Nanny State Increases Day Care Costs

Day care prices across the nation have been rising at a dramatic clip for years. In many cases, the cost to parents for a toddler in day care is more expensive than sending their teen to a high-quality private high school. But salaries for professional childcare workers – the largest expense of running a day care – have been flat for two decades. So what gives?

An interesting article appeared recently in The Atlantic that examines the rising cost of day care across the nation. The article also provides a state-by-state comparison of the relative affordability of day care. Surprisingly, given the publication’s left-leaning credentials, the Atlantic author has to point the finger of such rising costs at government regulation. A snippet:

According to the Census, the price of professional childcare has been rising since the 1980s. Yet during that time, pay for professional childcare workers has stagnated. As the Census points out, care givers actually make less today, in real terms, than they did in 1990. Considering that labor costs are responsible for up to 80 percent a day care center’s expenses, according to Child Care Aware, one would expect flat wages to have meant flat prices.So who’s to blame for higher child-care costs?  The government, I suspect.

Child care is a carefully regulated industry. States lay down rules about how many children each employee is allowed to watch over, the square footage centers need per child, and other minute details. And the stricter the regs, the higher the costs. If a center is required by law to have 25 square feet of space for every kid in a program, it can’t ever downsize its building when rents rise. If it has to hire a caregiver for every two children, it can’t really achieve any economies of scale on labor to save money when other expenses go up.

Of local interest, the article also includes an info graphic showing where states stack up in terms of average day care costs as a percent of median household income for married couples. This measure is meant to assess the relative affordability of day care.

North Carolina sticks out as the most expensive in the Southeast, joining more expensive states like California, New York and Massachusetts. In the Tar Heel State, average day care prices exceed 12 percent of the median married couple’s income.

Given the Atlantic author’s description, it is fair to deduce that North Carolina may very well place more government restrictions on day care providers than do neighboring states. Staffing ratios, spatial requirements, and burdensome licensing procedures can all help drive up costs.

Such analysis, however, looks only at the supply side of the equation to explain the expensive nature of day care. It is highly plausible that it is government interference in the demand side of day care that plays an even greater role in rising day care prices.

A few years ago I attended a state legislative task force examining day care in North Carolina that was rather illuminating. The information from the committee meeting shed light on the demand side of the day care equation here in North Carolina.

More than $1 billion of government money (state and federal) is being pumped into the state’s day care industry. The funding comes in various forms, including day care subsidies and government-funded programs like Smart Start and More at Four (now NC Pre-K).

So thanks to heavy government intervention both restricting supply and inflating demand, basic economics tells us that prices will rise. Many North Carolinians brag about our state’s heavy “investments” in early childhood education programs – but the results are clear: Day care is less affordable in NC than any other southeastern state.

Such government “investments” in day care are made under the feel-good guise of making day care more affordable, but common sense and the evidence tell us the reverse is true.

By the way, did you ever notice that whenever government gets involved to make things more “affordable,” that they inevitably become far more expensive? (Think  housing, college, day care, health care.)

Affordable, quality day care is something that all working parents value. By interfering with day care providers and customers, however, state government is driving prices upward from both the supply and demand side. And state regulations are an inferior means of proving consumer protection compared to what a truly competitive marketplace would provide.

Freeing the day care industry from the heavy hand of government interference would be the best means of making quality care affordable for more North Carolina families.