Everybody who has kids has a story about their childcare situation, either how much they used to pay for childcare or how much they're currently paying for childcare, or the struggle to get on a wait list for childcare, or when I meet people who are pregnant, I'm always asking them the question have you thought about childcare yet? From Bloomberg News and iHeartRadio, it's the big take. I'm Westcasova today.
Why has childcare become such a mess? If you're a working parent, finding childcare is almost certainly a source of stress in your life. Our child runner is actually not able to do more than for days a week. We are making it work because I am a student, so I'm able to look after him. If I was just the only one pain her childcare costs, it would be eighty percent of my earnings. Both my wife and I work, so we had to find someone to look after him
during the day. We definitely need to earn more money in order for her, hopefully to go three days per week to the nursery. Six a disgrace. It's like disencourages women going back to work. I think it's it's actually appalling. We can manage putting him in two days a week. Ideally we would like to put him in three days a week, but because of the cost of childcare at the moment, we physically can't afford it. Those are parents in London voicing commonly heard complaints. The childcare dilemma is
especially acute in the UK. Bloomberg reporter Olivia Canodia Hulu has been covering growing discontent from parents demanding the government make childcare more affordable. Thousands of parents did this massive process, saying we're completely fed up with the system, we're taken for granted and we're being the to buy this government. Of course, the same is true here in the US, and that's where we start today. Simon Workman, you've heard him there at the top of the show, is co
founder of pre Natal to Five Fiscal Strategies. It consults with US states and childcare and he wrote a widely used study for the Center for American Progress called the True Cost of High Quality Childcare across the United States. We really do have a bifurcated system here in the US, where the childcare system works for some people and it
doesn't work for a lot of others. It is a privately run system to the most part, and so then it's not surprising that the people can who can afford to pay for it are able to find a chldcare system that works for them. You know, if you have significant income, you can find childcare because supply exists, because supplies responding to the that you actually are in a
market where you can afford to pay for it. That works great for a small section of society, but there is a huge part of the population for whom it does not work that way. The data out there shows that about sixty five percent of children under five have the way it's called it's all available parents in the workforce, which is to say, you know, if you're a two parent household or a single parent household, all available parents are in the workforce. So for those children, they need
to be in care somewhere. It is at a time when families they're not their highest earning potential. Generally, people are having children sort of you know, at earlier stages in their career, so they're not making the most money they're ever going to make. And at the same time, suddenly you're being told now you need to pay the equivalent of a new mortgage every month to pay for that child to go to care so that you can work.
And by the way, the system we have set up is that if you decide to step out of the workforce instead, there are financial repercussions for that that go even beyond that year, the lost earning potential, not adding anything into a retirement plan. Taking a few years out of the workforce means that when you come back in, you're generally at a lower level, and that falls predominantly on the mothers, on women, so has a huge impact
on the female workforce. So when you look at that and you start saying, Okay, how do you pay for childcare? It becomes clear why the market doesn't really work because families become extremely price sensitive because as much as they want the highest quality, they are faced with really restricted budgets and you know, only able to afford so much for childcare, and that of course affects the demand side.
If people can only afford to pay a little bit for childcare, that means low wages for those providing it and fewer people willing to do that work right. The US Treasury put out a report last year saying that this is a market that does not work because you have this problem where families need childcare, want childcare, so there is a demand, but what they can afford to pay for childcare is not what it truly costs for childcare.
And that was what you know, I wrote about in this report last year, was to really get into what does it actually cost to provide high quality childcare because at the moment, you have this system where a family comes and says, you know, this is what I can afford, and the provider is faced with either saying no, we have higher rates than that, and then they will be empty.
Apart from in these high income communities, right because most people can't afford it, or they lower their rates, and if they lower their rates to that market rate, the amount of revenue that is available to pay teachers is minimal, and that's why you end up with poverty level wages very little benefits for teachers. So, I mean, you mentioned
that in your report. You try to put figures on this to try to calculate the true class of childcare, and that was one of the things that I found most eye opening, is when you really just kind of broke down the coast of what it takes to care for a child in various settings. Numbers are really bleak. They are. I mean, you know, when people ask me about why childcare is so expensive, one of my answers is always to say it should be even more expensive.
