The Retired Investor: The Day-Care Crisis

On Saturday, Sept. 30, 2023, $24 billion in emergency funding for the nation's child day-care industry expires. Estimates are that as many as 70,000 care centers or more will close over the next year, impacting as many as 3.2 million kids. The downside for working women with young children could be even more substantial.

 

In recent columns, I have written of the gains women have made in the post-pandemic labor force. Women's workforce participation, especially women with children under 5, is higher than it has ever been (at 70.4 percent, compared to a pre-pandemic high of 68.9 percent). That brings the employment gap between men and women to record lows.

 

This progress was made possible in part by the $1.9 trillion American Rescue Plan of 2021. During the pandemic and its aftermath, the federal government, under the Biden administration, a congressional bipartisan bill passed one of the largest economic rescue plans in U.S. history. The legislation earmarked $24 billion in spending to bail out the faltering day-care industry. It gave wage increases to woo workers back into the sector, helped to offset rising costs, and made several more improvements to help an area reeling from the impact of COVID-19. The result was to give mothers the ability and freedom to rejoin the workforce. They did so in droves.

 

Those gains will now be threatened. The care centers that remain open will need to reduce staffing and operating hours, while raising tuition and fees. This will take time to unfold, but probably over the next six to 12 months the results of this change will be in full force.

 

A Hail Mary hope within the day-care industry is that the states might come to their rescue. The disruption could cost states $10.6 billion in tax and business revenue annually and reduce family earnings by as much as $9 billion, according to the Century Foundation.

 

This crisis is going to force parents (especially women) into working fewer hours or leaving the workforce altogether. For many others, it may mean switching to less demanding roles with obvious consequences for career advancement.

 

It will also resurrect a litany of economic inequalities that have plagued American women for decades. If they become part-time workers, they will lose employer medical benefits. And if they must once again leave the workforce it will reduce their Social Security benefits at retirement.

 

A viable child-care system is considered a public good by most Americans. Studies indicate that children who receive high-quality care become better educated and ultimately receive better-paying jobs. Unfortunately, in this country, the myth that the private sector can do a better job at this than the government has proven not to be the case.

 

Providers operate on slim margins, pay workers a lot less than most fast-food chains, and experience high turnover. Low-wage workers have plenty of other choices in this tight labor economy, which leaves care centers in many areas of the country unable to provide the services needed. 

 

Today the industry is short 40,000 positions from early 2020 levels. The end of government funding could mean as many as an additional 232,000 jobs could be lost. Day-care waiting lists are years long. And that is if you are lucky enough to live in an area that still provides child care. Even with the government funding, child-care costs have skyrocketed in this inflationary environment. Families, especially in lower-income jobs, can't pay the freight any longer. 

 

It all creates a combination that turns out to be a disaster when it comes to child development. "Child care is a textbook example of a broken market," said Janet Yellen, the U.S. Treasury secretary, back in 2021.

 

As I write this, the new battle cry of partisan politics in Washington revolves around cutting government spending. We suffered through the debt ceiling debacle because of it and now a potential government shutdown is in the making. The government appears ready to abdicate its responsibility to ensure the continued existence of child care. We will all suffer, but women most of all.

 

As the Sept. 30 expiration approaches, couples and single parents will be faced with some hard choices. Pay for the coming higher costs and reduced services of a dwindling number of child-care providers or figure another way to keep working and take care of the kids at the same time. Let's hope there are still a lot of grandparents available to fill the child-care gap.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.