The Cutting Edge of Child Care?

Child care in the U.S. is known to be a headache and is often characterized by high prices, low wages, and long waiting lists. In an economy featuring rapid technological change, why is it that child care seems to be immune to progress? Are there any possibilities for improvement that don’t require billions in federal funding?

Taking a closer look at families’ child care decisions reveals that there are corners of the child care market that are indeed performing poorly and others that are growing. Surprisingly, it is informal arrangements, such as nanny and babysitter care, that are rising in popularity and accessibility. This approach may appear unconventional, but parents who piece together their own child care “team” tend to be more satisfied. Hopefully, exploring informal care as the “cutting edge” of child care will provide a bit of relief for parents who experience some discomfort with the range of formal options available to them.

Formal day care centers, which have to succumb to licensing codes in order to operate legally, are likely the setting that comes to mind when new parents think of child care. These providers are under extensive regulatory burdens regarding staff education, child-staff ratios, and facility quality requirements. The overhead is massive, with costs ranging from shaded and padded playground areas to indoor square footage minimums of 35 square feet per child. In Washington D.C., all preschool teachers and daycare providers are required to have an associate’s degree. 

While these resources are generally accepted as supportive of quality child care environments, they represent an unintended consequence of raising barriers to entry. It is very difficult for a startup firm to overcome the fixed costs associated with licensure. This is evidenced by the almost 90,000 family child care homes that closed between 2005 and 2017 (a 27% decrease). The most common closures were businesses owned and operated by a single individual, possibly one who did not have sufficient education to keep up with the increasing requirements over time in licensing codes. 

Providers who left the field cite low wages, local challenges such as zoning and licensing, and rising rents as the cause of their exit. Some likely moved to an informal setting. Instead of running a small family day care at home, they might have sought work elsewhere or decided to take an informal route that changes the way they invest resources. When providers are responding to what parents are willing to pay instead of a licensing standard, they will likely allocate time, effort, and resources differently. This unobstructed arrangement allows providers to align their inputs with what parents are willing to purchase.

The reality is only roughly 30% of single or two-parent homes use center-based care, even before the pandemic. The alignment between parents and providers that I have just described is present in survey data collected by Bipartisan Policy Center. Affordability and availability are certainly a concern, especially because regulations have affected the number of day care seats available in low-income areas. Surprisingly, this does not appear to be the main problem motivating the use of informal care. In the BPC survey of parents using informal care, 62% expressed, “Formal child care arrangements are unappealing to me,” rather than “Formal child care arrangements are inaccessible to me.” Safety, trust, and flexibility were at the top of the list of reasons why they chose this route. Further, 57% of parents opting out of center-based care say they would still choose informal care arrangements such as rotating with their spouse, relying on relatives, or making arrangements with friends or neighbors—even if center-based care was free and convenient. Other surveys have also found that center-based care is the least popular choice for most working moms. The most popular forms of child care were flexible work arrangements where both parents split care, followed by one parent staying home part or full time.

Beyond the affordability piece, dysfunction in child care centers has created a perception of low safety, trust, and flexibility because regulations inhibit collaborative partnerships with customers. Understandably, these are top priorities for parents who can afford to weigh multiple options. Hiring an individual or a team of care professionals allows families to express their very unique needs.

Platforms like Care.com, Carefully, Wyndy, and Jovie are making flexible and customized care arrangements easier than ever by utilizing background checks and review systems. Word of mouth has always served as a reputational mechanism for finding trusted providers, and these services seek to expand the reach of testimonials and ratings. 

This cutting edge of child care is flexible, personalized, and leaves room for customers to have distinct values and preferences. Employer-sponsored child care benefits, which are also gaining traction, offer similar perks. While these high-tech services do not fit the financial needs of all families, informal arrangements (family, friends, neighbors, nanny) are often more accommodating than formal centers, which can be even more expensive due to large overhead costs. 

The popularity of informal care speaks to the weaknesses of government sponsored child care proposals. Subsidies and sponsorships are only given to standardized and regulated child care environments, limiting parents’ influence over the care their children receive. Parents want customization, flexibility, and trust. Entrepreneurs are responding. 

Parents who are overwhelmed or disappointed with day care challenges need to know that alternatives are available. Child care is still a big question, especially for new parents who must both work, but they can be comforted by the fact that innovative providers at the cutting edge of care are catering to their unique and child-specific needs.

Anna Claire Flowers is an economics PhD Fellow with the Mercatus Center and a Graduate Fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.