Childcare in America Is Outpacing Inflation

Decades ago, many US households would rely on a single income. The father would work, and the mother would stay home to take care of the children. Today, more American families are depending on two incomes to put food on the table and keep the lights on. This societal shift has also squeezed budgets due to exorbitant childcare costs.

Childcare Outpacing Inflation

The laws of supply and demand have been observed in the childcare industry, resulting in skyrocketing price inflation.

The cost of childcare has rocketed by 263% since 1990. This has firmly outpaced overall inflation, with the Consumer Price Index (CPI) surging by 133% over the same period.

In many US metro areas, childcare costs account for a greater share of household budgets. A new report by real estate firm Redfin and childcare marketplace platform Winnie, released on August 17, determined that typical working families spend 52% of their annual income on housing and childcare combined.

Where families reside had a major effect on their wallets, researchers say. Working families living in Little Rock, Arkansas, would spend less than 40% of their income on housing and childcare costs each year. Conversely, people with children living in Los Angeles, California, dedicated 97% of their median annual income to these two essentials.

“High-income metros like San Francisco and San Jose offer bigger paychecks, but those gains are often offset by extraordinarily expensive homes,” Yingqi Xu, senior economist at Redfin, said in a news release. “Meanwhile, markets with more affordable housing give working parents far more financial flexibility, even when local incomes are lower.”

What’s Driving Ballooning Costs

Various reasons have been presented to explain why childcare expenses can exceed $600 per week for families with two children.

The most common explanation is that the industry is facing a labor shortage, a problem that existed before the current administration implemented immigration policy reforms. Additionally, in the aftermath of the pandemic, thousands of family care centers closed.

Interestingly, the workforce shortage in the childcare sector is also bleeding into the broader labor market as more women return home to care for their children.

Not all hope is lost, however. Glencora Haskins, a senior research associate at the Brookings Institution, published a paper in July recommending several prescriptions to lower costs, including federal subsidies and state price caps.

“The fact that there is no U.S. state that meets [the Health and Human Services Department’s] affordability standard for childcare demonstrates that the need for federal relief is both widespread and severe,” she wrote.

But insufficient funding, misaligned affordability thresholds, and restrictive eligibility standards are hamstringing the possible benefits of federal childcare subsidies, Haskins added.

$172 Billion Economic Hit

In January, ReadyNation published a study that concluded the childcare crisis is costing the US economy about $172 billion in lost earnings, productivity, and revenue every year: $134 billion for parents and $38 billion for businesses. Economists at the Bipartisan Policy Center estimate the number could be closer to $329 billion.

This makes sense, too. Research by the US Chamber of Commerce found that 58% of working parents said they had to leave work because they could not find childcare. Almost one-third (32%) of women said childcare and eldercare were barriers to returning to work.

“The lack of action by federal, state, and local policymakers has caused the economic impact of the child care crisis to escalate since 2018,” ReadyNation said in a statement. “Worse, this problem will continue to grow unless policymakers address the fragile infrastructure of the child care sector.”