The issue is not that families need to be paying for that. We know that families can't afford to pay any more for childcare, but that if you actually break down what it costs to provide care for children, when you pay teachers, well, the cost is way beyond what
people can afford. It doesn't take too long to sort of think it through and say, you know, if you have an infant classroom with eight children in there, even if everyone's paying your thirteen fourteen hundred dollars a month, once you start breaking it down and pay for the building and everything, there is not that much left over
for salaries. It's a labor intensive industry. When you think about what do you pay for a babysitter right now, when you go out for an evening on an hourly basis, and think about what an early childhood teacher is making, there is a huge disparity. Our research has shown that about sixty to seventy percent of the expenses of a program our personnel. The other sort of thirty percent or so goes to maybe you know your rent utilities are
around ten percent, and then there's materials and food. But think about it, if you're paying thirteen hundred dollars a month for infantcare, you can have maybe eight children in that infant classroom. You're getting about ten ten five hundred dollars potential revenue on a monthly basis. Now, if you take that seventy percent and say, okay, seventy percent of
that is going to salaries. Okay, So now you've got sixty seven hundred dollars a month that can go to cover salaries and benefits and all of the required taxes that you have to pay for the teachers in that classroom. And then when you break it down for that classroom, most people having their kids in childcare for more than forty hours a week, so that program has to be staffed for fifty hours a week, and you have to have two teachers in that classroom because you know, for
eight infants you need two teachers. That is what is necessary for health and safety and you know developmentally appropriate care. You quite quickly get down those numbers and there's about fourteen dollars an hour left over to cover salary, benefits, taxes for each individual teacher, which is below the fifteen dollars sort of minimum that some states are trying to
move to. But even that fourteen dollars, you know, once you take off taxes, once you take off benefits as well, you start to see how tight it is for programs to make ends meet. And that is based on me talking about thirteen hundred dollars a month right for infancare. A lot of families cannot afford even that thirteen hundred dollars a month. And that's right. When you flip the lands around and look at thirteen hundred dollars a month compared to media and income, that is a sizeable proportion
of a family's monthly income. Absolutely, And so when you talk about the federal government recommends that affordable childcare should be around seven percent of your income, but you know, we know at the moment that families are paying twenty thirty percent of their income on childcare. And so you look at these equation and you say, on the one hand, teachers are not making enough money and they need to
make more money. On the other hand, families are already paying a significant share of their income, they can't afford to pay more. This is the classic issue of the broken market that we have. Your report also identifies some solutions. What are some of the ways to fix what you call this Baroken equation. Ultimately, it's this problem of having a what is arguably a public good that childcare is
that is currently predominantly privately funded. So you have a public good that's privately funded means that there is not enough public money in the system. We are relying on private dollars, mostly families, to pay for this, and so we have to change the thinking in this country to realize that taking care of young children is not solely
the responsibility of families. Once a child turns five or six, we sort of decide it's our responsibility a society to educate them and to care for them, you know, in schools. But this idea that that doesn't happen before that age has got to start changing. We talk about a few different options. One of the policy solutions is to increase the amount of money and individual provider gets when they serve a child with public funding. Right now, public funding
levels are set based on that market rate. The market rate is not actually the true cost of care. So states and the federal government should be setting subsidy rates based on what it actually costs to provide care. But we also need to be providing that support to more families. In most states right now, if you earn less than thirty thousand dollars for a family of four, you qualify, but if you earn more than thirty thousand dollars, you
don't qualify for subsidy. We need to increase the subsidy rates, increase the amount of provider can get. We also need to increase the number of families who are eligible for public funding and actually get that money directly to the childcare providers and into the pockets of the childcate teachers. So I can hear some people saying, oh, sure, that's an easy fix, just have the states give more money. But a lot of states are facing the budget restrictions
that we all know about. The academy is not the greatest rate now, so where does that money come from and what's the return on that investment. We are seeing states look at different options, some of them looking at using new revenue streams such as tax on marijuana or sports betting, you know, to get some more money into the system that's often used to target specific initiatives like
a universal PreK program for instance. The amount of money that's really needed for the system, though it is so large, it really needs a federal investment because ultimately the states who are trying to balance their budgets every year, you know, are really struggling with that. The president put in and build back better. A huge investment at the order of about four hundred billion dollars, you know, was the sort of idea of thinking about that amount of money that
needed to go into the system. We would make the case that it is worth it because of this significant return on investment at multiple levels. There is a return on investment that's related to children. When children have high quality early learning experiences, they go into kindergarten more ready to learn, and there's a whole series of research that shows, you know, then they're more likely to graduate school and go on to college and have higher incomes, right, which
returns a lot to society. You also have the impact on the current workforce who don't have to drop out of the workforce, don't have to have interruptions to their career because they have reliable childcare. And you have the direct impact of thousands of childcare teachers right now making poverty level wages. If you funded this system at a much more robust way, those teachers would see a huge raise and they are spending it in the economy today.
