We hear it often—the weight of expensive and inaccessible childcare on working families with young children. What we haven’t discussed enough is the overall impact this challenge has on the U.S. economy… until now.
Without a doubt, affordable and available childcare is a critical component of a vibrant economy and researchers, economists, and policy leaders are currently working hard daily to unlock its potential. Business and industry rely on employees and employees rely on childcare. “Work-Willing” parents of young children can only participate in the workforce and advance their careers when they have affordable, accessible, and high-quality childcare options for their young children. Unfortunately, those options are more limited than ever for parents eager to rejoin the workforce on a full-time basis.
This dilemma keeps a significant number of parents and caretakers out of the workforce altogether and creates a wide-reaching ripple effect—driving down household earnings, employer sales, regional GRP and ultimately the overall prosperity of cities, regions, states, and the American economy.
Childcare: A Broken System for Everyone Involved
The escalation of childcare costs has been felt most acutely by the working class, with swift and unrelenting increases driving down take-home pay and purchasing power. A 2022 study presented by the First Five Years Fund revealed that the average annual cost of childcare in America has increased 220% over the past three decades and considerably faster than any other essential family expense.
Annual costs of center-based childcare are in excess of $10,000 – a number that most families simply can’t afford, and multiplies for each additional child in a family unit. At the same time, the rate of pay for childcare workers remains low and the profit margins for childcare center operators slim, or in many cases, become negative. There is good reason why an overwhelming majority of centers are operated by non-profits or school districts: they can offset annual losses with grants, write-offs, or increased taxes levied at the district level. In short, the childcare model in the United States is broken for everyone involved: staff can’t earn a living wage, operators can’t turn a profit, and parents can’t afford the fees associated with enrolling their children.
Childcare is Essential to the Success of Families
Although childcare costs have spiraled out of control, the need for it has remained constant. There are an estimated 15 million children in the U.S. under the age of six who have both parents in the household actively engaged in the workforce. Indeed, that means there are between 20 and 30 million workers in the United States whose ability to earn and contribute to our national economy is entirely dependent on a childcare model that is not functioning as it should. For many parents, trying to juggle the steep cost of childcare, stay afloat with additional household expenses, all while advancing their careers is a difficult balancing act—that sadly never quite balances out.
Women Are Being Held Back from Career Goals
This problem is particularly acute among working mothers, or mothers attempting to rejoin the workforce. It’s no secret that women disproportionately take on unpaid caregiving responsibilities when their family cannot find or afford childcare. Too often, mothers find themselves making career decisions based on childcare considerations rather than their personal financial and career goals. A recent survey conducted by the Center for American Progress revealed mothers were 40 percent more likely than fathers to report they personally felt the negative impact of childcare issues on their careers. Added to these challenges are the non-standard shifts, particularly in areas dependent on manufacturing or the service industry. Most childcare centers operate during normal (dayshift) business hours, Monday through Friday. For families or individuals that work 2nd shift, or non-traditional split shifts, even if childcare was affordable for them, there is virtually no availability during the hours they need.
Billions in Economic Damage Will Continue Without Action
Studies have shown that the annual economic damage of the childcare crisis in the United States is more than $120 billion, when accounting for lost earnings, productivity, and revenue. That’s an incredible number and one that has risen from an estimated $57 billion just a few years ago. Add to this the series of well-publicized labor shortages facing almost every industry in the United States and the general population decline that will further exacerbate these shortages the years to come, and it becomes alarmingly apparent that we are staring off the edge of a cliff. This problem is only going to become worse unless immediate action is taken.
Lessons from Northeast Indiana
At TPMA, we use our 35 years of expertise to empower organizations and communities through strategic partnerships and informed solutions that create positive, sustainable change. Our team provides professional consulting services and delivers transparent insights to the complete workforce, education, and economic development ecosystem that allow them to move forward, together.
Recently, our Senior Strategic Advisor of Research and Impact, Brian Nottingham, created a methodology that allows us to estimate the financial benefits of communities when “work-willing” parents are able to return to the workforce thanks to accessible and affordable childcare. Applying this framework to the region of Northeast Indiana:
- We estimated that 8,987 parents in the region could be counted as “work-willing”: ready and able to go back to work full-time, but cannot because they do not have access to reliable, affordable childcare
- Using conservative estimates and distributing these parents proportionally across existing industries in the region, returning ALL of these 8,987 “work willing” parents in Northeast Indiana back to the labor force will increase payroll taxes by just over $21 million ($9.8 million to the state, $10.3 million to local governments in the region), and sales/import taxes collected from the industries employing these workers by approximately $20.2 million.
- Driving this bump in tax revenue would be an additional $571 million in earnings for these parents and an estimated increase of just under $1 billion in Gross Regional Product for their employers.
A Search for Solutions
So where do we go from here? Our work in northeast Indiana shows that should the state choose to invest in childcare- covering 1/3 of the annual cost for these “work willing” parents- they would turn a net profit on the investment by reaping the rewards of additional sales and income tax revenue. Employers in the region as well are taking important, meaningful steps to also help share the burden with their employees because they too understand that at the end of the day, it is a profitable investment to fully staff their operations with work-willing parents. But the solutions to this challenge are myriad and there is no one-size fits all approach to any given community. As a starting point, we recommend:
- Understand the economic impact. Whether it’s your city, state, or region—understanding the economic impact and the childcare landscape is critical to approaching the problem. Armed with knowledge and verifiable, independent estimates of impact based on a tested and respected, methodology, communities can start the conversation with elected officials, employers, and community organizations about how and why it is important to rally around solutions. Contact us to learn how we can support these efforts.
- Federal funding and/or state investment. As our work has shown, there is a strong economic case to be made for more federal or state dollars to be driven into the childcare system across the country. As the principal beneficiaries of the tax dollars collected out of the paychecks of working parents, investing to ensure childcare workers can make a living wage and parents have money left over AFTER paying for childcare is a common-sense, cost/benefit approach. Governments should treat the childcare industry like they do infrastructure: it is a vital driver of business in the United States.
- Develop childcare networks. The nature of the childcare industry is such that small businesses operating either independently or as part of a small group teeter on the edge of-but seldom reach- profitability. Developing economies of scale can reduce financial burdens on the businesses and allow them to adjust down prices AND turn a profit.
- Incentivize workers. This crisis is not only about the cost of childcare, but also the availability. A lack of workers in this space makes it hard to find care even at higher prices, so creating programs and incentives for individuals to enter into the industry are essential. This might take the form of state-funded bonuses that boost overall income for childcare workers, or it could be that businesses themselves are able to offer a more competitive salary because they are receiving more support. Mindful considerations about what these employees are earning and actively working to increase the salaries of the people we charge with the care of our children should be forefront in any conversation about expanding training opportunities/educational programming.
Overall, everyone wins when childcare is affordable and accessible. If parents can get the care they need for young children while they work, businesses can flourish, and families can re-invest their savings into every other purchase that drives the American economy. These efforts will require a collaborative approach where employers, employees, parents, governments, and community organizations work together to address what may be one of the biggest challenges facing the American workforce today.
For more information, contact author Steven Gause, Director of Strategy & Growth Initiatives, at sgause@tpma-inc.com.