Why Child Care Costs So Much

My recent post on childcare worker wages teed up, but didn’t explore an apparent paradox. While the workers’ wages are typically very low, costs of having a child cared for are formidably high. While these affect all families with kids who need care, they’re especially problematic for low-income families.

They obviously take a relatively bigger bite out of the budgets of low-income families who pay them. But they may also shrink those budgets because a parent decides that she (yes, usually a she) has no choice but to drop out of the workforce — or work less — so she can do the child caring herself.

So it’s worth asking, I think, why child care costs so much and whether public policies have — or could have — an influence, for good or ill.

One of the researchers on the team that assessed the public benefits costs of childcare worker wages suggests that the growth of the for-profit childcare industry might explain it. Spokespersons for a nonprofit that represents childcare centers beg to differ.

They cite stricter caregiver-to-child ratios, which state licensing rules set, more use of labor-intensive infant care and “fluctuating” rates for the reimbursements providers receive when they care for low-income children with subsidies.

This last, I take it, means reimbursements that don’t actually cover the difference between what the children’s parents pay and what providers must spend to cover their costs, with something left over, unless they’re nonprofits by choice.

Gillian White at The Atlantic explores the childcare center perspective by focusing on the owner of a center in Detroit.

The owner employs three lead teachers for nineteen children, some of whom are virtually newborns, some old enough to be spending part of their days in school.

She pays her staff about $9 an hour — even less than the median the Economic Policy Institute reports. But, she says, once she’s paid them, plus rent, utilities and materials, there isn’t much left over.

In some types of businesses, employers hold down labor costs by increasing productivity. They automate tasks, for example, so as to get more output per worker. Well, it’s hard to imagine automating diapering, wiping tears away or working with young children on educational activities.

And as both the center owner and the EPI analysts say, simply boosting the caregiver-child ratio would conflict with the aim of providing high-quality care.

What then could make child care less costly, assuming the owner’s balance sheet is more or less typical?

She sees childcare services as an area where government could do more to both relieve the cost burden on families and, one gathers, on centers like hers, since White’s summary refers specifically to their having the resources to pay higher wages.

The owner cites universal pre-K and income-based subsidies as possibilities. Expanding both would make child care more affordable for low-income families — the former, in fact, free for at least part of the time they need it.

Neither, however, so far as I can see, would make it easier for childcare providers to pay higher wages unless the subsidies, plus the fees families must pay cover higher operating costs.

Reimbursements rates differ not only among states, but within states, depending on various factors, e.g., the age of the child, the type of care, certain quality measures. Generally speaking, the federal government recommends 75% of current market rates, i.e., what providers charge families without subsidies.

Only one state set its reimbursements rates this high last year, though more than half did in 2001, the National Women’s Law Center reports. Some explicitly set their percents lower. Others that adopted the 75% standard hadn’t adjusted their rates — in some cases, for a goodly number of years.

Some states have compensated for this squeeze by increasing the percent of income that poor and near-poor families must pay. That, of course, further squeezes budgets that can barely — if at all — cover other basic living costs.

Co-pays notwithstanding, families may have subsidies, but a hard time finding providers who’ll care for their children. The Center for American Progress reports significant drops in the portion of subsidized children cared for in programs operated by two large, multi-state chains. The head of another chain says that unqualified providers have emerged to fill the care gap.

In short, we have a well-intentioned system that’s not working as it should because, as EPI has said, “high-quality child care is expensive,” and our policymakers won’t pay for it, though some seem far more willing than others.

Nothing unique about this. Surely not among our anti-poverty programs. But given the returns on investment, we as a country surely ought to do better.



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