would be bad economic consequences if public funding for pre-K became limited to
public schools. This would compete with an already abundant private center infrastructure.
Assumptions in favor of more public school pre-K:
1. Schools are experienced in managing publicly funded education programs.
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2. Schools are staffed to identify and serve children with special needs.
3. Schools with surplus classroom space can economically create or expand pre-K services.
Due to the decline in the birth rate, more space should become available for this purpose.
Will There Be A Teacher Credentials Controversy?
In 2005, the National Institute of Early Education Research estimated that it would cost $8,702
per child for a national preschool program like the one the president is promoting. After factoring
in inflation, this converts to $10,331 per child in 2013 dollars—much higher than the $7,045
per child we presented earlier in this report.
Why is NIEER’s estimate 32% higher? The answer may rest in two facts. First, NIEER did not
factor in any cost savings from use of the private center infrastructure, possibly because they
favor the exclusive use of schools for the delivery of pre-K. Although most child care centers
are private, the president, as well, made no mention of using this part of the delivery system.
Second, NIEER has long advocated a government policy requiring that all preschool teachers
have a teaching degree from a 4-year college. The president proposed that states staff
their pre-K programs with “well-trained teachers, who are paid comparably to K-12 staff.” Of
course, the only way pre-K teachers will ever get paid on the same scale as K-12 teachers is
the have a 4-year teaching degree.
The president’s preschool team likely received consultation from NIEER, since it’s a high-profile
pre-K advocacy organization. They should also be seeking counsel from associations representing
private preschool providers like the National Child Care Association (NCCA) and the
National Association for the Education of Young Children (NAEYC). This year, about 5.5 million
children will be enrolled in private center-based care, accounting for $40 billion or about 73%
of all centers. A high percentage of them have school-readiness programs for 4-year-olds. It is
surprising that the president has thus far seemed oblivious to the scope and value of this huge
part of the market.
NIEER says 4-year college degrees are necessary to ensure the kind of high quality exemplified
by the Perry and Abecedarian programs. However, there’s insufficient evidence as to whether a
4-year degree truly increases program quality at the pre-K level, and there are affordability concerns.
In “Obama’s Preschool Plan,” a Brookings Institute opinion paper, Russ Whitehurst commented:
“the degree and the traditional requirements for being credentialed as a teacher have
little or nothing to do with the quality of interactions in preschool classrooms.”
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There are worthwhile alternatives to 4-year college teaching degrees. A variety of early childhood
2-year associate degrees are available through community colleges, some accredited by
NAEYC and NCCA. Two-year associate degree recipients learn theories about child growth and
development, child physical and nutritional needs, as well as care, guidance and communication
skills. Students then practice these skills in actual settings with young children under
Other skilled positions in our nation’s workforce only require 2-year degrees. For instance, a
Registered Nurse (RN) only has to become an Associate Degree Nurse (ADN), which takes about
two years. These RN’s work directly with patients and their families, monitor and track vital
signs, perform IV placement and phlebotomy, administer medications and receive patient and
family relations training.
It is evident that if we can entrust our lives to an RN with a 2-year degree, we should be able
to entrust preschool teachers with 2-year degrees to effectively administer high quality early
Finally, many preschool centers and some school-based pre-K classrooms employ assistants
and support personnel with a CDA credential (Child Development Associate). The CDA requires
a high school diploma or GED, that recipients be 18 years of age or older, have 480 hours of
experience with children within the past five years, and have 120 hours of formal child care
education training, also within the past five years.
CDA’s provide valuable support to preschool teachers, though they may not always get enough
credit when things go right in a pre-K classroom or center.
Is A Bold Obama Plan In The Works?
The president has exposed himself to criticism from the left and the right, and this is uncharacteristic—
some say he is risking having his competence questioned by his own base. Could it
be that this consummate politician will have a blockbuster up his sleeve when he presents his
budget in March? That’s when the White House says he’ll provide more details about his new
federal-state “cost sharing plan” for preschool that allegedly won’t add one penny to the deficit.
Since the president has declared that we don’t have a spending problem, it would surprise some
to hear rhetoric about cutting spending when he presents his budget in March. Our betweenthe-
lines interpretation of recent speeches and statements is that the president may say, in
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essence, that we must cut federal spending…
To give some muscle to this, the Obama administration is beefing up the budgets and staffs of
inspectors general at federal agencies. Their job is to be like “professional ferrets,” searching out
waste in both large and small projects and programs across the vast federal bureaucracy. As
many as 700 new openings for these specialized jobs may be filled in the coming year, according
to the February 22, 2013 issue of the Kiplinger Washington Letter: The goal, says Kiplinger,
is “Recovering some of the roughly $70 billion that slips through the cracks.”
Total existing federal and state funding for programs affecting 4-year-olds is over $20 billion.
Federal funding includes Head Start, Title I, CCDBG, SSBG, 21st CCLC, Early Literacy Grant, Title
X, TANF, and more. In addition, there are 51 state-funded programs within the 39 states that
fund pre-K. All mainly serve low income and special needs children, so they are somewhat
overlapping. One side of the political spectrum might call this “progressive” and “diverse,” even
“synergistic.” The other side might call it “inefficient,” “confused, “redundant,” even “wasteful.”
not by cutting budgets, but by eliminating waste.
partnership, it is conceivable that the provisions of the preschool plan could be implemented
without adding to the deficit. However, the most important issues affecting cost are whether
two-year college degrees and CDA’s would still be accepted, and whether schools and tuitionbased
centers would be equal partners. As of this writing, the president has not specified degree
level or whether the private sector may apply.
this patchwork of funding streams could be streamlined into one integrated federal-state
new jobs from 1983 to 1987. Under Clinton, the economy again produced 20 million new
jobs. In both cases, 90% of the jobs were in the private sector, and job growth was especially
strong among women.
Rising Median Family Income:
income, helped by a tax cut. From 1993 to 1999 there was a whopping $6,338 or 14.9 % increase
in median family income, helped by the dot.com and technology boom.