Economic conditions and the number of children in foster care

In the late 2010s, foster care capacity was declining. In this study, we show that increasing the affordability of fostering a child could increase foster care capacity. We use administrative data from Adoption & Foster Care Statistics (AFCARS) to examine the association between state-level economic factors and the number of children in foster care from 1996 to 2016. Using a panel regression, we found that a 10 % increase in state foster care payments was associated with a 0.9 % increase in the number of children in foster care in that state. As an example, North Carolina increased its payment rates to foster parents in 2008. Using a triple-difference strategy, we found that this increase led to a 20 % increase in the number of children in foster care relative to children placed in other settings and relative to other states. Second, we examined the role of housing affordability: higher housing prices were associated with a lower number of children in foster care, consistent with the cost of space being a constraint for foster parents. Third, we examined the role of labor market opportunities: a higher minimum wage and higher female employment were associated with a greater number of children in foster care. This result is inconsistent with the idea that foster care is just a job, so that higher pay in other jobs and more time spent in employment would dissuade people from fostering a child. Instead, our results are consistent with foster parents acting out of altruism under financial constraints. Our results suggest that relaxing these financial constraints by, for example, increasing board rates enables people to act on their altruistic motives and foster a child.