The Crux at the Center of Childcare Affordability
Raising a child in 2023 is a costly proposition, especially in Massachusetts. One study by SmartAsset found that in the Boston-Cambridge-Newton, MA-NH metropolitan statistical area it cost roughly $32,300 a year to raise one child – the fifth most expensive in the country.
This exorbitant cost is prohibitive in a number of ways for Massachusetts families and individuals. Many, unsurprisingly, simply choose not to have children, driving the state’s birth rate to historic lows – several percentage points below the national average – contributing to population decline and a diminished labor force.
Separately, families with children have difficult decisions to make regarding work. Childcare, one of the leading factors contributing to high costs for raising children, is so expensive in the state that many parents would rather stay home than rejoin the workforce and pay for it. According to Department of Labor data, the average cost of childcare for an infant in Middlesex County is almost $28,000 in 2023 dollars, or 20 percent of the median yearly household income. For single parents it is more than half.
The high cost of childcare in Massachusetts is the result of severely limited supply. Nationally, the Commonwealth ranks below average in terms of available childcare. One study found that in 2019 the state was likely more than 30 percent below demand in terms of available seats, a trend that has almost certainly gotten worse as many providers closed for good during the pandemic. This constraint has put upward pressure on prices and created an affordability crisis for Massachusetts families.
A low birthrate, parents on the sidelines of the labor force, and an affordability crisis are troubling trends for the state and could have long-term consequences. Making childcare affordable would go a long way towards solving these structural issues, so why is it such a difficult problem to solve?
The Structural Issues of Childcare
Forging a path forward on childcare policy that addresses its growing unaffordability poses a dilemma for policy makers, consumers, and providers alike. So why is this?
The unsatisfactory answer is threefold: childcare is labor intensive and difficult for suppliers to improve productivity, parental demand is for higher quality services (safety/educational programming), and oftentimes well-meaning regulations limit consumer choice and the ability of more informal childcare providers to offer services.
The Cost of Labor and Productivity Challenges
The largest cost for childcare centers, making up as much as 60-85 percent of the typical daycare’s expenses, is labor. This is true even considering the relatively anemic wages that most childcare workers make – on average roughly $39,000 a year in Massachusetts.
This is in part because of the significant number of childcare workers required to maintain a daycare. One worker can only look after so many children before the practice becomes unsafe, and this is especially true for infants and toddlers. There is little providers can do to automate care taking tasks or improve staff to child ratios, especially considering that the ratios are regulated by the state.
This means that productivity for childcare workers has remained stagnant for years, while it has been increasing in most other areas of the economy. Higher wages coupled with no corresponding increases in productivity have made the overall cost of childcare much more expensive over time relative to other goods and services.
Even so, wages have not risen quickly enough to continue to attract new workers. One article analyzing Bureau of Labor Statistics data found that there were 100,000 fewer childcare workers nationwide in 2022 than there were before the pandemic.
The combination of factors – high labor costs, worker shortages and slim profit margins – have caused many childcare centers across the country to go out of business in recent years (as high as 10 percent of all providers). The service is costly for consumers, with over two thirds of parents paying more than 20 percent of their total income towards the service, and the lack of overall supply poses a conundrum for policymakers, especially considering that the absence of providers keeps many parents sidelined from the labor force and demand oriented subsidies do little to reduce overall costs.
Parental Demands
A second factor driving up the cost of childcare is the quality and scope of the service provided. Every parent seeks out the safest and most attentive providers available to ensure their child’s wellbeing. The higher the family’s income, the more likely they are to require higher quality care from providers.
As one study found, “rising incomes generate lots of demand for formal care with bells and whistles, including strong educational components.” This also means demand for lower child-staff ratios, higher qualifications for childcare professionals, and higher end facilities, each adding to the effective cost of care. This is especially true in a metro area like Boston, where median incomes are far above the national average. There is more demand for higher quality daycare, which is more expensive to provide, and this higher-priced care drives up the average price.
