By Dan Maskin
I recently listened to an interview with journalist Claire Suddath about childcare. She was speaking about her November 2021 article in Bloomberg Business Week titled “How childcare became the most broken business in America: Biden has a plan to make day care more affordable for parents — if the providers don’t go out of business first.”
The high cost of childcare is mainly due to it being a private market that is heavily regulated (as it should be). A childcare provider must have one caregiver per three to four infants; for older children it’s seven to eight per caregiver. Caregivers’ salaries are generally around $15 per hour, or $31,200 per year. Most day cares are small businesses, and the United States Treasury reports a 1 percent profit margin for day care services.
Cheaper childcare usually means providers are unlicensed, which can potentially pose a safety risk.
Most day care workers have some form of higher education and a strong commitment to the early childhood development profession. But with salaries so low, it’s no wonder that according to Suddath, 25 poercent of childcare workers leave the profession each year.
We shouldn’t blame the providers, either. As Ms. Suddath pointed out, a 1 percent profit margin does not give providers a lot of wiggle room. Economists refer to the childcare business as a classic market failure. That’s when the price point of goods or services is too expensive for consumers and too expensive for providers, with no way to fix it in a private market setting.
At Opportunities for Otsego, we used to provide what’s called a wrap-around day care program. Since Head Start is only four hours a day, we began providing general day care for the rest of the day. It met the demand very well, but OFO lost tens of thousands of dollars for each year we provided the service. When the sequester was implemented, we had to choose to either shut down a Head Start classroom or close the day care service. We made the difficult decision to close the day care service because of the significant financial losses it incurred.
I mention this as an example of not only the unaffordability of providing childcare, but the difficulties childcare providers face when the cost of running an operation exceeds the revenues that are required to provide the service.
Many other governments in industrialized countries heavily subsidize childcare. But the US Congress hasn’t dealt with it since World War II. President Biden’s Build Back Better bill addresses childcare but leaves it optional for states, with no federal oversight.
I get asked from time to time why our community can’t solve the day care problem. The answer is that it can’t just be solved locally. Until there is a strong national policy, the hopes of providing quality affordable day care will continue to be the elusive goal that communities have been struggling with for years and years.
Dan Maskin is Chief Executive Officer of Opportunities for Otsego, Inc. Learn more about the organization at ofoinc.org.