Sep 20, 2023 - Economy

The child care industry is on the cusp of a crisis

Illustration of a child guiding a green toy train with dollar sign wheels off the edge of a table

Illustration: Sarah Grillo/Axios

In 10 days, the U.S. will fall off a "child care cliff" — that's the day pandemic-era funding for the industry runs out.

Why it matters: The funding amounted to a $24 billion Band-aid patched over an industry that's long struggled. When the bandage comes off, the state of child care in the U.S. is likely to be even worse than it was before 2020.

  • "There's going to be a real crisis here," said Cathy Creighton, director of Cornell's School of Industrial and Labor Relations Buffalo Co-Lab, who's studying the impact of the additional funding for providers.

By the numbers: As many as 70,000 centers, looking after 3.2 million children, may close after the funding runs out, according to one widely cited estimate from the Century Foundation.

State of play: The cliff is approaching just as women, particularly mothers, are hitting their stride in the U.S. labor market — with workforce participation at new highs and the employment gap between men and women at record lows.

  • If the dire forecasts prove true, millions of parents — particularly mothers — are going to be left with some hard choices.
  • Their child care provider could shut down or raise prices past affordable levels, which is widely expected — and many parents could exit the job market entirely.

The big picture: This cliff is new, thanks to the pandemic funding, but the reality is the industry in the U.S. has been living on the edge for a long time.

  • Child care is a public good — studies find kids who get high-quality care wind up getting better educations, and better-paying jobs in the long term — but it's provided by a private market.
  • Providers are limited in their pricing power because most parents can't pay all that much for care. To keep costs down, workers make very little — $14.22 per hour on average, per BLS numbers from 2022 — and providers operate on razor-thin margins.
  • In many areas of the country, high-quality care is in short supply. Turnover in the industry is high, which turns out to be terrible for children's development (they do better with consistent caregivers).

As Treasury Secretary Janet Yellen put it in 2021: "Childcare is a textbook example of a broken market." (Read her full speech here.)

Where it stands: The $24 billion from the American Rescue Plan allowed providers to stay in business — they used it for things like raising worker pay or bonuses, lowering customer prices, and making infrastructure improvements.

  • But it was temporary. And now, these centers are operating in a different labor market than that of January 2020 — low-wage workers have better options these days, and the cost of everything is higher. (Even with the funds, child care costs have skyrocketed in some regions of the country.)

What's next: The impact of the fall off the cliff will take time to develop. "It takes a while to bleed out," said Creighton.

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