Written by Siddharth Mehta
The U.S. childcare industry is a tough place for business owners to succeed. Despite its high annual prices which rival yearly rent averages in some states, American childcare businesses still struggle on the daily to stay operational. The largest reasons for this include childcare centers paying a fortune to fulfill intricate government regulations, childcare centers facing large increases in annual insurance costs, and finally centers being unable to hire and retain enough staff to fulfill their needs.
Government regulations have always been tough for childcare facilities to deal with. One of the most expensive regulations they currently face is the caregiver-to-child regulation or how many caregivers are required for a certain number of children (Slyter, 2021). In Michigan, state law dictates there must be one caregiver present for four children if the children are aged 30 months or less, one caregiver for eight children if aged between 30 months and four years, and one caregiver for ten children if aged between three and four years (for limits on older age groups in Michigan, see here) (Michigan Child, 2022). And other states follow similar trends as Childcare.gov, a website published by the U.S. Department of Health and Human Services, recommends states and businesses having around one caregiver for three infants (children under 12 months), one caregiver for four toddlers (children between 30 and 35 months), and one caregiver for around eight preschoolers (children aged three years) (Supervision: Ratios, n.d.). (For more information as well as the federally recommended ratios for older children, see here.)
As if caregiver-to-child ratios were not enough, a square-footage to child ratio exists as well, driving up rent and property costs (Slyter, 2021). Here in Michigan, childcare businesses are required to have 50 square feet of space per infant/toddler under their care as well as 35 square feet per preschooler/school-age child (Casetext, n.d.). And hallways, bathrooms, kitchens, and other places where children would not be present for the majority of their time do not count towards requirements. Outdoor space is required as well, and Michigan centers holding children for over three hours must have 1,200 square feet of space outdoors, with more being required if government inspectors determine that 1,200 square feet is not enough given the number of children in the facility (Cornell, n.d.). Other states follow similar regulations, making high rent a commonality for childcare centers across the United States.
Before moving on to the effect of rising fixed prices on childcare, it is important to note that although square-footage to child ratios hurt businesses because they drive rent up, closures due to this regulation can be more complex. For example, recently in late September of 2024, a Minnesota childcare center, ABC 123 Child Enrichment, closed its doors as it was licensed to care for 124 children, but only 40 children were using the facility which did not bring in enough to cover its $22,000 in rent plus $3,000 in utilities (Nygren, 2024). So here, a childcare center closed due to the square-footage to child ratio, but not merely because the regulation caused high rent prices. It closed as the ratio initially incentivized the owner to purchase a large space which could not be sustained on a per-customer basis into the future.
In addition to square footage and caregiver to child government regulations, liability insurance which almost all childcare providers purchase to protect themselves from the costs associated with children having accidents on their property rose heavily in prices this last year. In August 2024, the National Association for the Education of Young Children (NAEYC) surveyed 1,173 early childhood educators across the United States and found 89% of childcare center respondents reported an increase in liability insurance during the last year (Liability Insurance, 2024). And of the 89% of childcare respondents, 36% found annual cost increases to be between $2,000 and $4,999; 19% found increases to be between $5,000 and $9,999; and 13% reported increases to be $10,000 or more. Alternatively, on a sole percentage basis, most respondents claimed that in 2024, their rates went up by about 30% which is far higher than the inflation rates for either 2023 or 2024 (which were respectively 4.06% and 3.1%).
So, why the rise in insurance prices? And why is the rise so much larger than the inflation rates? Insurance prices have risen as insurance companies have had to cover more risk in the past year due to governments striking down various regulations in the childcare industry. The government has been eliminating regulations in hopes of easing the industry’s recovery from the Coronavirus pandemic as well as from the end of a large childcare federal funding package in September 2023 (Wong, et al., 2024).
Finally, in addition to rising insurance rates, losses in staffing and the inability to hire enough workers make up a third reason as to why childcare is a tough industry for success. Recent data indicates the industry has lost over 40,000 workers since 2020 due to higher wages offered in other “low-skilled” job fields (Khattar & Coffey, 2023). Between 2021 and 2022, median childcare wages decreased from $14.35 to $13.71 while, to name a few other industries, waitressing jobs saw a median income increase from $13.57 to $14.00, substitute/short-term teaching saw an increase from $15.71 to $16.95, and nursing assistants saw an increase from $15.81 to $17.19.
