Earnings

The Need for Government Investment in Childcare

By Diana Dayoub

The Problem

In October 2021, the YMCA in San Antonio, Texas, said 200 children were waitlisted at a childcare center because of hiring problems, despite raising the hourly wage of workers to $12.50 from $10.(1) Ann Arbor and Portland also faced similar staffing shortages; preschool childcare was operating at 88% of its pre-pandemic capacity. The problem can only partly be attributed to the pandemic. Rather, staff quitting and lack of available staff to replace them is the principal impediment to these centers returning to full capacity.

This reality shouldn’t be surprising: The benefits and pay for many childcare workers are unattractive. But the pay reality for childcare workers is far grimmer than Bureau of Labor Statistics (BLS) data portrays. These workers are 74% more likely to work part-time than workers in other sectors. This is significant because the BLS median weekly wage statistics only include full-time workers and thus is biased upwards. Part-time workers are left out. If we were to include both full-time and part-time childcare workers in the sample, as the Ludwig Institute for Shared Economic Prosperity’s (LISEP) True Weekly Earnings (TWE) statistic does, these workers’ median earnings are even less than what the BLS claims.

Why aren’t centers raising tuition to pay their workers better?

The childcare industry has long suffered from underpaid labor, and its workers are quickly abandoning their jobs – searching for better paid positions in other industries, especially given wage growth in other sectors.(2) Raising wages to be competitive with other sectors hasn’t been an option for many childcare centers given the nature of the work and the industry’s business model. Since childcare is very labor-intensive work, in most centers the revenue is already spent primarily on salaries. In fact, 60-80% of revenue is used to cover labor costs.(3) With the lack of government funding and total reliance on private tuition, raising salaries would mean increasing tuition, which would further squeeze many families that are barely affording the skyrocketing expense of childcare. The Center for American Progress describes the financial burden that childcare places on working families’ budgets pointedly:

About 30 percent of working families with children under age 5 are considered low income. Only 4 in 10 low-income working families pay for child care, but among those that do, child care costs consume 35 percent of their income—five times more than what is considered affordable.(4)

Scholars have studied at length the “wage penalty” facing care workers; these workers are defined in a paper titled Wages of Virtue: The Relative Pay of Care Work as those whose responsibilities include “work that provides a face-to-face service that develops the capabilities of the recipient.”(5) Studies have found that both men and women are paid less if they work in “nurturant” occupations, after controlling for years of experience, education, union membership, demands of the job, and a set of occupation characteristics.(6)

There are a few explanations for this phenomenon. First, given the association of care work with women and motherhood, the historical societal bias that women’s work is less worthy than that of men’s leads to underpaying care workers.(7) Second, underpay is bolstered by what economists term the “cost disease of the service sector.” The theory asserts that since it’s much harder to substitute capital for labor in the service economy (robots would make bad teachers) than in the manufacturing economy, consumers will face higher costs for services than for physical commodities. With childcare being extremely labor intensive, centers would have to pay workers on a par with other workers whose wages have been improving thanks to enhanced productivity. But since it’s extremely difficult to further raise tuition rates, either families let go of high-quality childcare and search for cheaper arrangements and/or care workers log in similar hours (if not more) to workers in other sectors but receive significantly less pay.(8)

Why do childcare workers remain in their jobs?

So, what has driven childcare workers, given the poor pay and social valuation of their work, to remain in their jobs? Children become equipped to be productive members of society thanks in part due to their experience in childcare, yet society has largely not contributed to the cost of care through government funds.(9) Moreover, economist Nancy Folbre has argued that care workers have meager bargaining power; “they cannot easily threaten to withdraw their services, they cannot easily measure the value of their contributions, and they cannot personally lay claim to all the value they create.”(10) The emotional attachment they develop for the children also means that it is difficult for them to bargain. Childcare workers also have person- and situation-specific skills, whose stickiness has rendered them less likely to be transferable and hence has, in the past, reduced the worker’s bargaining power.(11) Finally, childcare is a very uncertain business rampant with information asymmetries. Parents cannot quantify the level of care they receive and providers’ success in caring for their children depends on the child’s behavior, personality, and the circumstances of the care setting. These forces make it easy to see how childcare workers have remained attached to jobs that demand their utmost effort and care and pay them scant wages. Yet the pandemic and labor force situation generally has certainly increased their mobility into other jobs and industries, leaving childcare centers and the families they serve in a difficult position.

For those childcare workers who haven’t moved on, they remain among the most undercompensated workers, yet their work is a cornerstone of our economy and society. They help children develop during the most crucial growing stages, but these workers are often unable to pay their bills. The blame shouldn’t be placed on working families who simply cannot afford to pay more of childcare. Rather, the answer is an infusion of significant government funds to attempt to fix a broken system so that workers can be paid fairly. This is exactly what the social spending part of the Build Back Better Act attempts to do by proposing to fund universal pre-k education. Without government-backed investment in childcare, we will see today situation worsen, and more childcare workers will transfer to other industries. And more families will be unable to find appropriate care so they themselves can earn a living and pursue the American Dream.

January 21, 2022