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Greenville Business Magazine

It’s Time to Make Changes in Childcare Options

Dec 13, 2022 03:44PM ● By David Dykes

I’m writing to let you know about childcare.

We’ve got to do something, and it’s overdue. Too many families, too many parents, and too many children are impacted by our lack of coordinated, well-concentrated, and supportive efforts to expand quality, affordable care for children.  

Childcare came into focus as an essential part of a well-functioning labor market and the broader economy during the Covid-19 pandemic, as daycare and school closures forced parents to make some tough decisions.

Earlier this year, Wells Fargo economists said a drop in daycare employment left about 460,000 families needing to find alternative care arrangements.

And for employers struggling to find workers and facing a future of dismal labor supply growth, improving childcare options for parents means a larger and higher-quality workforce to draw upon, the economists said.

“A system that does not work well for parents or providers means that we all pay through lower labor force participation, greater hiring difficulties for employers, slower potential growth, smaller tax bases and ultimately smaller families,” the economists wrote in a special commentary.  “A rethinking of policy, if done thoughtfully, could offer a substantial return on investment.”

While the national median for annual childcare spending is $6,000, the costs vary across the U.S., according to a new study from HowtoHome.com looking at the U.S. states with the least affordable childcare.

The analysis found that families in South Carolina spend a median $3,600 on childcare annually. 

A link to the original report, which includes a table with data on all states with complete data available, can be found at: https://www.howtohome.com/states-spending-most-on-childcare.

As HowtoHome.com researchers note, the last few years have been tough on working parents. Daycare and school closures during the Covid-19 pandemic forced parents to rearrange their work schedules, reduce their hours, or even leave the workforce entirely.

As a result, childcare came into focus as an essential part of a well-functioning labor market and the broader economy. And in response, policymakers expanded the Child Tax Credit to provide additional financial assistance for families with kids, but payments have since reverted to previous levels, the researchers say.

They note that over the past two decades, childcare costs have risen much faster than overall prices. They say that between 2000 and 2021, prices for all goods and services increased 76 percent, while prices for daycare and preschool climbed nearly 120 percent. 

Today, American families with children 13 and under spend a median $6,000 (or 5.3 percent of their income) on childcare annually, the researchers say, citing data from the Census Bureau’s Current Population Survey.

They say that the expanded Child Tax Credit, part of the American Rescue Plan, increased the Child Tax Credit from $2,000 to either $3,600 (for children under age 6) or $3,000 (for other children under age 18 in 2021). The American Rescue Plan also increased the Child and Dependent Care Tax Credit, which helps to offset childcare expenses. 

However, while there has been federal support to renew the credits, starting in 2022, that isn’t certain at a time when many families are facing large childcare costs, record inflation, and other economic uncertainties.

While median annual childcare spending is $6,000 overall among families with kids 13 and under, childcare costs vary across the U.S. In certain states, median annual childcare spending tops $9,000, according to HowtoHome.com. 

Families with children 13 and under in Alaska and Minnesota spend $9,600 and $9,400, respectively, on childcare expenses. Meanwhile, childcare is much more affordable in other parts of the country such as West Virginia where families spend just $3,000 on annual childcare expenses.

HowtoHome.com researchers say high childcare costs have disproportionate impacts on low-income families and racial minorities, many of whom allocate significantly more than 7 percent of their income to childcare — the threshold used by the U.S. Department of Health and Human Services to assess childcare affordability. 

The researchers say American Indian and Alaskan Native families spend 8.5 percent of their income on childcare while non-Hispanic white families spend 5 percent and Asian families spend just 4.6 percent. 

Households earning less than $25,000 spend nearly 17 percent of their income on childcare while households earning $100,000 or more spend just 4.3 percent.

To determine the states with the most and least affordable childcare, researchers at HowtoHome.com analyzed the latest data from the U.S. Census Bureau’s Current Population Survey. They ranked states according to the median share of household income spent on childcare, among households who spent money on childcare with children 13 and under. Researchers also calculated median annual childcare spending and median annual household income for the same group of households.

Here is a summary of the data for South Carolina:

Share of income spent on childcare: 4.6 percent.

Median annual childcare spending: $3,600.

For reference, here are the statistics for the entire United States:

Share of income spent on childcare: 5.3 percent.

Median annual childcare spending: $6,000

McKinsey & Company researchers believe finding quality, affordable childcare has long been an issue for working parents in the United States, but events of the past two years have only intensified the challenge and highlighted what a porous, patchwork system childcare has become.

They say the global pandemic drove many day care centers, after-school programs, private nannies and babysitters, and other childcare resources to reduce their hours, change the scope of their services, or close their doors altogether. In response, some working parents in the United States left or considered leaving the workforce as they struggled to meet employers’ work-from-home demands while still attending to the needs of homebound toddlers and school-aged children.

I agree with McKinsey that as companies begin to think about managing returning talent and attracting new joiners — whether in traditional or hybrid work environments — they can no longer ignore employees’ (and potential employees’) childcare requirements, and by removing penalties for parents who are taking care of young children, companies can turn the Great Attrition into the Great Attraction and develop and advance more diverse talent.

Employers who pay attention to this feedback, and act thoughtfully to support employees’ childcare needs, might gain a competitive edge with current and prospective employees, McKinsey says. They may even establish themselves as destination workplaces over the long term — truly differentiating themselves in the ever-evolving talent game.

McKinsey says corporate leaders have a unique opportunity to innovate in childcare support and help working families achieve their full potential.

It says companies may want to explore on-site day care initiatives, as Patagonia has done, offering childcare at its headquarters in California and at a distribution center in Reno, Nevada. Tuition is on a sliding scale, and services are available to both hourly and salaried workers. 

The company has reported 25 percent lower turnover rates among employees who use the childcare program compared with the overall workforce.  

I’d like to know what you think. Please email me at [email protected]