Why the Child Care Business Model is Unsustainable

Child care is economic infrastructure

Welcome back Chaise Lounge readers! This week we will do a deep dive into what happened to the child care industry during the pandemic and strategies for stabilizing this important piece of national infrastructure. I look forward to hearing your experiences and thoughts on this important national topic. As always, we will check in with some news updates first. Looking forward to hearing your thoughts!

Global News Updates

  • A recent study published in World Bank Economic Review studied the effects of educational interventions to improve the education of girls. The study found that gender-neutral interventions were the most effective. Improving the quality of teaching, decreasing school fees through scholarships or vouchers, and teaching at the right level were all successful strategies. The study authors also noted that sometimes interventions targeted only for girls make sense when addressing issues that are unique to girls.

  • In a bizarre and horrifying case in Ottawa, a female police officer who brought concerns of sexual harassment to her superiors was ordered into therapy. But it turns out that the therapist was a fake. The reports were written and signed with a forged signature by a licensed psychologist. As of this date, the police department is not cooperating in an investigation.

National News Updates

  • In a surprise move, the Pennsylvania Supreme Court struck down Bill Cosby’s conviction of raping Andrea Constand and he was released from jail. At issue is the promise that the original prosecutor made to Cosby in the civil trial. Prosecutor Castor told Cosby that if he testified in the civil trial, he would not file criminal charges. Cosby went on to testify and admitted to drugging Constand and having sex with her while incapacitated. When a new prosecutor came, he reneged on the deal and prosecuted Cosby in criminal court, which was illegal given Castor’s promise. However, over 60 women have accused Cosby of similar crimes and one of them could bring a criminal suit.

  • Since 2018, there have been over 200 complaints of sexual harassment at the National Institutes of Health resulting in the removal of 75 principal investigators of grants. Prior to 2018, no PI had ever been taken off a grant for these reasons. In addition, 125 scientists have been banned from acting as peer reviewers. This is a huge step forward in beginning to solve a problem that has long been discussed by women scientists. Title IX laws were involved in many of these cases since the research is conducted at universities.

    Why the Child Care Business Model is Unsustainable

The state of the child care industry in the United States remains dire both for parents, children, and providers. Parents face both affordability issues and child care deserts. Child care centers face significant staffing issues due to low pay. The pandemic squeezed the industry almost out of existence, and it was only able to withstand the pressure through the government dollars extended through the CARES Act and the American Rescue Plan. But the pandemic exposed the unsustainability of the business model without significant investment from the government. 

Lack of access to child care 

According to the Center for American Progress, in 2018, sixty percent of families lived in a child care desert. A child care desert exists when there are more than three children for every one child care seat in a particular area. Prepandemic, there was already a significant shortage of care for infants and toddlers and those who work non-traditional hours, like overnight shifts. With closures and staffing shortages, child care deserts will become more common. And child care deserts are more common in lower-income areas, places where the pandemic has already made its mark.

Low pay and staffing

According to the Child Care Worker Biennial Index, child care workers are paid an average of $11.65/hour. The wages of workers with at least one child do not currently meet the standard of a living wage in any U.S. state. Many workers receive no benefits, especially those who are sole proprietors running a child care business from their home. 

Now that 70% of children of children are back in child care (based on pre-pandemic numbers), serious issues are surfacing. Child care directors are having great difficulty staffing their centers. Because they were forced to close or lay off staff, many of their employees moved onto work at other jobs and will not return. While many business sectors are struggling with a lack of employees, child care centers are at risk of having to close or not reopen at all due to licensure regulations.

Child care is not a business where you can be “more efficient”

Child care centers and homes are regulated by the state. To keep the children safe, states establish teacher-to-student ratios by age group that must be followed in order for a center to receive licensure. As a result, labor costs are high and fixed.

Even with the low pay for the staff, most parents cannot afford the actual costs of child care. States provide some subsidies, but they are limited in number and only one in six eligible families receives them. The subsidies artificially keep the actual costs down leading to low pay and extremely tight margins. 

