Childcare Costs Are Soaring, But Workers’ Wages Are Not

By: Anneken Tappe · July 08, 2024 · Reading Time: 2 minutes

U.S. childcare costs have risen significantly over the past decades, leaving parents struggling to ensure quality care for their children and making ends meet.

But it’s not high wages of childcare workers that are at fault for the high costs. The reality is actually quite different.

Wage Paradox

The median hourly wage for childcare workers is just $14.60, according to research from the Federal Reserve Bank of Chicago, putting the job in the bottom 5% of all occupations in terms of compensation. Paychecks in the industry grew 5.5% between 2019 and 2023, per the Chicago Fed, amounting to a mere $0.76 annual raise, when adjusted for inflation. In comparison, cashiers, waitstaff, housekeepers, and retail workers all saw their hourly wages increase more over that period.

This reality plays into the persistent shortage of childcare workers. By the end of 2023, childcare employment still lingered 9% below pre-pandemic levels.

Generally speaking, greater demand for services can offset labor shortages by driving up wages and attracting more workers. But this didn’t happen here. So why have costs gone up so much if workers aren’t paid more?

Dried-up government funding and the need for a low worker to children ratio are weighing on costs too. Plus, cost increases are hard to absorb by parents, many of whom are already stretched when it comes to paying for care. But the labor shortage is driving childcare costs up anyway, creating a double-edged sword: Daycares can’t attract sufficient staff, and parents can’t find affordable care.

Care Crunch

Childcare isn’t just crucial for the next generation’s development. It plays a critical role in the U.S. economy, by allowing parents to be productive participants in the workforce and boosting economic output.

But the ranks may continue to dwindle. In 2023, the average monthly transition rate for childcare workers exiting the workforce was 6.5%, said the Chicago Fed, more than twice the rate for all workers (2.9%). This trend doesn’t just threaten one sector, it’s a problem for the entire economy.

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