In a functioning market, a sufficient number of providers to meet the greater needs of well-resourced parents would exist. However, these preferences have become problematic in a number of localities where politicians and regulators have sought to impose higher qualifications on the entire market. “When that happens, cheaper, informal, and flexible childcare options are effectively banned”, the Cato Institute study notes.
Government Regulations
The third factor contributing to the high cost of childcare is state regulations. Many are essential to ensuring the safety of young children in the care of non-parental figures, but others – while well meaning – can often have the effect of raising costs and reducing the number of providers while not proportionally increasing the quality of care. These regulations include, but are not limited to, rigid child-staff ratios, occupational licensing requirements, and zoning restrictions.
Regulators and legislators cite safety concerns when implementing more stringent child-staff ratios, yet there is significant research that casts doubt on the efficacy and effectiveness of these measures. For example, a Mercatus Center study found that increasing the number of children for each staff member by one for all age groups would lower the costs of childcare by 9-20 percent without a decrease in quality. By imposing such regulations, policy makers put downward pressure on childcare worker wages and burden providers with significant labor costs.
Education-related occupational licensing requirements likewise put significant upward pressure on childcare prices and reduce the overall supply of providers. For example, requiring a high school diploma can increase prices from 25-46 percent and reduce the supply of providers by as much as 4 percent. While it makes sense to require background checks and some training, educational requirements can bar otherwise qualified childcare workers/providers from entering the market – especially immigrants.
Licensing requirements in general have increased dramatically in the last decade and had a significant impact on all providers. Those most acutely impacted are small family child care providers run by a single individual working out of their own homes. One study found that from 2011-17, the supply of those providers declined 35 percent, far more than any other type of provider during that period.
While there is some evidence that certain training and educational attainment requirements increase the quality of care, it is clear that they also increase the cost. The places with the most stringent requirements are also the ones with some of the most expensive childcare, including California and Washington D.C.
Other regulations apply to areas of care that should be left to the discretion of providers. Minnesota, for example, regulates the number of toys that have to be available to each child, how often children need naps, how long a timeout can last for, and what types of activities have to be available for play, expression, and intellectual stimulation. While each of these policies are important for parents to consider when sending their child to one provider or another, they are not essential to creating a safe environment for children and are best left to parents and providers to sort out.
Reducing Childcare Costs
Because of the complexity of addressing the childcare affordability issue, government solutions often come in the form of larger subsidies to families seeking child care and/or providers, shifting costs to taxpayers. But subsidies do little to actually improve the structural affordability issues inherent in the current system, and may even exacerbate them further.
Subsidies often come with strings attached. Providers must meet certain criteria to be eligible, such as staff-child ratios, that can add to the cost. They also tend to push consumers to more expensive center-based care, crowding out often cheaper home-based providers and other alternatives. Additionally, without reforms that lead to more supply, subsidies will only increase demand, raising prices for those not receiving subsidies and doing little to solve the structural supply issues at play.
For a more sustainable solution to child care affordability, states should reduce unnecessary regulations on childcare providers that limit supply and restrict parents’ ability to choose the right setting for their child from a variety of options and price points. Those most affected by the reduction of childcare supply are low-income families. By reducing regulations and increasing supply, the state can expand access and increase affordability. Demand in the market will continue to incentivize certain providers to meet the quality requirements of higher income parents who want all the bells and whistles, yet reduced regulation will open up options for those who could not otherwise afford current providers while still ensuring the safety and quality of care environments.
Other Sources to Explore
Benefit Cliffs: A Literature Review on Welfare Structures as a Disincentive to Work
At a Glance: The Massachusetts Labor Force
About the Author
Aidan Enright is Pioneer’s economic research associate, responsible for analyzing data and developing reports on the state’s business climate and economic opportunity. Prior to working at Pioneer, he worked as a tutor and mentor in a Providence city school and was an intern for a U.S. Senator and the RI Department of Administration. Aidan earned a Bachelor of Arts in Political Science and Economics with a concentration in U.S. national politics from the College of Wooster.
