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Is there a market failure in child care?

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Re: Is there a market failure in child care?

#71

Post by hrunt »

billconan wrote: post #28

While I don't have children of my own, my ex-girlfriend used to manage a daycare center. The fees charged to parents were quite high, while the salaries of the teachers, including my girlfriend's, were surprisingly low. It appeared that the primary expense was the cost of renting the property. In my opinion, the government should provide financial support to these facilities, particularly in the form of reimbursement…

I worked with a daycare on a building project, and I saw how amazingly expensive childcare is. The teachers are paid what many would consider to be barely a living wage, but property costs and especially insurance were substantial. The owners did it our of their love of doing it, not because because of typical financial goals.

Yes, they could raise their rates, but if they did, many parents would have had to go elsewhere. It was a balancing act to charge enough for the quality they wanted to provide while also being able to be affordable for the community they served. Most teachers were younger, and did not last very long (two years at most).

Re: Is there a market failure in child care?

#72

Post by kube-system »

texaslonghorn5 wrote: post #30
kube-system wrote: post #20

> Suppose that the parents have two children who need child care. That is $540 per week. The parent salary has to be at least $540 per week to make the choice of child care economical. But that does not take into account taxes. Even worse than that, it doesn’t take into account commutes, and the opportunity cost of not spending time with your own kids. If you make just enough money at work to pay for childcare, what…

> If you make just enough money at work to pay for childcare, what the heck are you doing? $540/40hrs = $13.5/hr. Any number of jobs pay this little.

LOL. I meant that rhetorically, not literally. I am suggesting that it is a bad life choice to work a job and then spend every penny paying someone else to take care of your kids for you.

Re: Is there a market failure in child care?

#73

Post by BaseballPhysics »

secabeen wrote: post #36

This is a pretty good distillation of the math. Child care has often been done on the backs of underpaid lower-class workers. Unlike most businesses, childcare doesn't scale well at all, and it's very hard to make the math work to pay the staff a living wage without it being prohibitively expensive. Even in the example given, the $22.50/hour rate is just the break-even rate with child-care workers at the minimum wage…

Which is precisely why government subsidies for child-care are necessary if we're going to structure society around nuclear families with both parents working.

The cost of labour alone is enough to explain eye watering child-care costs, which means you either a) push that cost back on the consumer, b) somehow drive down the cost of labour, or c) have the government subsidize the cost of labour to make the price affordable and the businesses sustainable.

We're doing (a) now and it's not sustainable, hence articles like these.

To achieve (b) you'd need government intervention, anyway, as the market is already optimizing for minimizing labour cost.

And thus you're left with (c), which is the path Canada has started going down recently:

https://www.canada.ca/en/employment-social-development/campa...

Re: Is there a market failure in child care?

#74

Post by jrumbut »

billconan wrote: post #28

While I don't have children of my own, my ex-girlfriend used to manage a daycare center. The fees charged to parents were quite high, while the salaries of the teachers, including my girlfriend's, were surprisingly low. It appeared that the primary expense was the cost of renting the property. In my opinion, the government should provide financial support to these facilities, particularly in the form of reimbursement…

My aunt runs a very well regarded (and fully licensed, insured, etc) childcare business out of a building she inherited and it's a subsistence living.

Complying with regulations, dietary restrictions, allergies, little special requests that all seem reasonable in isolation, replacing supplies, etc, etc. It's basically the opposite of a software business, it doesn't scale.

She could do better for herself by raising rates (she has parents coming to reserve spots pre-conception), but she can't bear the idea of pricing out hard working people.

There are some things that probably don't work as businesses, even with subsidies, and if we want another generation of kids we probably have to think outside the market box.

We have free school for older kids, and maybe we could just extend public schools to age zero, but what about subsidizing new parents to stay at home and actually bond as a family? Or cooperatives of parents to take care of each other's kids on a shift basis? It would be cool to see this kind of creative thinking.

Re: Is there a market failure in child care?

#75

Post by dap »

As a parent of two young kids in daycare, this feels very disconnected from reality. The most glaring issue is the discussion of childcare providers as though they're totally fungible. Now, I have no idea how representative my experience is, but the parents I know are interested in things like: cost, location, holidays/time off (lots of places near me take 5-6 weeks off per year -- that's kind of a big deal for people who work full time), hours provided, whether food is provided, what the environment is like, policies around when sorta-sick kids can attend, the experience of the providers/teachers, being able to send siblings to the same place, parent community, safety record...I could go on. Some of these are luxuries, but many affect one's ability to work a full-time job (which is the point of daycare for a lot of people). My experience is that places that tick all these boxes have waitlists. Many other places don't. Despite there being lots of places with availability, parents around here still feel like it's hard to find daycare.

