Minnesota is one of the least affodable states for daycare
Childcare constitutes one of the largest expenses for parents with little children. Therefore, childcare affordability, or unaffordability, has significant implications for family budgets.
So, how does Minnesota rank on childcare affordability? Here is a look at the data.
According to the Economic Policy Institute (EPI), parents in Minnesota spend about $16,000 per year to send their infant to a licensed daycare center. This makes Minnesota the fourth most expensive state for center-based infant care, only behind Massachusetts, Washington D.C., and California.
While not as expensive as infants, older kids are also generally more expensive in Minnesota than in other states.
Childcare Affordability
The US Department of Health and Human Services deems childcare affordable if it does not exceed 7 percent of household income. Assuming this is a perfect metric, none of the childcare provided in Minnesota meets this metric.
According to data from Childcare Aware, center-based and home-based childcare for children of all ages exceeded the 7 percent threshold in 2018. Center-based infant care was the most expensive at 18.2 percent of median household income. While home-based childcare is less expensive, it also exceeded the affordability threshold, albeit by a smaller margin compared to center-based care.
Source: Childcare Aware
Minnesota compared to other states
According to EPI, under the 7 percent threshold, only about 6 percent of families can afford center-based infant care in Minnesota, making it the third least affordable state in the whole country.
Source: Economic Policy Institute
Childcare vs. other expenses
Center-based infant care also costs about 144 percent of the average annual rent, making Minnesota the second least affordable state under this metric.
Source: Economic Policy Institute
Infant center-based care in Minnesota also costs parents 43 percent more than in-state tuition for a four-year public college, making Minnesota the 15th most expensive state under this metric. However, this is mainly because tuition costs are lower in other states, making infant care appear relatively more expensive in return.
For instance, Washington D.C. is the most expensive state for infant center-based care in dollar terms. Yet, the average tuition is about $5,800, making infant center-based care 420 percent of tuition.
Regulation is a big contributing factor
Why does Minnesota have relatively more expensive daycare centers compared to other states? Regulation could explain some of this.
Certainly, childcare is a labor-intensive industry, meaning that it does not have avenues for productivity growth. Due to this, costs must rise as wages rise to compete with rising wages in more productive sectors — a phenomenon known as Baumo’s cost disease. This, however, fails to explain why Minnesota is relatively less affordable compared to most of the country. Instead, differences in prices among states are explained in part due to differences in regulation.
Compared to most states, Minnesota has strict child-staff ratios and group size limits as well as stringent hiring requirements. These rules raise the cost of providing care and restrict childcare supply, leading to high prices for parents.