High childcare costs bringing down labor force participation

High childcare costs bringing down labor force participation

The worker advocacy group Economic Policy Institute (EPI) has found that many families are currently spending more money on childcare than they are on rent in the majority of the United States.


Since 1990, the cost of childcare and nursery school has increased by 168 percent, causing parents to spend more than 30 percent of their income to cover these costs. According to the U.S. Department of Health and Human Services, child care is seen as affordable when it doesn’t cost a family more than 10 percent of their budget. Parents making minimum wage are spending between 30.6 to 89.9 percent of their income each year just to cover the child care costs for a four year old. What effect do these rising costs have on parents?


“I absolutely think [the cost of childcare] plays a role in a woman’s decision to go to work,” said EPI’s Senior Economist Elise Gould. “It is taking a toll on labor force participation, and therefore, on the economy.”  


A woman plays with three children


When the price of daycare, nanny, and nursery school services increase, it causes more parents to drop out of the workforce to save money. In 2013, 57.2 percent of women were participating in the labor force compared to 69.7 percent of men. The U.S. Department of Labor has projected that women’s participation in the workforce will drop to 56 percent by 2022, while men will fall to 67.6 percent.  


Childcare costs are expected to increase to adjust for inflation, but the rate at which they’re accelerating is much larger than the growth wages are making in the United States. In the second quarter of 2015, U.S. wages and salaries only grew by .2 percent, making it the smallest increase ever recorded.


With income growth at an all time low and child care costs at a new high, it’s becoming less financially viable to have two working parents in a household. Unless changes are made soon that make childcare a much more affordable option, the projected decrease in workforce participation rate will become more likely to occur — or worsen.   


How can more families afford to work and pay for childcare? What’s the main cause of the dropping workforce participation? Leave a comment or talk to me on Twitter @Karbowski_Devon.


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