Moneybox

Can Democrats Fix “the Most Broken Business in America”?

Joe Biden speaks at a lectern, in front of a sign reading "Build Back Better."
President Joe Biden gives a speech in Kearny, New Jersey, on Oct. 25. Michael M. Santiago/Getty Images

Bloomberg Businessweek columnist Claire Suddath always knew that child care is a fraught marketplace in the United States—but with her daughter, she’s gotten an up-close look at the way the pandemic stretched and warped the child care business. For instance, Suddath would read that a third of all day care providers are considering quitting, and then she’d go get her kid from child care only to hear that her daughter’s “favorite caregiver” was quitting. Why? “It’s not because she didn’t not want to care for kids, but she got pregnant herself and is going to have all of these other costs,” Suddath told me. “The pandemic made everything for parents and child care businesses so immeasurably worse.” She wrote a report for Bloomberg, “How Child Care Became the Most Broken Business in America,” to figure out why day cares may not be letting parents in the doors these days—and whether there could be a way to fix it, through the Democrats’ Build Back Better Plan. On Tuesday’s episode of What Next, I spoke with Suddath about her report, the current state of child care in the U.S., and whether President Joe Biden’s proposed legislative fixes go far enough. Our conversation has been edited and condensed for clarity.

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Mary Harris: I’m hoping you can explain a little bit how we got here, because the weird thing about child care is it’s not a secret that the system isn’t working. Like Treasury Secretary Janet Yellen has said, child care is a textbook example of a broken market. Why is that the case?

Claire Suddath: While the U.S. government has been hesitant to subsidize day care and child care, it has no problem regulating them as it needs to. Over the years, we have come up with a list of rules that licensed child care facilities have to follow, and these places get inspected to ensure that the children are safe. There are a lot of specifics—square footage per child, fire safety codes, earthquake preparedness, CPR classes—but the priciest one, the one that is part of the reason why child care is so expensive is that you need one caregiver for every three to four infants, which usually encompasses children 2 or younger, depending on the state. That is because babies need constant supervision, and the labor costs are so high for child care relative to other industries. Like, 60 percent of a child care center’s costs go to wages.

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With child care, there is this unresolvable tension: You need a certain number of workers to look after the kids for regulatory and safety reasons. But more caretakers means more salaries to pay. As a result, the people who run child care centers squeeze as much money as they can out of each family.

I pay $22,000 for day care in Brooklyn. I don’t know the salaries of the people who are caring for my daughter as I’m talking to you, but I can guarantee you they’re not making bank, right? And if you want them to make more money—which, I want them to make more money. They provide a service that I can’t put a price tag on because I can’t pay what I think they should be paid.

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But every time child care costs have gone up, they have risen exponentially. It’s so far beyond inflation. It’s kind of like health care: We know it’s so expensive and working parents are already priced out. And when you raise prices that much, even more people are priced out and it becomes less affordable.

One of the things you found in your reporting was how the costs get passed on to the consumer and follow women throughout the rest of their lives—the fact they have to invest so much in child care to keep moving means that later on down the road, they’re much worse off.

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And that was a problem before the pandemic. Then COVID swooped in, everything closed, and that was pretty devastating to the child care industry. I know you spoke to a lot of day care providers. What did they tell you?

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If you talk to a day care provider, honestly, about how they have survived/navigated the pandemic, it’s like talking to someone who’s come back from war. They have to feel comfortable enough with you to tell you honestly how hard it has been for them.

Here’s something I don’t get: Lawmakers in Washington approved $39 billion in child care relief back in March. It was supposed to stabilize care centers. But I read that about 2,000 day cares may have closed during the pandemic. What happened?

This is a huge, huge industry, if you think of the number of working parents with young children in this country, and the number of caregivers required to care for those kids. When you spread it out, $39 billion is not a ton of money—like, 1 in 55 working women in the U.S. works in child care or early education. The CARES Act gave more money to Delta Air Lines, one company, than to all of those millions of women combined.

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Looking at the way the child care industry keeps getting stiffed, one can’t help but think it has something to do with who’s doing the work.

This industry is primarily female, 40 percent of those women workers are women of color, and many of them were not born in the U.S.—there are many immigrants who work in this industry. So I think you have a lot of compounding factors that have led us to not address this for a number of reasons. People who are themselves caregivers are not the type of people who are going to get the ear of a senator. They just don’t have the political clout, essentially. And on top of that, historically, working women have been discounted. Like, if you want to work as a woman, fine, but we’re not going to pay for your child care, you have to figure it out yourself. We see those same arguments again and again. Just this March, the state of Idaho was awarded with a $6 million early education grant for low-income preschoolers­—like, this is preschool, we’re not talking about whether you should put a newborn in day care. And the state ultimately rejected it. There was a state representative who said he didn’t think the state should take this money because anything that made it easier for women to come out of the home, he didn’t think, was a direction Idaho should go in.

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Earlier this year came a glimmer of hope in Biden’s Build Back Better plan. One of the bill’s largest sections is devoted to fixing child care infrastructure: It gives out subsidies for a large number of families to cut the cost of care or even make it completely free. But …

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Let’s say that what is proposed now for Build Back Better is enacted. It’s not creating a whole federal program or even creating a whole federal subsidy program. All it is doing is saying to the states, We have a bunch of money that’s available for you if you come up with your own child care plans that meet a bunch of this criteria. But it is contingent upon all 50 states coming up with their own unique plans of how they’re going to fix child care.

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It sounds like a lot of work.

Build Back Better includes a lot of things that are completely necessary. It is going to cap costs for families and make care completely free for low-income families. That would be great for parents and people struggling to afford child care to begin with.

It also says you have to raise salaries for child care providers to a living wage.

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I think the general idea is that it would be sort of the equivalent of a kindergarten teacher salary. That absolutely is needed—these people are making no money for a really hard job that I think we as a society should truly value—but the only way these small businesses can afford that is through one of two things: The state will have to subsidize that higher cost and give that money to the businesses themselves, or businesses are going to have to jack up their prices to the families so they can pay workers those rates. Also, what I think will happen is, given the lack of specifications, maybe the facilities won’t actually pay a living wage.

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Because “living wage” isn’t defined.

It’s not defined, and I don’t know what sort of mechanisms are in place to make states comply with every single regulation. We have a subsidy program for low-income families that’s chronically underfunded—only 14 percent of people who qualify even get any money. The regulations say it’s a block grant that goes to states, and states are allowed to decide how they want to disperse it. States are supposed to subsidize at 75 percent of the current market rate, meaning the amount of money that day cares and child care centers charge. In reality, only two states as of last year were doing that: Maine and South Dakota.

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How do the others get away with that?

Because there’s not a punishment. It requires a stretch of the imagination to think that all 50 states are going to somehow get enough money together to provide a living wage to child care workers.

You’ve really opened my eyes to a system that’s in crisis right now. Even if this bill passes, would money from Washington reach child care centers in time to help the people who are looking after your daughter, for example?

Even if Build Back Better passes tomorrow, and NY state surprises us by having something ready to go, providers still have to apply to join the state’s program. How does the state find the providers? It’s not an immediate fix—at best it will take a few years, because states don’t have programs up and ready to go tomorrow anyway. When I talked to providers who’ve made it through the pandemic thus far, a lot of them said they applied for the small business loans and the Paycheck Protection Program, and those programs had their own issues but did ultimately give them money. But they’re still struggling. I mean, half of child care providers now are still saying they’re losing money.

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