The Rising Cost of Child and Pet Day Care
marginalrevolution.com
marginalrevolution.com
While I think Baumol may have something to say here, I think we should listen to Henry George a bit more. The lion's share of overhead for a daycare goes towards its real estate costs. Similarly, it's a growing share of cost of living for both the workers and the customers. And as Henry George pointed out, the cost of housing goes up without creating economic value for anyone.
It’s an absurd situation here in California, where we are some of the richest people in history, but because the cost of housing so high, the price of everything is driven to the breaking point… meanwhile, the important jobs required for a nicely ran country are too expensive to afford and so our transit, healthcare, service industry, etc is awful.
This is kinda wrong. It does create value for the people who are loaning out the money that the working class uses to purchase the houses. Of course, in this context that value goes straight to the hands of bankers and never leaves but it's worth noting that this situation that the working class hates happens to be rather beneficial to the capital class.
Not really. Salaries are by far the highest cost.
Roughly one thirds of American incomes go to cover housing. Cheaper housing means lower wage demands.
The banks capture that in interest payments.
This is not correct.
1. Families. 2. Women. 3. Corporations.
The problem is that all of that wealth went to the billionaires and the rest of us got the bones in the scrap pile. Now we can't even raise our children because we need to work, but we cannot even not raise our children because it costs more than we make.
I used to agree with you.
I currently believe that period of time (mid-20th century, esp. in the US) was a historical anomaly set up by a fairly unique set of circumstances, and we’re just on a long and slow path to reverting back to equilibrium/norm now.
I hope I’m wrong.
It was a period of high taxation on the highest incomes, large social welfare programs and by relative terms fairly low income inequality.
Finally productivity gains benefitted the labor class and not just the capital class.
That all halted in the 70s and 80s.
You do have to intentionally budget but you can raise five+ kids on a single salary if you want to.
The essential costs - housing, healthcare and education - have far outpaced inflation while the cost of food and appliances has not. How can a single income compete in buying from the limited supply of houses against dual incomes?
It's because women frankly have better options than motherhood and what stay at home parenting entails.
Yes - given a small number of rights that frankly we should have always had - women have found all kinds of representation in education, salaries and diverse paths in life. Paths not previously open to us and pursued at tremendously high cost.
But population decline frankly is occurring because society is uninterested in changing its relationship with child bearing and child rearing. Men have limited interested in stepping up, women are doing work at home, work at work, work in society. Corporations have less interested in flexibility where women are near continuously penalized or held back. Even in a "progressive" presidency there were more CEOs named John than women CEOs. There's disinterest even when the next generation of workers is on the line and the government...well they are actively moving to unwind the rights we've won.
It's not about having better options so much as knowing that they'll be bringing a child into a world that's only going to get worse. A child who may never own a home, who may struggle to make ends meet. A child who may go bankrupt if they lose the healthcare lotto.
While I agree regulation probably doesn't explain the whole price increase, I wonder if governments can do a better job preventing regulation from causing price increases without cutting corners on the regulation itself. Subsidize training for example. Make the child-staff ratios and group sizes a more dynamic factor based on age and needs. Maybe set aside funds to subsidize targeted special needs child care so the kids with fewer needs can be cared for more cheaply(I imagine this is controversial just like schools having separate special needs classes was).
Of course there's the catch all approach of adding childcare to the public schools budget and rolling the cost into taxes.
This just spreads the cost across all taxpayers, instead of just the people consuming the service. Not to say that's a bad thing, just saying that it's not really "reducing the cost of regulation".
> Make the child-staff ratios and group sizes a more dynamic factor based on age and needs.
At least in my state, this is already the case. for infants, 1 adult per 6 children; increasing the ratio as they get older, up to 1 adult for 18 children when they're 4.
I don't think you're wrong that there are ways to reduce the burden of regulation, but I think we overestimate how much "low hanging fruit" there really is here. The common-sense, obvious, uncontroversial solutions are usually already in place
Yes—and then we can (in theory—obviously not going to happen in the current political climate) shift the bulk of that cost onto the taxpayers who can most afford to subsidize it, and away from the people who are just getting by. Who are, not entirely coincidentally, also the people most likely to be in need of childcare services.
Both has serious problems. #1 is politically untenable (unless, of course, continuing the status quo of turning a blind eye towards employers abusing undocumented people to drive down wages), and #2 is fundamentally impossible until we gain AGI. It's bad enough when bad AI deletes production databases [1] - I'd raise hell when an "AI cat care" provider would kill my cat, and probably engage in some sort of self-justice should an "AI child care" provider kill or maim my child.
[1] https://www.heise.de/en/news/Artificial-intelligence-Vibe-co...
I think, definitely. I also think there are several knock-on effects that might take the better part of a generation, if not two, to adjust.
They buy out all these established places and jack up the prices. It goes from calling them to book to some polished booking portal.
It’s mostly catered towards those who can afford it, so the 200k base SWE x 2 family can afford the 2x jacked up prices, and they continue increasing the prices every 1-2 years.
Working people can't afford homes or starting a family, but at least we are generating amazing value for shareholders.
Always amusing that this is the go-to argument against free markets, when the major cause of housing unaffordability is that governments prevent housing from being built.
I’m not sure where you live, but in my little corner of California, this is not the major problem.
The bottleneck is builders.
There are requests from local government for affordable housing all the time, but builders earn more on the higher end stuff.
The governments are starting to do workarounds by bundling high end developments with affordable housing, so I hope that works moving forward.
Source: My buddy who is a general contractor. I don’t know how this works, but he has pointed out local examples to me.
Dictating what builders can make, if they can at all, is a large reason housing prices have gotten out of hand.