(There are other fallacies here, too -- like the idea that some centralized broker is an efficient solution. Monopolies efficient? And if you have a competitive market for the brokers, that seems to undermine a lot of the benefit, or at least make this idea much more complicated.)

Re: Is there a market failure in child care?

#76

Post by jewayne »

dap wrote: post #43
Eumenes wrote: post #2

The failure to me seems in outsourcing your child to a daycare, vs parents having flexible schedules to actually take care of your kid (either 1 with PT job or staying home FT, or both with flexible jobs). I understand this isn't popular in our culture these days, but I imagine it has many positive outcomes for the child and family.

This doesn't match my experience. We've got two young kids. Both went to daycare from an early age (6 months or so). It's been great for everyone. I think there's pretty significant upside to the kids to spending time both with other kids and also with multiple different caregivers. It's also great for us adults to have interests/activities/ambitions (like, a career) outside of the kids. Not saying there are no downs…

Yep. As always, we need to keep in mind that our natural social unit is not the nuclear family, but the tribe. Even two parents trying to parent a single child without the help of the tribe is essentially beyond our evolved capabilities.

Re: Is there a market failure in child care?

#77

Post by mlsu »

With nearly any of our social ills, the answer is housing.

- The people taking care of children at daycare make pennies; most of the revenue goes to a landlord. It's very expensive because you can't just move the daycare 1.5 hours out to the outskirts of town; you actually need to pay for real estate near where people live.

- Grandparents, extended family cannot afford to live near their working children.

- Anyone with a hint of upward mobility needs to move to an area where they can get their foot in the door of the financialized housing market. They move away from their friends and family, and then when they have kids they don't have a support network.

- 2x full time incomes are needed to afford rent where work is available, leaving no time for childcare. Nobody who works part time can afford to rent.

- It's impossible to make rent working part time in any city anywhere. Very difficult even with 1.5x income parents.

- Commutes are much longer, increasing the burden of childcare. Lack of housing supply near work -- because of policies that benefit existing property owners.

All of these have one answer: HOUSING SUPPLY. let people build more housing. That's it! Very simple!

Re: Is there a market failure in child care?

#78

Post by hrunt »

mindvirus wrote: post #18

A few thoughts: 1. Waitlists are a scam. In NYC, it's ~$150 non-refundable just to apply, and daycares won't tell you how long their waitlist is (and per the article, are often over subscribed). I wish there was legislation that these are refundable, or capped at ~$20 or so. 2. The cost of daycare here is around $2500/kid. So with two kids, you're looking at $60k/year, which is $100k pre-tax. And so if you have two k…

The Planet Money episode the article references makes a point about the waitlists and why it is not necessarily a scam or a market failure. The margins on these places are low. The financials really only make sense if the school is at full capacity all the time. For a school to survive in these conditions, a waitlist is necessary so that if children or families leave -- which happens all the time -- they can immediately backfill that money.

A point not made in the PM episode is that in markets with a lot of waitlists, charging for a position on the waitlist increases the likelihood that the families on the waitlist will be available when their turn comes. If waitlist membership is frictionless, then the daycare cannot count on that future backfill as strongly.

Re: Is there a market failure in child care?

#79

Post by anonymouskimmer »

Eumenes wrote: post #2

The failure to me seems in outsourcing your child to a daycare, vs parents having flexible schedules to actually take care of your kid (either 1 with PT job or staying home FT, or both with flexible jobs). I understand this isn't popular in our culture these days, but I imagine it has many positive outcomes for the child and family.

Another alternative: In the modern economy how many employers have allowed their employees to take their very young children to work? I know that some large companies have experimented with childcare facilities at the office, but why not allow parents to take care of their children on the job? Sure it's disruptive, but it should be manageable in many cases.

Re: Is there a market failure in child care?

#80

Post by andjd »

> This seems like a project an entrepreneur ought to try and take on.

In a market where there is an affordability crisis, why would we want to add a tech entrepreneur as a middle man who will want to take 30% off the top for "owning" the relationship between customer and provider (like DoorDash, etc)? You see a little of this with corporate day care centers (e.g. Bright Horizons), and these operations charge a substantial premium over independent providers. They just have a higher cost structure, and greater demands to make returns for their investors. In NYC, the cost of sending just one child to one of these is close to hiring a nanny.

I agree that it's probably not reasonable to call wait-lists a market failure when having excess capacity in the market would require rates to increase to a level the market is unable or unwilling to bare.

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