Author: Neil Harrington
A number of recent national and state media stories have covered the lack of employment recovery at child care facilities. This ongoing issue and the difficulties child care providers have in raising wages to address labor shortages stem in part from tight margins in the industry. Child care market failures like this ripple through the economy, limiting parents’ labor supply and holding back North Carolina’s economy. Proposals in Governor Cooper’s budget address these issues by making it easier for providers to raise wages and allowing parents to return to work.
Labor shortages and tight margins in child care impact broader economy
As LEAD’s previous research has shown, child care providers in the state are dealing with considerable labor shortages and have struggled to bring back jobs lost during the pandemic. In 2021, there were about 2,000 fewer child care workers in North Carolina than in 2019 before the COVID-19 pandemic. Even before the pandemic, child care providers routinely dealt with staffing challenges. The hot economy following the brief pandemic recession simply made these issues much worse.
Businesses across nearly every industry in North Carolina have dealt with labor shortages and hiring challenges in recent years. Many have turned to wage increases to attract workers. Tight margins among child care providers complicate facilities’ ability to address their own labor shortages through increased worker pay. According to a recent US Treasury report, most for-profit child care facilities operate on razor thin margins, usually less than 1 percent. This means providers who might want to raise wages to retain existing and/or attract new workers often cannot do so without having to increase costs for parents or cutting the number of children they can serve.
Labor shortages and difficulty raising wages to attract workers limit the number of children and families providers can serve, which has broader impacts on North Carolina’s economy and workforce. Some parents who want to work end up dropping out of the labor force temporarily to care for children or reducing their number of hours worked. As a recent LEAD analysis suggests, this is a big contributing factor to lower labor force participation rates among prime age workers with young children compared to prime working age adults in North Carolina overall.
This is especially the case for prime age working women, who see their labor force participation decrease when they have young kids, while men’s participation increases. Thus, one labor shortage feeds another.
Governor Cooper proposals, NCGA bills could increase child care pay
Low wages represent arguably the greatest issue facing child care providers. Governor Roy Cooper’s recently released 2024-2025 biennium budget recommendation contains several provisions aiming to shore up providers and improve service provision in the state. Among these proposals are increased funding for the Child Care WAGE$ and Child Care Stabilization Grant programs, two initiatives that would allow child care providers to enhance wages and attract workers. A bipartisan group of North Carolina General Assembly (NCGA) lawmakers have also proposed several bills addressing child care issues, including legislation that provides more funding for stabilization grants.
Both WAGE$ and the stabilization grant programs could encourage workers to remain or begin working in child care centers. WAGE$ offers education-based salary supplements to early childhood education teachers, directors, and family child care home providers that increase as workers attain more education, and the program encourages worker retention by distributing the annual bonus pay in two equal installments every six months of employment in the same program. The Child Care Stabilization Grants program similarly encourages pay increases by providing flexible grants to approved programs and a secondary grant specifically for wage enhancements for child care programs that opt to receive it.
By some advocates estimates, North Carolina’s child care crisis costs the state more than $3 billion per year in lost parental wages, business activity, and tax revenue. Governor Cooper’s proposal and bipartisan legislation in the NCGA addressing child care issues could have a positive impact on North Carolina’s businesses, workers, and critical child care industry and grow the economy. These proposed solutions directly affect issues that extensive research has identified, targeting economic inefficiencies in ways that state policy should. Expanding grants to child care facilities who are struggling to fill open positions could enable providers to hire more staff and offer more services to parents, allowing parents to return to work and fill open positions in other industries.