The True Cost of Child Care

Child care policy experts like Simon Workman have long felt there was a child care crisis in America. The experience of the pandemic has made that crisis – the twin difficulties of providers being able to make a decent living and families finding affordable care – much more visible. Workman has a new paper out that looks at the true cost of child care and offers updated data from a tool the Center for American Progress has used to gauge child care prices since 2018. Workman spoke with Spotlight recently; that conversation has been lightly edited for clarity and length.

Your recent paper concerns the results of an updated tool that the Center for American Progress has been using to illustrate the economics of child care. What did you find?

The data behind the tool is essentially a big cost model and what we found was that on average across the U.S., the true cost of infant care would be about $1,300 a month in a child care center. For a toddler, child care is about $1,100 a month and for a preschooler, care in a child care center is about $890 a month. We developed the tool to be able to look at family care homes and the true cost there would be about $1,100 a month.

The important thing to note is that those costs are based on a program meeting state licensing standards, the minimum licensing standards, and paying salaries based on the currently reported salaries based on the Bureau of Labor Statistics. And what we know is that current salaries are really low – the average salary is under $13 an hour. So, when you look at those costs, you have to put them in the context that $1,300 a month for an infant is what we’re saying it would cost with the current salaries. It’s even more if you’re talking about a better system that pays better salaries and benefits.

And in each category, those prices are significantly more than the subsidies that most families receive to help pay help care costs.

Absolutely. We analyzed this data by looking at the subsidies and found that, on average, the annual subsidy covers about 75 percent of that base cost for an infant. But there are huge variations across states – there are some states that are paying as little as 44 percent of those base costs.

Talk a little bit about the changes that were made to the tool, which I know has been used by CAP for a few years

We set up this tool back when I was working at CAP in 2018 and that tool only had center-based data in it, so we were really excited this time to add in more at-home child care settings. The issue with family child care of course is that it’s been seeing a significant decline in the last decade or so. A number of home-based child cares had closed even before the coronavirus pandemic. And that’s really a reflection of just how hard it is to make it work as a family child care provider. The economics are really challenging. And generally for parents, what you see when you look at the market prices of child care, it’s often cheaper with a family child care provider. For some time, that was the only choice for many parents, because it was either the only thing they could afford or it is the only thing available in their area. But when you start digging into the budget, you find that the reason it’s cheaper is because the provider/owner, who is also the lead educator, is not paying herself a salary. Their income is whatever is leftover at the end of the month. And when you do some cost modeling, as you can with this tool, you can really make it clear that that is not a sustainable business model based on current revenues. The way people are making it now is they may have paid off their mortgage or have another source of income, so whatever money they make from the family child care doesn’t have to sustain all of their expenses. In order for the family child care system to be a robust part of the system that’s serving children and families, you really have to say, this is a profession, this is a business in which you can make a living wage on. So, what we did in this model is that we built in a salary for the family child care provider and decided that that was important. That’s the big change. We also added a number of U.S. territories for the first time and then we just updated data to 2020 data.

Is your expectation that these estimates will go up even more as the pandemic is hopefully ending, given that so many child care operators have had to close?

I think it’s a really interesting thing to see how this plays out. On the one hand, you would expect to see prices go up as demand goes up and supply goes down and providers are facing increased expenses on cleaning and sanitation and other things. However, even before the pandemic, the child care market was a broken market in which providers in most communities could not charge families what it truly costs to provide quality care because families simply couldn’t afford it. As a provider, you end up setting your rate at the level the market will bear, at the level that families in your community can afford to pay. And that level was often too low. The consideration is, do we see an increase in costs that providers pass on to families? I think they would like to but I think the issue could be if families aren’t able to afford it, providers won’t be able to increase their costs. And what will happen is that either they will go under or they end up having to make sacrifices themselves in terms of what they can invest in their program. Maybe previously they had an education coordinator; maybe that position gets eliminated going forward. That is the concern, that without robust investment in the system, families can not afford to pick up that high cost. Our data shows that they’re not able to pick the current costs, much less something higher.

Speaking of the need for robust investment, you had nice things to say in your piece about the American Rescue Plan. But that’s obviously a temporary fix. What would you like to see happen in the long term?

I think there are some great down payments in the American Rescue Plan, but the big challenge that states are facing is that it’s one-time funding. When I talk to states, I’m really clear that we should be using this money to really make the changes in the system that are going to have a big, long-term impact. So, understanding things like what the cost of quality care is and what providers are going to need to ultimately be sustainable, but ultimately, it’s also going to require a massive federal investment in a long-term way. The $39 billion that was just put into the American Rescue Plan is great but we need that on an ongoing basis. As the data in this tool demonstrates, the cost between what it truly costs to run a high-quality child care and what families can afford to pay is just too large. And you can not make child care cheaper; it’s a labor-intensive industry.

So, I look at some of the proposals out there that would have the federal government sending a significant amount of money to states to do a number of things. To guarantee access to affordable child care; capping family co-pays at seven percent and also expanding eligibility to subsidies. It’s mentioned in the piece that there’s some great data from the National Women’s Law Center that showed that in 13 states, a family of 3 making more than $32,000 doesn’t qualify for subsidies. And that’s when we’re showing that the cost of infant care is $16,000 a year; there are so many families out there who aren’t eligible for subsidies and who need help.

The other key thing is making sure that the money is getting into the pockets of providers, of teachers, that you are creating and retaining a high-quality, professional staff.

The expansion of the Child Tax Credit would help to some degree, but you feel like more is needed than that?

Obviously, that’s a huge boost for many families in the country. It’s going to help them with their monthly expenses, of which child care is a huge part. But I think when you start looking at the numbers and you see just what a gap there is between what families can afford and what it truly costs, the Child Tax Credit would only go a small way to fill in that gap. We need to make sure that we’re investing in a quality system. So much of the brain science has shown us that it’s not babysitting, even for infants. The brain science that shows what happens between a quality caregiver and a child is really striking. So, we need to be making investments in the system that go beyond what individual families are paying to providers.

And do you think the political calculus has changed at all as a result of the pandemic and the intense attention it put on the child care issue?

I definitely think it has. I think prior to the pandemic, those of us in the policy area were talking about a child care crisis, but it was a child care crisis that was hidden for a large part of the country. If you had enough money to pay $20,000 for child care a year, you might complain about it, but you could afford that. What happened with the pandemic was suddenly it didn’t matter how much money you had. If child care centers were closed, child care centers were closed. People recognized just how much child care was essential infrastructure. I’d like to be optimistic and hope that this will keep going, but we’ll wait and see. I do think there is this sense of politicians actually putting the money into this area that’s needed. If states spend this federal relief money wisely over the next months and years, it will also help make the case for continued investment. It will be a great proof point.