The Challenge of Bringing Down the Costs of Childcare
Labor-Intensity Doesn’t Mean Nothing Can Be Done
Of all of the areas where cost-of-living is a challenge for Americans, perhaps none is more difficult to ameliorate than childcare — because it is so labor-intensive. Still, this is a major contributor to the cost-of-living for families with children, so policymakers owe it to their constituents to try to make it more affordable.
The costs of raising a child, especially when they are not yet school-age, are extremely high. By one estimate, it adds up to more than $15,000 a year. According to the Department of Labor, the median prices for full-time, center-based childcare are $7,651 for pre-school, $8,431 for toddlers, and $9,181 for infants. For home-based care, the median prices are $7,062, $6,733, and $6,632 respectively.
Most people want children. Only 8% of people between 30–49 and only 16% of those 18–29 say that they do not want children at all. There is also a sizable gap between how many children that women say they would like to have and how many they end up actually having. Women cite childcare being too expensive as the number one reason they don’t have as many children as they would like.
The Reverse Agatha Christie Problem
Reflecting on her earlier life just after World War I, Agatha Christie commented that at the time she couldn’t imagine being so poor as to not have house servants nor so rich as to own a car. That sounds extraordinary to modern ears but at the time labor was extremely cheap whereas capital-intensive goods were expensive.
One of the most important economic facts is that today the reverse is true. Now goods are relatively cheap, but it is people’s time and labor that is expensive. Many items that were once luxuries are now near universal in American households.
There was a famous American Enterprise Institute (AEI) chart a few years ago that also showed this. A lot of people misinterpreted this chart as being about government versus non-government. That isn’t really what’s going on here. What this chart shows is that goods like TVs and toys got a lot cheaper while services like healthcare and childcare got more expensive.
This trend is only accelerating. One of the main reasons that fast food prices are up is that it’s a labor-intensive industry. You can also see it in inflation data. Over the last year, the cost of major appliances is down 6.1% but the repair of household appliance is up 18%.
This fact, that labor is getting more expensive and therefore labor-intensive services are getting more expensive is the single most important factor in the rise in childcare costs.
For understandable safety reasons, state governments have rules around child-to-teacher ratios. For example, it is very common for states to mandate that infant classrooms have no more than a 4:1 ratio. In other words, one teacher cannot be looking after more than 4 infants. As the children get older, the ratios relax a bit. So, for example, in Vermont, once the children in the classroom are 2 years old, the ratio increases to 5:1. At 3 years old, it goes up to 10:1.
Small Reforms to Child-Teacher Ratio Requirements
There may be some wiggle room here, but it is important not to overstate the potential for relaxing these ratios. I spoke with the Director of my daughter’s preschool and she said that it might be possible to do some small tweaks such as having 5:1 start at 20 months instead of 24, but there’s no safe way to achieve a substantial increase in child-ratios across the board. The most permissive state that I could find on child-teacher ratios is Idaho and they still have the same 4:1 ratio for infants as other states and their 3–5 year old ratio is 12:1.
So that’s the first move is to slightly relax some of those child-teacher ratios. Still, labor-intensity is an understandably unavoidable component of childcare, what other policy options do we have from bringing down childcare costs?
Occupational Licensing
Some amount of occupational licensing for childcare workers is necessary and unavoidable. If you’re going to be working with little kids, you need to be able to pass a background check and have a clean criminal record. A certain amount of regulation in this space is non-negotiable.
But many states go too far with this. In California, childcare workers must have 12 semester credits of postsecondary course work. In Vermont, it is a de facto requirement that childcare workers have a college degree. In Washington DC, childcare workers must have a college degree. It is not only insulting to say to high school educated people that they are not smart enough to take care of little kids, it contributes to the shortage of childcare workers.
Zoning
Childcare providers who want to build or expand a facility must often navigate a maze of zoning laws and pay expensive permit fees. In Utah, zoning laws can add hundreds of thousands of dollars to the cost of building a new childcare center; for some would-be providers this is such a prohibitive cost that they do not enter the market at all. Currently, 18 states pre-empt excessively strict local zoning rules on daycares that would curtail childcare services. More states should consider doing that.
Increasing the Au Pair Time Limit
There are about 20,000 au pairs working in the United States. They are not allowed to work in the U.S. for more than two years, which greatly reduces the ability of au pairs who like doing the job from continuing to do it. We should remove the time cap on au pairs or at least increase it to six years.
If someone wants to come to the United States to work in childcare and that’s a benefit to the host families, that is an economic and cultural exchange that, on the margin, helps increase the supply of childcare services in the U.S.
Moreover, expanding the au pair program does not cost taxpayer money. Even though the direct beneficiaries of au pair services are usually upper-class, parents with children in daycare benefit too because each child who is being cared for by an au pair has much less demand for daycare services.
An Expanded Child Tax Credit
Finally, f the political will is there to spend, an expanded Child Tax Credit for families with children under six could be enormously helpful. There are approximately 25 million children under 6 in the United States and so a $300 a month refundable tax credit for them comes to about $90 billion annually.
If they wanted to, parents could use that money to help defray some of the cost of childcare and so get back into the labor force more easily and more quickly than they otherwise could. Conversely, a refundable tax credit can also be useful to a family that wants to have one of the parents stay at home and so (helpfully) remains neutral in culture war arguments around parenting and family structure.
In sum , some small relaxation of child-staff ratio requirements, less burdensome occupational licensing requirements, relaxed zoning rules, and an expansion of the au pair program would all be steps in the right direction.
Each of these steps are small on their own, but collectively they would help lower childcare costs and do not require taxpayer dollars. An expanded Child Tax Credit would cost money but would also make raising children much less financially challenging.
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