Even Before the Pandemic, Child Care Finances Were Broken

This post is the fifth in a series that provides deeper context for the findings of the 2020 Status of Women and Girls in Minnesota report, a research collaboration between the Women’s Foundation of Minnesota and the Center on Women, Gender, and Public Policy. High-quality child care is out of reach for many Minnesota families, especially those headed by women. Here, University of Minnesota professor of applied economics Elizabeth Davis highlights how we can begin to address the paradox of high costs and low wages in the child care sector.

The COVID-19 pandemic has raised awareness of the critical role of child care as infrastructure for our economy. Without safe places and nurturing caregivers for young children, Minnesota employers will be unlikely to find the workers they need as the economy rebounds. More than three-quarters of children age 0 to 5 years in Minnesota had all available parents in the labor force in 2018. Some young children are cared for by grandparents or other relatives, but for most families, child care is a necessity in order for parents to participate in the labor market. In addition, attending high quality child care has been shown to reduce gaps in children’s school readiness, especially for children from disadvantaged backgrounds.

Parents in Minnesota struggled to find and afford child care before the COVID-19 pandemic, and for many women, the pandemic has added to their caregiving responsibilities because of school and child care closures. A recent study from the Minneapolis Federal Reserve Bank found that 11% fewer mothers with children under age 5 were in the labor force in the fall of 2020 compared to the prior year, a much larger decline than for fathers or those with no children at home. Yet as the economy begins to recover, the pre-pandemic problems of shortages and lack of affordability of child care in Minnesota have not magically disappeared and likely have worsened.

Why is child care so expensive, when child care providers and teachers are paid so little?

Child care can put a huge dent in a family’s budget—particularly for families headed by single mothers. Paying for a year of full-time care for an infant in a child care center in Minnesota costs more on average than tuition at the University of Minnesota. In part this is because tuition at public colleges and universities is partially subsidized by government funding.

Cost of Minnesota Accredited Center-Based Infant Care Compared to Median Income for Families with Children Under 6

The conundrum of child care financing is the combination of unaffordability for families and low compensation for child care providers in centers and home-based settings. Caring for young children is very labor-intensive, and it is the most labor intensive for the youngest children. Regulations allow one teacher to care for four infants at most. In contrast, most kindergarten classrooms have 15 to 25 students. In other sectors, businesses reduce labor costs by adding technology, but that’s not an option when caring for young children. Paying for care for children before entering kindergarten is largely the responsibility of parents. In contrast, once a child enters kindergarten, public funding covers the vast majority of care and education costs, and parents, regardless of income level or other circumstances, are off the hook. Families have the most financial responsibility when children are young, and yet families with younger children have fewer economic resources than families with older children.

For example, families with children age 0 to 5 years have lower credit scores on average than families with older children (which affects access to and cost of credit). Families with younger children work fewer hours and have lower wages. And they have had less time build up savings. These factors limit families’ ability to pay for child care.

Low child care compensation is a social problem

Nearly all of those who provide early care and education in child care centers and home-based businesses are women, and women’s work and caregiving have long been undervalued in our economy. Those who do the important work of caring for and educating young children are paid relatively low wages compared to similarly educated workers. One study estimated that college educated teachers working in early care and education in Minnesota earned 28% less than those in the K-8 education system and had a poverty rate over 18%.

Low compensation contributes to stress and burnout, leading to high rates of turnover. Consistent, stable relationships are an important component of high-quality care for young children, and teachers worried about their own financial situation may face burnout or be more likely to leave their jobs. The Minnesota Department of Employment and Economic Development estimates the annual turnover rate in the Child Day Care Services Industry is 14% compared to 9% in the Minnesota economy as a whole.

Recent scientific advances in our understanding of human development point to the critical importance of the first few years after birth for establishing a positive trajectory for development and lifelong health. We as a society provide less support to families in the early years than when children are older, despite clear evidence of the benefits of investing when children are young to impact children’s healthy development and lifetime outcomes.

The economic recovery depends on women workers and child care

Greater public investment in child care and early education are needed to increase access to affordable, high-quality child care for all children and families. Even before the COVID-19 pandemic, shortages of child care impacted employers’ ability to hire and retain workers, especially in rural Minnesota. And high rates of staff turnover resulting from low compensation impacted child care providers’ ability to provide stable, high-quality care that supports child development.

As the economy recovers and parents return to work or find new jobs, the need for affordable, high-quality child care will expand. Yet many child care providers are at risk of closing due to the reduction in revenues and increased costs they sustained during the pandemic. While Minnesota has done better than most states in providing stabilization funds to child care providers during the pandemic, and more COVID-19 relief funds will be available under the American Rescue Plan, we must address the underlying systemic financing problems in the child care sector for long-term sustainability.

Public support for parents via scholarships, tax credits and child care assistance along with public programs such as voluntary pre-kindergarten and Head Start can help parents afford high quality early care and education for their young children. There is no one approach that works for all families’ needs, but all of these approaches have been underfunded in Minnesota.

Increasing public investment to help low- and moderate-income families pay for high quality early care and education can help reduce gaps in school-readiness, increase the available pool of workers for employers, and provide more equitable compensation for the women who provide this essential service across our state.

Elizabeth E. Davis is a professor of applied economics at the University of Minnesota. Her research focuses on child care and early education policy. This post was originally published by the Gender Policy Report on March 23, 2021.