Carolina Reyes, the owner of a suburban Maryland childcare center, was stunned to find that one of her assistant teachers was quitting to work a 6 pm to midnight shift as a janitor (Goldstein, 2022). When Ms. Reyes found out about the assistant teacher’s new $24 per hour salary, however, it made a lot of sense as to why the teacher as well as other employees were leaving her; she was only able to offer workers $15 per hour.
So, childcare is clearly an industry where running a successful business is incredibly difficult. Ms. Reyes can vouch for that from her inability to match the wages of other “low-skill” jobs, the 89% of respondents to NAEYC survey who reported massive gains in their insurance premiums can vouch as well, and anyone aware of the strict caregiver and square-footage to child regulations certainly knows the difficulties of childcare. The industry, however, does not have to be this difficult––it can be made easier to navigate for its businesses. This article hopes to push people to change childcare by working with insurance providers to create affordable plans, by working with the government to provide more funding to failing childcare businesses, and by simply encouraging communities to volunteer at local childcare centers to alleviate the staffing shortage. Regardless, it is clear that the industry is a tough one to succeed in and has been for quite some time.
References
Casetext Inc. (2024, November 1). Mich. Admin. Code R. 400.8167. casetext. https://casetext.com/regulation/michigan-administrative-code/department-licensing-and-regulatory-affairs/bureau-of-community-and-health-systems/homes-for-the-aged-facilities/licensing-rules-for-child-care-centers/part-1-general-provisions/section-r-4008167-indoor-space
Childcare Licensing Department, Department of Licensing and Regulatory Affairs, State of Michigan. (2022, July). Michigan Child Care Matters. michigan.gov. https://www.michigan.gov/mileap/-/media/Project/Websites/mileap/Documents/Early-Childhood-Education/CCLB/MI-Child-Care-Matters/MCCM-July-22.pdf?rev=7baf28345a8e4414bf006f6bd5f388b4&hash=DF7637A1B9834231E531735CF61473A2
Cornell Law School. (2019, December 18). Mich. Admin. Code R. 400.8170 – Outdoor play area. Legal Information Institute. https://www.law.cornell.edu/regulations/michigan/Mich-Admin-Code-R-400-8170#:~:text=The%20outdoor%20space%20must%20meet,that%20no%20hazards%20are%20present
Goldstein, D. (2022, October 13). Why you can’t find child care: 100,000 workers are missing. The New York Times. https://www.nytimes.com/2022/10/13/us/child-care-worker-shortage.html
Khattar, R., & Coffey, M. (2023, October 19). The child care sector is still struggling to hire workers. CAP 20. https://www.americanprogress.org/article/the-child-care-sector-is-still-struggling-to-hire-workers/
NAEYC. (2024, August). Liability Insurance and early childhood education. National Association for the Education of Young Children. https://www.naeyc.org/sites/default/files/wysiwyg/user-64330/2024_liability_insurance_survey_brief_final.pdf
Nygren, R. (2024, October 2). Childcare center in Dilworth closes, citing struggles with making $22,000 monthly rent payments. Valley News Live. https://www.valleynewslive.com/2024/10/02/childcare-center-dilworth-closes-citing-struggles-with-making-22000-monthly-rent-payments/
Slyter, K. (2021, October 25). Why is childcare so expensive? 7 factors at play. Rasmussen University. https://www.rasmussen.edu/degrees/education/blog/why-is-child-care-so-expensive/
U.S. Department of Health and Human Services. (n.d.). Supervision: Ratios and group sizes. childcare.gov. https://childcare.gov/consumer-education/ratios-and-group-sizes
Wong, W., Smith, R., Howland, S., & Jensen, C. (2024, July 29). How insurance is affecting the cost of childcare. NPR. https://www.npr.org/transcripts/1197967900