The Cost of Daycare (in the United States)

Cost drivers

• Hourly wages of Workers
  
• Salary of Director
• Rent
  
• Uneveness of labor demand

I am going to try to not make this a book.

Wages of care-givers

Michigan regulations with regard to the ratio of care-givers to children is based on the ages of the children. 

For instance: 

If all of your charges are older than 1461 days old then you can have a ratio as low as one caregiver for every six children.

If all of your charges are between 548 and 1460.99 days old then you can have a ratio as low as one caregiver for every four children.

If all of your charges are younger than 547.99 days old then you can have a ratio as low as one caregiver for every two children.

It becomes irrational when you have mixes of ages. For example, it is permissible to have two children below 547.99 days old, another two between 548-and-1460.99 days old and ANOTHER two who are older than 1461 days old.

The official minimum wage is about $10 an hour but the actual market-wage is somewhere between $15/hr and $18/hr. Using the lower, $15/hr number and 1:6 ratio, and 4.5 weeks/month at 50 hours per week,  the cost of direct labor per child is $560 per month. And while you might quibble about the 50hr/month, remember that most workers have a lunch embedded in their eight-hour work day and there is commute time between drop-off and workplace and at the end of the work-day from workplace to pick-up.

Salary of Director

The position of Director is a full-time position* and includes benefits. Assuming a salary of $40k/year and healthcare insurance premiums of $24k per year...and 24 children as customers, that works out to $64k/24/12 or $220 a month for administrative expenses.

Rent

The Federal Government directs States to set rules that cover certain, basic aspects of child-care. The Feds don't set the rules so there will be differences from state-to-state.

Michigan requires 35 square-feet per child of indoor space. That does not include bathrooms, closets and other storage areas, office space or space dedicated for worker lockers and other sundries. Those sundries can easily double the space requirements.

At the time of this writing, you can probably find commercial space in a small, Michigan town for a monthly rate of $3/square-foot. $3/square-foot .TIMES. 70 square-feet = $210/month/child in rent. I do not know if that price includes utilities.

 

Uneveness

Compare two scenarios.

 One: Six children show up at 5:30 in the ratio of 2:2:2 of the three classes of children. Then twelve children show up at 7:30 in the same ratio. Finally another six show up at 9:30. They decant in the same ratios at 3:30, 5:30 and 7:30. If the director knew this would always happen, she can schedule one care-giver at 5:20, another two at 7:30 and a fourth care-giver  at 9:30 and peel them off the same way.

Two: Six children show up at 5:30 but they are all in the oldest age-class. Twelve show up at 7:30 and they are in the oldest two age-classes and finally six children show up at 9:30 and they are all the youngest age-class. At the end of the day they leave at 3:30, 5:30 and 7:30 in the same order they arrived in.

Miscellaneous notes

The director often covers lunch-breaks which must be staggered. In our scenario with 24 kids staggering the four care-giver's breaks would eat up two hours in the middle of the day.

There were no costs included in this analysis for consumable materials. One day-care in Florida charges $700 at enrollment for those costs. So, amortized over 6 years that ends up being about $10 a month.

No costs for food were included in this analysis. At a meager $3 for lunch cost, that adds about $60 per month.

Time must be allocated to sanitize toys and surfaces at the end-of-the-day. The State of Michigan is specific about the kinds of toys and educational materials that must be used.

Labor retention is a big deal. The pay is not great. The work involves dealing with human excrement. One of the director's tasks is to manage scheduling so the workers never qualify for "full time" benefits and the worker's schedules can be chaotic. On one hand, that results in several costs being externalized. On the other hand employee retention suffer.

Because the workers never end up qualifying for healthcare insurance, the government ends up subsidizing healthcare insurance costs via Medicaid.

Daycare workers, other than the director, will never make a "living wage"

The cost of daycare is exquisitely sensitive to the cost of prevailing wages because it is so labor-intensive. The degree of labor-intensiveness is mandated by the State. Violating the mandate results in the loss of the license.

If you roll the big chunks of cost together you get $990/month.

Locally, many of the daycares are hosted by churches and there must be subsidies with regard to rent and director salary. The average cost of day-care in Eaton County is about $540/month.

The true-cost of daycare (+$990/month) means that somebody making $15/hour must work 66 hours in a month for the gross to cover that cost. At $540 a month, they must work 36 hours for the gross to cover that cost. 

Given the tight linkage between prevailing wages and the cost of daycare, increasing minimum wages has very modest impact on the number of hours that young workers must work to cover the cost of daycare.

Daycares manage the high labor-cost of toddlers by throttling the number of spots they allow for them. Parents of the youngest children not only have cost issues but also availability issues. Sometimes they have to drive a long distance to their daycare provider.

Because of the issues listed above, there are desperate parents who opt to leave their child with the nice lady who lives next door. Southern Belle told me of one horror story where "Aunt Methany" dosed each kid with antihistamines (an adult dose of diphenhydramine to be exact) as soon as the parent's back was visible and the kids slept the entire time they were under her care. That was one of those cases where the State imposed ever-more-onerous regulations and drove the children into TOTALLY unregulated care.

Married couples often have the spouse that leaves for work later drop off the child and the spouse whose work-day ends soonest pick the child up. A child who is left at daycare overly long is cranky. From a staffing standpoint, daycares benefit from the later drop-off and earlier pick-up.

Single parents do not have that option. Furthermore, there is more economic pressure to leave the child there as long as possible so they can do their shopping and other errands without the distraction of watching their little darling(s) while doing so. Daycares cannot count on early pick-ups when single parents are caring for their children and that hits their bottom-line due to having to retain more staff at the end of the day.

*The position of Director involves generating audit friendly documentation that verifies that the 32 pages of regulations were scrupulously followed for every hour of operation.