Child Care Costs Rise Faster Than Overall Prices

Child Care Industry Outlook
Excerpt from a post by The Federal Reserve Bank of St. Louis

Data from the Bureau of Labor Statistics show that the cost of child care has been rising much faster than overall prices. Since 2000, the consumer price index (CPI) has increased at an average annual rate of 2.3%, whereas the CPI for daycare and preschool has increased at an average annual rate of 3.9%.

Surprisingly, the hourly earnings growth of child care workers has increased at about the same rate as that for other nonsupervisory employees—around 2.9%. Because the price of child care has increased faster than wages, it’s likely other demand-side factors may be leading to faster price growth for child care services. For example, more households with two people working full-time and higher-educated and higher-income families are now more likely to have children. Compounding these historical pressures, the COVID-19 pandemic has led to sudden wage growth for child care workers and centers looking to rebuild lost capacity and retain workers. As of October 2021, average hourly earnings for child care workers had risen to $16.44, up 10.4% from one year ago—on top of already above-average wage growth of 4.3% between September 2019 and September 2020, and much stronger than the 5.8% wage growth for all nonsupervisory employees over the same period.

These pandemic effects on the sector might linger for some time. As the labor market recovers and parents seek ways to get back to work, a decline in child care capacity, combined with higher wages, could continue to push up the cost of care in the short run. Expanded federal aid to families may ease the burden of child care costs, but more income for families with children could just increase demand—and thus, to some extent, prices—until supply catches up.

Expanded parental leave policies by the private sector and some states could reduce the demand for infant care, the most expensive type of care for centers to provide. Remote work could also provide some flexibility to parents seeking more-informal or mixed child care arrangements, but working from home while also providing child care is far from an ideal long-term solution for many households. Expanded universal pre-K programs are also being considered to ease the financial burden on families. On one hand, expanded pre-K enrollment in child care centers could offset some high-cost infant care; on the other hand, competition from elementary schools could reduce pre-K enrollment at child care centers and increase the cost of providing care to infants and toddlers.

While much remains uncertain about the future of the child care industry, policy suggestions like these are important to consider as the industry—unassuming and important as it is—continues to change with the pandemic and population demographics

Excerpted from: Pandemic, Rising Costs Challenge Child Care Industry. (n.d.). Www.stlouisfed.org.  https://www.stlouisfed.org/publications/regional-economist/2022/jan/pandemic-rising-costs-challenge-child-care-industry 

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