Struggles in the Child Care Industry – Part 2

Struggles in the Child Care Industry – Part 2

By Charles Gascon, Senior Economist, Federal Reserve Bank of St. Louis

June 23, 2023 

Current State of The Child Care Industry

Overall, the U.S. economy has recovered quite significantly from the pandemic. Overall employment is back up above pre-pandemic levels. The unemployment rates are at some record lows, which suggests that the economy is quite vibrant, and, in many ways, workers have been able to get back into the labor force and find jobs. However, we've seen that the child care sector struggled to reach its pre-pandemic capacity. Overall employment is down about 5% from pre-pandemic levels. And that suggests in many ways that this is a constraint that's still impacting workers. 

Effects On Families, Earnings and The Economy

So, how do we break this down? Well, what might be happening are workers taking jobs that are more flexible, possibly at lower pay, to accommodate the child care needs that they have and the available child care. They may take a job working different hours or working fewer hours. More balance within a household is another thing we're seeing taking place to meet families' needs.

An added factor unique to this time period and often overlooked is the overall demographics
of the US population. The most significant chunk of our population is about 27 to 36, which is the prime age years for having children.

And we've often seen that our aging population has left many more job openings. So expanding childcare capacity or finding other means for providing child care or more work flexibility allows many of these people to remain in the labor force and grow their careers at a time when labor demand is robust. There are plenty of opportunities for people to get work if they have the resources and stability at home to seek those opportunities. 

Future Economic Impact

So what does this all mean for the future? With the constraints in the childcare space, households and businesses are ultimately making new and different decisions that may lead to a different allocation of resources. Families have to seek out alternative arrangements. Only half of families right now use licensed childcare providers. So, they are already looking for different means to care for their children while they're at work.

This can be good in some cases, but the challenges in other cases are that the quality may not match the same quality you can get in a more formal setting with trained teachers and childcare providers.
The simple calculation people make is, how much does it cost to send my child to child care, and how much will I make? And if that number turns out to be negative, they'll choose to stay home.

However, earnings profiles and growth are significant when people stay in the labor force. So when people choose to drop out of the labor force to take care of their children, they'll see a lifetime decline in their earnings that's hard to make up once they re-enter the labor force.

Source: https://www.youtube.com/watch?v=flyJfB9X9rs 

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