Child care providers cannot skimp on staffing levels, supplies, or food. All of their costs are necessities for the business to keep licensure, so there is no room for costs to be cut.

“They are trying to treat children like an economic activity rather than an investment in our future.” Linda Chappel, NC Child Care Services Assoc.

How the CARES Act and American Rescue Plan supported child care centers

The CARES Act and the American Rescue Plan supported child care centers across the country during the pandemic. According to Ariel Ford, Director of the North Carolina Division of Child Development and Early Education for the Department of Health and Human Services, the states, “put the federal dollars to work immediately.” They provided personal protective equipment to centers, paid child care employees when they had to close for the pandemic, provided bonuses to child care providers who stayed open to care for children of emergency workers, provided operational grants, created a hotline for families to find child care, paid for nurses to help at child care centers, paid for child care for low wage essential workers, and waived fees that parents would normally have to pay for subsidized care. Because of this government investment, 87% of child care centers and homes in North Carolina stayed open, although many with reduced staffing and number of children.

Moving forward

Clearly, the biggest problem facing child care centers is the low pay they offer. With other businesses moving to a $15/hour wage, many of their workers are leaving for more pay. If the child care centers increase their charges, then more parents will not be able to afford care. It is a conundrum that only the state or federal governments can solve. The free market cannot financially sustain child care as it exists, but child care is a necessity to keep our economy running. While child care may not be traditional physical infrastructure like a bridge, it is economic infrastructure. 

Many parents, especially women, are not able to return to work because of a lack of available and affordable child care. When politicians paint would-be workers as lazy and just wanting to live off unemployment, they are ignoring the fact that parents need a robust, safe, and affordable child care industry before they can return to work. 

Strategies to explore

I spoke with Linda Chappel of the North Carolina Child Care Services Association to see what solutions she might suggest. She started by saying, “The challenge is that because our system was already operating with such tight margins, there needs to be a dedicated child care stabilization fund that can be more long term and looks at closures of childcare programs that have been really concentrated in low-income and middle-income neighborhoods.” Presently, parents receive vouchers for child care that they can then use to pay for services. Chappel suggests that instead of the parents receiving the vouchers, the state could contract with the child care providers to open more seats for subsidized families. In return, the centers would have more stability in their budgeting. 

Other ideas mentioned were investing in the start-up costs for child care centers. Chappel says, “Where supply doesn't meet demand, you've got to have multiple strategies. So one strategy is contracting. Now another strategy is to have some intensive startup grants available, low-cost loans, small business loans. Our community colleges often have these small business support centers, but a lot of times those small business support centers don't have they don't engage with the childcare community in some areas. So one another strategy is to beef up those educational opportunities that are tailored to the early education landscape, to really teach owners and directors more about what we would call the business side of childcare.” 

What can you do?

Each of us bears responsibility for doing what we can to solve this national crisis. If we want the economy and our children to thrive, we must create a healthy business environment by taking care of basic needs. This is a social and economic crisis that affects everyone, not only those who have children. 

The Childcare for Working Families Act was introduced by Senator Patty Murray and Rep. Bobby Scott(DVA-03). It would cap costs for child care tuition and increase staff pay. The American Families Plan integrates the main points from the Childcare for Working Families Act into the plan. Please write to and call your congressional representatives to let them know that you support both of these pieces of legislation.

A special note to North Carolina residents: A backward solution

The state Senate recently passed a bill, SB570, that would allow child care centers to decrease the number of staff members who hold early childhood education certificates from 75% to 50% in order to keep their five-star rating. Instead of using some of the state’s $6.5 billion tax surplus or the coronavirus dollars to bolster child care subsidies, they are planning to reduce the quality of child care staff. Let your NC house member know that you would rather see the legislature spend some of that surplus to attract workers to the child care industry rather than dilute the quality of care. 


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