Affordable Daycare is a Pipe Dream

I came across this article with some women whining about the costs of child care.  (h/t Captain Capitalism)

Child care is one of those things that is usually not going to be “affordable” (or a good economic decision, for that matter) except to the well off and the poor (ie. single mothers). No matter how much feminists or the state desire to bring down its costs, it simply can not be made a sustainably affordable option for your average working-class and middle-class folks.

The reason: child care requires human workers that can not be outsourced and can not be replaced with technology. There is no way to offshore your child to India (other than boarding schools) and it will be decades (at least) before there is a robot capable of properly taking care of a child. So, there is no way to remove paying for labour from the equation (unless grandma is willing to take the kids).

The gains that can be made from efficiencies are also limited. Kids require work, a lot of it, and it is not the kind of work that can easily benefit from economies of scale. Sure, you can cut costs around the edges, like consolidate day cares to use larger buildings or buy diapers in bulk, but the labour costs can not really be made more efficient. You can not simply feed children or change their diapers on an assembly line, and each child requires some amount of unique individual attention, even if only to stop them from jabbing crayons into their eyes.

On top of that, governments often mandate a certain level of labour costs with the use of staff/child ratios. This makes sense of course, you don’t want one 23-year-old girl made responsible for 15 different 2 year olds, it’s simply unsafe (not to mention the complete lack of mental development or learning opportunities a situation like that provides, one of the chief benefits touted by daycare enthusiasts).

So, you legally limit the maximum ratio of children per staff. The actual mandatory ratio varies by jurisdiction and often by age, but in my jurisdiction, the max ratio for infants is 4:1 and 8:1 for preschool.

Think about what a 4:1 ratio means in economic terms for a second.

It means that, at best, only 4 women will be required to pay the entire salary (plus benefits) of one daycare worker.

If we assume both the childcare worker and the working woman make average wages, then a women with a single infant in care is paying (at least) 25% of her pre-tax income for the wages of the childcare provider, alone. This does not even include overhead, management, or supplies; simply, the direct labour costs are 25% of her income. If she has two infants, it rises to 50%. Two preschoolers: 25%.

For the working woman with the average 2.4-child family; labour costs for child care alone would eat up 25%-50% of her pre-tax income. If you add on other daycare costs (diapers, the building, etc.), taxes, the costs of working (transportation, lunches, business clothes, etc.), it is easy to see she barely comes out ahead. She’s taking home, at most, a few dimes on the dollar.

This means that only for the rich or the poor is child care a remotely economically rational decision. The rich for obvious reasons, the poor simply out of necessity; they may only make a few dimes on the dollar but without those dimes they make nothing.

Obviously, given the number of working-/middle-class women that use daycare, it’s more affordable than my simple illustration, but why?

The main reason is, daycare workers do not make the average wage. In the US, the average daycare worker makes less than $20k/year, while the average female working full-time makes $33k (while the average income for a full-time worker is almost $40k).

This brings the comparative labour costs down to about 15-30% of your average woman’s earnings, providing another dime or two on the dollar in take-home pay.

To lower these labour costs, you could lower childcare workers’ wages, but then you’ll simply have fewer workers to meet the same demand, so they’ll charge more or there will be a lack of supply. In addition, if child care labour is paid less, you’ll get less qualified candidates, and you want some minimum levels on who looks after children.

Also, wages in this sector tend to be trending up over the long-term. Jurisdictions are increasingly requiring higher qualifications for childcare workers, which will increase the wages necessary to attract workers. For example, my jurisdiction now requires a two-year diploma for childcare workers. In addition, childcare workers are demanding increasing benefits. In my jurisdiction there has been talk of the implementation of a pension plan. Labour costs are set to go up, not down.

No matter how much whining is done about the high costs and unaffordability of childcare, there is no way to bring it down given the nature of child care services.

The other idea to lower costs for individuals is subsidization. Canada does this, and spends about $5-billion/year in public money subsidizing daycare (the numbers are from 2005, so it’s probably higher now). The US federal government spent $3.7 billion in 2002, and I can’t find data on the spending of the various states.

This, of course, just transfers the costs from the users of daycare services to everybody. This benefits the poor who pay less tax, but get the most subsidies for daycare (another reason they can afford daycare, when it squeezes the middle-/working-class.) On the other hand, it simply means more of the parents’ incomes goes to taxes for the middle class, hiding the cost of daycare behind layers of bureaucracy, but not really solving the problem of affordability.

What will inevitably happen, is that as daycare becomes increasingly expensive and economically infeasible for the middle class, it will become some sort of “right” and the state will simply nationalize it. Taxes will go up further squeezing the middle-class. More couples will be forced into using daycare as they won’t be able to afford the increased taxes on a single income. Essentially, the public school system will simply expand to include the younger years.

In conclusion, daycare will never be “affordable” due to the nature of the work but at some point your children will likely be raised by unionized government workers for their early years. Enjoy.


9 responses to “Affordable Daycare is a Pipe Dream

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