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Child care costs are a big part of why Americans feel inflation still stings

David Brancaccio and Alex Schroeder May 29, 2024
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Women are working slightly less since 2019, and the extra time is devoted mostly to child care or elder care, said Diane Swonk, chief economist at KPMG. Sean Gallup/Getty Images

Child care costs are a big part of why Americans feel inflation still stings

David Brancaccio and Alex Schroeder May 29, 2024
Heard on:
Women are working slightly less since 2019, and the extra time is devoted mostly to child care or elder care, said Diane Swonk, chief economist at KPMG. Sean Gallup/Getty Images
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Last week, the Federal Reserve released its annual Survey of Household Economics and Decisionmaking, a sweeping look at the financial well-being of Americans last year. Right at the top of the report, there’s this stark observation, which we paraphrase: Despite inflation slowing down, Americans still say higher prices make it difficult to make ends meet. The Fed goes on to highlight the problem that child care costs pose for parents.

KPMG, a well-known audit, tax and advisory firm, has brand-new research on how significant the cost of child care has become. “Marketplace Morning Report” host David Brancaccio talked about it with Diane Swonk, chief economist at KPMG. The following is an edited transcript of their conversation.

Diane Swonk: It’s been going up. You know, they’ve been tracking it since 1990. And the index — if you benchmark it against overall inflation — it’s gone up 263% since 1990 to April 2024. Now the same index, the [consumer price index], the one we all look at for inflation: 133%. It really gets to the issue that parents are really stuck in right now — the largest generation, I might argue, of 30-somethings we’ve ever seen. We’ve got 12,000 millennials turning 35 every day. And they’re in the thick of this, trying to pay for child care costs, which are — affordability, the government has said you should pay maybe 7% of your income for child care costs. They’re running 10% to 20%.

David Brancaccio: So you and a colleague crunched some of the government numbers. You went a little bit deeper. And what were some of the surprising things that emerged?

Swonk: My colleague, Matt Nestler, just started working for us. And he’s just fabulous, but he’s in the thick of it, [along with] all my other colleagues: two children under 2; one is a newborn. Had to move across country, has been looking for hours and hours and days upon days to try to find affordable day care. And it’s very difficult — they can’t. And when we were looking at the numbers, what was stunning was not only how expensive and how fragmented the child care system is — over half of Americans live in what we call a child care desert, without even any access to child care beyond their immediate family and friends — but more importantly it also is so expensive, and it’s affecting the labor force.

It’s affecting the amount, most notably, of how much women can work. But also kids — absences from schools have gone up dramatically since the pandemic, regardless of income strata. Now the largest absences are in the low-income neighborhoods, which are online the longest. It actually costs less money to teach kids online; they didn’t learn as much. But many of the kids that are staying home are staying home to watch their younger siblings, so their parents can go and make money to be able to provide the basics of food and shelter.

Brancaccio: And you answered this already with the statistics, but let’s be sure people didn’t miss it, which is: If you had the thought that maybe enlightened men were shouldering more of the child care duties … they’re not working less.

“Investing in our children is something we don’t do in this country.”

Diane Swonk, chief economist at KPMG

Swonk: Not in the statistics yet. No, they’re not. And half of my department happens to be men who have children under 2, and they’ve taken parental leave, and they’re working with their partners. That said, the bulk of the burden does still fall on the shoulders of women. We can’t seem to decouple that, that is a fact of life. And the problem is, particularly for those women who don’t have partners that are helping them, it’s hurting their ability to earn for their families. And I think these are really important things because it’s a lot of talent that’s being discarded. But it’s also — kids are being hurt as well. Because once you can’t provide for your children or you have to ask one child to stay home to watch the other children and then they’re not in school, that hurts everyone’s future. And it hurts our future labor force — not only the ability of those people who are trying to make ends meet in a very sort of week-by-week basis.

Brancaccio: I mean, I see the statistics that women are getting a lot of jobs as the economy ramped up coming out of pandemic. So if women are finding jobs, where are they finding child care to do it?

Swonk: It’s a great question. We’ve got the record female [workforce] participation rate in the United States, driven almost entirely by college-educated women with children under 5, many of them foreign-born. Those are the workers who have benefited the most from work from home and hybrid and could better juggle their schedules to care for their children while they worked.

Those people with less than a college degree are not doing as well, those people who have to [do their jobs] in person all the time. Women in general — ADP did research on this, on their millions upon millions of payrolls — women are now working one hour less per week than 2019. Men are not working less. That extra hour is most notably going to care either for elder care — that’s another half of this crisis — or for child care.

Brancaccio: You’d think the market, seeing all this demand, would respond with more child care facilities. But economists call this a failed market because if you pay child care workers what you’d need to attract them to the field, it would cost even more, and the parents couldn’t pay it.

Swonk: Exactly. And the average child care worker — the person who’s working in one of these child care facilities — they’re making, like, $15 an hour. That’s well below what they could be making at a fast-food restaurant. And investing in our children is something we don’t do in this country. Even with the federal government, we spend $6 on everyone who’s elderly versus $1 on every child. And it’s not something we value.

Now what differentiates us from the rest of the world, even though we have that record female participation rate? We now went from leading the world in driving women’s participation in the labor force to lagging it. We rank 64th. And the biggest differentiator between us and any other of our developed competitors is child care and parental leave.

Brancaccio: In other words, support by the government for child care.

Swonk: Exactly, and by firms as well. But obviously, every business out there can’t do that or afford to do it. Think of a small business — you can’t afford to have someone, you know, pay them to go on leave for six to eight weeks at a time or even longer. So what some places are doing, like California, they’re having employees contribute — much like you do to unemployment insurance or Social Security — into a pool that allows people to have sort of 60% to 70% [of their regular pay], even of low-wage workers, to be able to have some time with their children. We know that the labor force for those companies that can afford this, their workers are more engaged and more productive.

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