Open navigation

The First Pillar of Care: Cost

Photo: Shutterstock
The First Pillar of Care: Cost

Understanding the Full Cost of Care

The cost of child care in the United States is expensive. For everyone. The Care Index found that the average cost of center-based care in the United States is one-fifth of the median household income, and infant care costs more than college in 33 states. For a parent making minimum wage, the average cost of care would take up an unsustainable two-thirds of their earnings, with little left over for rent or mortgage payments, food, transportation, clothing, and other basic necessities.

And there are real economic consequences—for families, communities, and the economy—when the burden of shouldering that high price tag falls disproportionately on families. And it does. Research has found that parents pick up 60 percent of the cost of child care; federal, state and local governments shoulder 39 percent; and businesses and philanthropy contribute just 1 percent.

Who Pays For Care?

Source: Anne Mitchell, Louise Stoney, and Harriet Ditcher, Financing Child Care in the United States. 2001.

When parents can’t find affordable, quality child care, their only alternatives are to cut back on work hours, seek alternative work arrangements, look for care on the unregulated, cheaper “gray market,” rely on an informal network of families, friends, and neighbors, or even exit the labor market completely to take on child care responsibilities themselves. This move is not without consequences: Parents who exit the labor market could be losing more than three times their annual salary every year they are not working due to the opportunity cost of wage growth and retirement savings, according to a Center for American Progress report. Dropping out of the workforce, however, is not an option for working single parents, who must seek informal care or a limited number of government subsidies to pay for licensed care in order to support their families and continue working.

Women are the ones who typically have faced these trade-offs between work and care, both because they generally earn less than men, and because prevailing cultural norms still expect mothers to take on primary responsibility for caregiving. Women around the world do 75 percent of the unpaid work of housework and child care. A recent McKinsey Global Institute report found that that invisible work, if given market value, would equal at least 13 percent of the global GDP. Further, they estimated that creating conditions and policies to better recognize and more fairly redistribute this unpaid labor and create more parity for women in the paid labor force, could add $12 trillion to the global GDP by 2025. And $2.1 trillion in the United States alone.

The First Pillar of Care: Cost

Cost to Families

In the United States today, 65 percent of children under six have both parents in the workforce. This is a marked difference from the labor division of 1970, when only 28 percent of children under five had two working parents. And today, a growing number of families are headed by a single parent, between 72 and 89 percent of whom are employed. For the majority of American parents, child care is an expensive necessity, which leaves people wondering: why are prices so high?

Unlike in previous eras, when child care costs barely registered in a typical American family’s budget, today, the burden is much higher. Child Care Aware’s 2015 Parents and the High Cost of Child Care report shows that child care cost is one of the biggest items of the average parent’s budget, second only to mortgage or rent. From 2009 to 2012 alone, the cost of child care rose at nearly twice the rate of the Consumer Price Index. Indeed, the Care Index, like other reports, found that the average cost of full-time infant care in a center costs more than in-state college tuition in 33 states. The average cost of center-based care for children ages 0-4 eats up 18 percent of the median household income and is 90 percent or more the cost of rent in 15 states and the District of Columbia. The average annual cost of nanny care is three times the average cost of a year at a public college.

Cost of Care and Household Income

Household expenses
Sources: Care.com (2015), American Community Survey (2014), College Board State Tuition Trends (2015) (Graphic: New America)
The First Pillar of Care: Cost

Wages

Why is child care so expensive? In a word: people. It takes teachers to provide the early care and learning. And a lot of them. Infants, toddlers, and preschoolers need much more supervision and one-on-one care than children in K-12 education—and safety and quality requirements reflect that need. While state regulations allow one teacher to teach anywhere from 18 to 30 elementary school-age children, the National Association for the Education of Young Children recommends, depending on group size, one teacher for every three or four infants, one teacher for every three to six toddlers, and one teacher for every six to ten preschoolers.

The cost of that labor is expensive. The true cost is more than parents can pay, especially at a time in life when many are starting out, haven’t reached their full earning potential, and haven’t yet built up savings. So child care providers can only charge as much tuition as the parental market will bear, then must seek out other sources of income from federal, state, or local government, businesses, and private philanthropy to cover the difference.

