Childcare providers still face uncertainty

A recent survey by the Federal Reserve Bank of Minneapolis has revealed that even though the pandemic is coming to an end, childcare providers still face massive uncertainty about their future. Numerous factors during the pandemic placed heavy costs upon providers and still threatens to upend the childcare industry.

During the pandemic, a couple of things happened. Parents lost jobs and therefore had little need to have their kids in childcare. Others simply feared contracting COVID-19 and also pulled their kids out of childcare. This caused enrollment to decline, making providers lose revenue. Additionally, government-mandated 10 person group limits also meant providers could only take care of a smaller number of children during the pandemic, hence less revenue.

At the same time, however, costs for providing care were rising due to social distancing as well as cleaning requirements. Providers spent more money on cleaning products and extra staff to maintain smaller groups and smaller staff-to-child ratios. End result, some providers closed and the ones that survived were kept alive through the combination of government assistance and owners taking extra measures like increasing tuition or taking on loans.

These declines in enrollments have gone down in the past three months but haven’t gone away entirely as shown by the chart below. It is no surprise that many providers are unsure of the survival of their business.

While some of this negative impact was inevitable at the onset of the pandemic. There is a potential that government action made things worse. According to the survey by the Minneapolis Fed, some providers blamed expanded UI payments as one reason they were unable to hire workers.

Some respondents said their enrollment suffered because they had trouble retaining enough workers to maintain the staff-to-child ratios required by the state. This was already a concern before the pandemic, but respondents’ comments suggested it had gotten worse. The staffing issue primarily affected child care centers, with 57 percent reporting that they struggled to maintain appropriate staffing levels and 91 percent saying that hiring is difficult or very difficult for them. The vast majority of family child care providers don’t employ anyone.

Some providers blamed the supplemental unemployment benefits that came with federal pandemic aid, which made their wages less competitive. Others said their staff deserve better wages, but offering that was challenging even before the pandemic.

Childcare is a low-wage industry, however, expanded unemployment benefits make it hard for low-wage industries, usually service industries to recruit workers. Childcare providers, much like businesses in the hospitality industry cannot raise wages infinitely to attract wages. And besides, low wages in childcare are partly due to costly regulation that takes money away from staff to compliance activities.