I mean… they are rules, but not limits. Low-income housing is being built. All of the locals I know consider it a win.
Note that “low income” housing qualification here is about $60k for a single person (often retirees) and $120k+ for a family of four.
But if they build tons, the older stock drops in value. Nobody is paying $500k for a 20 year old house if a brand new one is available for $500k next door.
Maybe I wasn’t clear.
The local builders are at capacity. They literally can’t build any more.
> Nobody is paying $500k for a 20 year old house if a brand new one is available for $500k next door.
People are paying $700k for a 70 yo 750 sq ft house in a mediocre neighborhood, and $1m+ for a 50 yo 1000+ sq fr house.
New houses start at $1.5m and quickly go up from there.
Most of the new housing is not in the most desirable neighborhoods (there is no space to build new SFH housing in there), so the houses in the better, established neighborhoods are holding their prices. Note that the prices might be lower than the new houses (sometimes), but they are not going down.
A result of this, using your example, is that there are rarely comparable old and new houses at similar prices.
Great question!
My friend says that it’s tough to hire for the following reasons:
1. Many people don’t want to do the work.
2. Many people aren’t willing to adhere to drug policies.
3. Some people, after being hired, don’t reliably show up to work.
Note that I have heard other similar stories in the trades locally — plumbing, hvac, electricians, etc.
Arguably, they could offer more pay or a more aggressive pay schedule, but I’m not actually sure that increased pay would eliminate most of the problems.
Is the theory here that the previous owners were altruistically pricing below what the market would bear?
Basically, they're liquidating built up customer goodwill.
As someone who has done research on pricing in a range of sectors, it’s usually some form of ignorance rather than altruism.
In case you think I’m just picking on child care providers, I will provide an additional example — non-VC SaaS services were often wildly mispriced/underpriced until the “charge more” mantra became more widespread (thank you, patio11).
PE did this with medical providers. When I was a child family doctors were a thing (btw, 2000s). I saw in my area that a lot of the small practices were bought out, and now there are medical "campuses" which have like dozens of different providers. I was talking to my dentist about this and she explained it to me that way so unless she's lying idk what to say.
That "slack", where people provide better goods and services, for a lower price than the market could theoretically bear, is the very definition of Having Nice Things.
The implied "optimal" price discovery is a highly adversarial process - derived from an every-growing playbook of price discrimination tactics, deceptive marketing, high-pressure sales tactics, exploitation of intertia and other external overheads, covert cuts to the quality being provided, etc, etc.
Such pricing is both a symptom and cause for "low trust society" behaviors. The increasing ubiquity of those "efficient" pricing strategies may very well have amounted to a covert pillaging of the commons.
When you have a monopoly you want to supply less at a higher price because it's more profit overall. See chart under "Monopoly Price and Profit" [1]. Layman way to think about this is doubling your price more than doubles your profit (per unit sold) and when you have no competition might not even drop your sales in half.
[1]: https://socialsci.libretexts.org/Bookshelves/Economics/Econo...
you are talking about housing in a high income area and of course those prices are going to be higher, it would start out shocking if they weren't, and quickly stabilize where we are now, as people loaded up their wagons and headed toward the landrush
>It’s mostly catered towards those who can afford it
all markets cater to those who can afford it. if not, prices go down, or up, to establish a new equilibrium.
I'm not sure this is true. PE driven markets currently seem to cater to the break point. What is the absolute most I can charge until someone will walk away? If I break it into a subscription, or into pieces will I be able to charge even more than that break point because the buyer has not or cannot easily do the math? Maybe offer financing and take a cut there as well.
I am not making a moral argument, but it is far more sophisticated than "those who can afford it" and so, this is then not really about affording it, rather its about restructuring what the category should cost socially speaking and pushing that even further. This is happening in a large number of sectors at the same time.
Who has a spare 1-2k laying around per month?
Also annoying this article introduced Baumol effect without mentioning what it is and just plugging a their book.
If you had clicked on the link to his book you would have found out that it's available for free: https://www.mercatus.org/students/research/books/why-are-pri...
Complaints about child care costs never end in “so I stopped paying them”.
This was exactly what I got from a colleague about a decade ago. Day care was so expensive it was eating half of her salary, so she quit, stopped paying for day care and stayed at home instead.
A lot of couple do the math and end up in the same place, where working their ass off to earn more, just to pay more doesn't make sense.
And for awhile the market looks good as the prices can rise as the “cheapest” leave.
But eventually it will collapse.
I think if you're breaking even on daycare and salary then you're still coming out economically ahead to keep working.
Daycare costs stop once you enroll the kid into school. Typically salaries scale with years of experience so you're forfeiting ~7-9 years of salary growth by stopping work.
That said, there are non-economic reasons to raise your kids ...
That's the traditional wisdom, with the assumption that consecutive working years will result in a more lucrative career, which balances the child care costs on the long run.
That assumption breaks depending on how much you pay for day care (including meals, potentially an additional baby sitter etc) and how much you expect your career to last in that company, or if your skills don't devaluate so much you can get back to work some other place after a few years.
For more and more people, a 3-4+ years career gap isn't that big of a deal, "I raised my kid" is a fully accepted explaination, and their company won't value their continuous work that much either.
People who work in these industries want to be paid and deserve to be paid enough to live on, so the money needs to come from somewhere.
Lets pretend a way is found to make things real cheap, doing that means many people will not be able to purchase other items, thus harming the bottom line of many other industries.
Add to that the very rich is hording wealth. It seems today's economic society is racing to a big crash, unless a way is found to release that wealth to subsidize these activities. I think the wealth is there, but it is locked up by the very rich.