Teacher, Little People Montessori
A teacher at Little People Montessori Academy in Lyons, Ill. (Long Story Short Media)

But the problem is, tuition and alternative income are not sufficient to cover that difference. Which means providers must keep costs low. Because so much of the child care infrastructure is really a patchwork of small businesses, nonprofits and often altruistic “mom and pop” family home care centers, most providers operate on razor-thin margins, typically less than 1 percent. And approximately 80 percent of a child care program’s cost is devoted to payroll and related expenses—making employment costs the area a provider can target when strategizing to reduce cost to themselves.

It should come as no surprise, then, that early care and learning teachers earn poverty wages—among the lowest wages of any profession, one recent study found. The early education workforce earns, on average, $9.77 an hour—less than bellhops and parking garage attendants. Nearly half are part of families that qualify for at least one form of public support, such as food stamps, Medicaid, or child care subsidies. And those who teach infants and toddlers make about 70 percent of what those who teach three and four-year-olds make.

According to a report released by the U.S. Departments of Education and Health & Human Services, there is a noticeable gap between early childhood educators’ average salaries and those of elementary school educators. The Early Childhood Workforce Index notes an “irrational wage structure,” in which wages are more linked to program funding pressures than meaningful indicators of caregiver needs and quality. An Economic Policy Institute report notes that most caregivers are not able to afford care for their own children.

According to a report released by the U.S. Departments of Education and Health & Human Services, there is a noticeable gap between early childhood educators’ average salaries and those of elementary school educators.

This is a problem. While caregivers are an essential part of child development, parents’ ability to work, and family well-being, low wages send the message that they are not valued—so much so that they do not deserve a living wage. Perhaps more importantly, low wages have been linked to a high turnover rate in the early childcare workforce, leading to care of inconsistent—and often low—quality. Reducing wages is incongruous with a desire to hire people trained in child development and capable of providing quality care. The current system undercuts quality, underpays employees, and still presents prices so high that many consumers are pushed into unlicensed markets of questionable quality.

The First Pillar of Care: Cost

Child Care as a Market

The child care market doesn’t work. The numbers simply don’t add up: It costs more to supply early care and learning than families are able to pay. That’s because rather than work like a traditional market, where prices and efficiencies are governed by the laws of supply and demand, the early care and learning market works like the market for education. In K-12 educational markets, tuition alone can’t cover the cost of the service ($12,000 per year per public school student). That’s why education is subsidized—public education subsidized by the government, and private education subsidized by private donations and government tax breaks and grants.

The child care market thus requires substantial investment from public and private sources. The current dysfunctional market has serious economic consequences. Demand stays high because parents need child care. But because parent-paid tuition doesn’t cover the true cost of child care, and because investment in child care is insufficient, providers may be forced to operate in ways that could jeopardize both quality and availability of care to cover their own costs—by, for example, cutting back on supplies or by paying caregivers poverty wages. Some providers try to make the numbers work by cutting back on or closing infant and toddler classrooms, which, because of the lower teacher-student ratios required, are much more expensive to maintain. But not all cost-saving moves are negative: In some communities, small child care providers are beginning to come together to pool resources, share costs, and create economies of scale—by, for example, sharing expensive administrative functions, buying supplies in bulk, and forming Early Childhood Education Shared Service Alliances—to bring costs down.

When the price of licensed child care gets too high, parents may be forced to opt out in favor of a cheaper option, such as family, friend, and neighbor care. But because these networks of care are unregulated, the level of quality is unknown. In short, the current child care structure  is  unsustainable and puts quality at risk.

There are only a few tools to help parents shoulder the high cost of care. A limited amount of relief can be found for most families through child care tax credits, and, for even fewer families, subsidy programs.
The First Pillar of Care: Cost

Tax Credits and Breaks

For working parents looking to offset child care costs, most families can find theoretical relief in the Child and Dependent Care Tax Credit (CDCTC). Upon filing state and federal income taxes, families may receive credits worth 25 to 30 percent of child care costs, capped at $3,000. (Separately, about 61 percent of businesses offer employees Dependent Care Assistance Plans to help them pay for care with up to $5,000 pre-tax dollars a year, according to the 2014 National Study of the Employer.)

Stephanie Dziedic
Stephanie Dziedzic wanted to stay home with her daughter, Gianna, but eventually had to go back to work to cover the cost of raising her. (Long Story Short Media)

That relief may well only exist in theory, however; despite its intent, this tax credit has several limitations (which echo limits of tax credits as social policy more generally):

  • The amount of the credit is woefully inadequate to make a serious impact on child care expenses. The credit caps at $3,000. By comparison, the Care Index  shows the the cost of full-time infant care at a center or family home runs from a low of $6,590 a year in Arkansas to as much as  $16,682 in Massachusetts.

