Who cares? How the childcare industry's problems are every employer's problem
|Summary
No industry is as central to working women as childcare. The industry packs an outsized punch when it comes to lifting the economy’s labor supply. Access to affordable childcare has been shown time and again to boost labor force participation among mothers in addition to supporting the longer-term outlook for the labor supply via higher fertility rates. Women also account for a higher share of employment at daycares–96%–than any other industry, including nursing and beauty salons.
The daycare industry's challenges are making hiring more difficult and expensive for all industries right now. Employment at daycare services remains a stunning12.4% below its pre-COVID level compared to the 1.9% deficit in total employment. By our estimates, that leaves about 460,000 families needing to find alternative care arrangements, equivalent to just over half the drop in the labor force since COVID. For employers struggling to find workers now and facing a future of dismal labor supply growth, improving childcare options for parents means a larger and higher-quality workforce to draw upon.
The core issue for the childcare industry is cost. Daycare services are labor-intensive, leaving little scope for technology to raise productivity and limit cost growth. Givenlimits to how many children caregivers can reasonably watch, the cost is overwhelming for most families, but still low paying for caregivers. One daycare center spot runs about$11,000 per year on average or 14% of the median income of a household with a child under age 6. Yet, the average pay for a childcare worker in the industry registered just$12.05 an hour in 2020, or $25,060 per year.
Cost-sharing is scant, unlike the childcare provided by the K-12 education system. On a per-child basis, U.S. public expenditures on childcare and early education are half the OECD average. There is a chasm of financial support before kindergarten, leaving parents with very young children largely on their own to bear the cost of childcare.
If not now, when? The pandemic has fueled momentum for addressing the structural issues facing the U.S. childcare system. The fiscal fire-hose unleashed by Congress to deal with the economic fallout of the COVID-19 pandemic included more generous tax credits for childcare specifically and children generally via the expanded Child tax credit. But this additional financial support was mostly one-off in nature and equated to only fraction of the childcare costs borne directly by families.
An overhaul of U.S. childcare and early education policy seems unlikely anytime soon. Democrats’ Build Back Better agenda is currently stuck in the mud and prospects for passage are dim. State and local governments are flush with cash and leading some movement on publicly funded preschool. Yet, we believe changes are likely to be gradual and incremental rather than sweeping and transformative. State and local governments are likely to be somewhat cautious in launching new, large programs with recurring costs in the absence of more federal financial support.
We all pay one way or another. Childcare is unaffordable for many parents, but what often gets overlooked is that it carries a high price for the country as well. A system that does not work well for parents or providers means that we all pay through lower labor force participation, greater hiring difficulties for employers, slower potential growth, smaller tax bases and ultimately smaller families. A rethinking of policy, if done thoughtfully, could offer a substantial return on investment.
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