The U.S. Child Care Crunch

Nancy Folbre
14 January 2024

Stripped of support provided during the pandemic, the child-care industry is cracking up

It’s never been easy to  find and afford good quality child care in the U.S. but now the financial crunch is  breaking parents—as in, rendering many completely broke. The Bank of America has collected data from its customers showing that the average child-care payment per household has risen over 30% since 2019.  The Wall Street Journal reported in August of this year  that child-care prices were rising at almost twice the overall rate of inflation.

Why the escalation? the relatively low rate of unemployment has increased the demand for workers,  driving up wages at the bottom, amplifying the incentives for child-care workers to seek better-paying jobs. Child-care centers, along with family day-care businesses, must raise wages to retain workers. They can’t increase wages without raising prices unless they are subsidized. However, pandemic-era subsidies that kept them afloat were ended in September of this year.

As the Bank of America report notes, families with incomes in the $100,000 to $250,000 have seen the biggest price increases. This is largely because they can afford them. Many other families have simply been priced out the market. Child-care services are increasingly becoming a kind of luxury good.

Economist William Spriggs explained the larger dynamic  of “inequality inflation” to me last year in person. As low-income consumers are driven out of the market, providers devote more effort to meeting the demand of high-income consumers. This helps explain the housing crisis as well as the child-care crisis: there’s no shortage of super high-end homes, only of affordable housing.

Simply focusing on the increasing cost of child-care services understates the problem, because many parents are simply priced out of the market—they don’t earn enough to buy the services they need in order to earn more. For-profit child care generally targets affluent parents, and subsidies for low-income families remain inadequate. Many small-scale centers and family daycares are going out of business.

Investigative reporting on local situations, ranging from New York, New York to Milton, Wisconsin reveals serious stresses and strains.

A recent working paper  from the Council of Economic Advisors, summarized here, provides compelling evidence that the pandemic-era subsidies known as Stabilization Funds directly increased child care workers’ employment and wages, buffering the impact of temporary closures and making it easier for mothers of young children to get back into employment.

These subsidies have been gradually declining for some time and came to a somewhat abrupt end this fall, creating a funding “cliff” for many child care providers. This explains why many child care businesses are now in free fall.

Some states have stepped up child care funding in response. For instance, the state of Vermont recently passed legislation implementing a small payroll tax of about a tenth of one percent to move toward increased provision of services and higher pay for child care workers, including a minimum wage of $20 per hour.

In the U.S. as a whole, regional, as well as state-level differences in public support for child care loom large.  More attention to these—and their economic consequences—could help create more political traction on the national level. Meanwhile, we should do everything we can to support the local heroes.

The cover picture is designed by Nancy Folbre
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Leave a Reply

Your email address will not be published. Required fields are marked *