  • Though some state tax credits are refundable, because the federal tax credit is nonrefundable, it can only be used to offset income taxes owed. That means that low-income families who owe little or no income tax do not derive much benefit from the CDCTC.

  • Because the credit is distributed annually, it does not provide much relief for families having to deal with payments on a weekly or monthly basis.

  • The CDCTC requires that families be working or looking for work, but this isn’t always feasible (for example, for parents on disability).

  • And finally, many families may not be not aware of the tax credit, nor the procedure for properly filling out forms to receive it, which could limit its use.
The First Pillar of Care: Cost

Subsidy Programs

For a small portion of families, child care subsidies provide more relief. Child care subsidies, such as those granted through the Child Care and Development Fund (authorized under the Child Care and Development Block Grant), aim to make child care more accessible to low-income working families. They do this through vouchers that can be used as payment with participating providers or through contracts with providers. State-set reimbursement rates affect the amount of money child care providers receive from the government each time a parent makes use of subsidized child care. Unfortunately, though, many child care subsidy programs present significant obstacles to families seeking relief, including inconvenient and time-intensive review processes for employed individuals and long waiting lists, so subsidy use remains fairly low. Revised regulations are intended to streamline that process: for instance, families that qualify for subsidies can receive them for a year, unlike in the past, where a change in work hours, school schedule, or job required a lengthy re-evaluation.

Neither the federal government nor the states have committed to fully funding subsidies to help all economically disadvantaged families with child care, providing funds to cover only about one in six eligible children. And states set very low income eligibility levels for subsidy help (based on already-weak poverty metrics), which restricts the number of families who can get help to pay for  the care they need to continue working. A 2015 study by the National Women’s Law Center (NWLC) found that a family with an income above 150 percent of the federal poverty level—or $30,135 for a family of three —could not qualify for assistance in seventeen states. (Using an Economic Policy Institute calculator, the NWLC figured that, in most communities, a family income needs to equal 200 percent of the poverty level to meet its basic needs, including child care.) For families unable to afford the high cost of quality child care, yet unable to qualify for subsidy assistance, access to quality care is severely limited.

Toddler in Sheltering Arms
A child in the toddler classroom at Sheltering Arms in Atlanta. (Long Story Short Media)

Even for those parents who are able to receive child care subsidies, reimbursement rates are often too low for parents to afford most child care. Although states are required to use up to date reimbursement rates based on current market surveys, many states use data that is outdated—in some cases, by as much as 10 years. So subsidy reimbursement rates are frequently set much lower than the true market rate of care, which makes higher-priced quality-rated centers reluctant to accept them. As a result, many parents are stuck paying high copayments, with few available options for care. And providers offering subsidized care often shoulder a loss when they accept a subsidy payment below what they would normally charge for delivering care. To make up the difference, many providers must cobble together money through community fundraising, donations, and grants just to keep the business afloat.

Because the child care subsidy system relies on voluntary participation of care providers, it is important that state-set CCDF policies sufficiently incentivize them to participate. But burdensome administrative requirements, fees, and other state-set policies can make it unappealing and difficult for providers to participate in subsidy programs.

One policy proposal to encourage the provision of affordable, quality child care is tiered reimbursement for providers: Programs of higher quality, as determined by state QRIS standards, will be offered higher reimbursement rates or bonuses. But this is an imperfect solution. Because bonuses from tiered payments are modest and generally lower than the high cost of improving quality, tiered reimbursement rates, while a good start, are not sufficient on their own—without significant public investment–to address cost issues for providers and families.
The First Pillar of Care: Cost

Conclusion

Most people know intuitively that the cost of child care is too high. But the impact of that cost extends beyond the families that must shoulder the burden. Businesses pay, too, as much as $4 billion a year, by one estimate, in lost worker productivity and absenteeism due to child care breakdowns. As long as the child care system continues to undervalue its workers and jeopardize quality by pricing consumers into unregulated family care, parents will continue to face the choice between care and work. The path is clear: Either our policies will continue to stunt overall productivity, economic growth, and progress towards gender equality and equal opportunity for all, or we will choose to invest in quality education for children, gender equity in the workforce, economic growth, and a financial and cultural shift toward valuing care work.