They are buying shoes for their kids, they are buying food for their kids, so there is a huge return and investment immediately the tax revenues when you boost the
income of those workers. There's been a lot of research over the time to actually quantify all of those numbers, and ultimately the data shows that for every dollar you invest in early childhood you are getting a return of between seven to twelve dollars for every single dollar you invest, even with the interest rates going up, that is a return most investors would take. This is a no brainer in many ways of where you should be investing money. There is proven research to show the impact it has.
The impact is short term and long term, so it really is something we should be prioritizing investments in. Simon Workman, thanks so much for talking with me today. Thanks why it's great to be with you when we come back. How the UK is trying to make childcare more affordable. The problem Simon workman talked about in the US are also true elsewhere in the UK. Angry working parents have pressured the government to act, and reporter Olivia Canardia Hulu
is covering that story. One thing that really illustrates it well was that there was this protest and Halloween last year were basically thousands of parents, but particularly mums across the country did this massive protest saying we're completely fed up with the system, We're taken for granted and we're
being neglected by this government. The foundation of that was just because childcare costs are so incredibly expensive that it's having an impact on people's lives, on the jobs that they take, the hours that they work, and all these things. Unlike say the US, which we were talking about just a little bit ago, there is a fairly well developed system of subsidies for families to get childcare, but it
doesn't quite go all the way. Yeah, so if we look at the system at the moment, well before the last budget, parents are three to four year old's gotten a certain amount of free childcare hours. But the catch with that is that it's working parents, and the definition is that both parents to be working at least sixteen nails a week for the minimum wage, but that cuts out a certain number of people if one of the parents can't afford to work because of childcare costs. So
it kind of gets into this vicious cycles. While in theory this is meant to encourage people back to work, for some people they won't have that choice, So that's why people at the lower end of the income spectrum or often cut out. So when it comes like the bottom earners of families, only around twenty percent of those
are eligible for this particular childcare benefit. There is just this big question mark about what you do if you are in that situation, if you're not eligible for subsidies, can't afford to work more, but you're still having to
somehow find childcare, which is ridiculously expensive. There's been one calculation that there are eight different systems and eight different subsidies potentially that parents can access, and the money isn't nearly enough to cover the cost of those subsidies, which means that nurseries then have to raise prices for the
children that aren't on subsidies. If that makes sense. It's fair to say that a lot of people are said the system is pre dysfunctional, can you give an idea of just how much it cars like work percentage of household's income would go to childcare depending on how much money you bring in the Organization for Economic Corporation and Development.
What they found by their analysis is that the UK is one of the most expensive countries and when you take an average family, as they calculated, it's thirty percent of people's incomes. And so what's what that means for some people say, it's more than their mortgages, it's more than their housing cost. If you're thinking about having a child, then it's just a really really massive financial decision in
the UK. And as you've been covering this, you've been writing a lot about how a lot of this falls and women who want or need to get into the workforce and yet find that childcare makes it impossible for them to work. Yeah, So to give you a sense, Pregnant and Screwed, which is this really vocal charity which do a little work in this, They did a survey and they found that around three quarters of mothers who use childcare say that it doesn't make economic sense for
them to work. So there was this one nursing student I was speaking to and her partner is also a National health service and for complicated reasons, basically, she didn't get access to certain subsidies and so childcare was just like ridiculously expensive, and her partner was having to work these kind of crazy hours on the weekends on nights to try and cover those costs. And she was just saying, like,
it doesn't make any sense at all. What's some motivation for me to try and improve myself to study when I'm just being set back for just wanting to study and also have a family. And here's where some other parents in the UK had to say about their own childcare experience. It's one of amazing things. You've got to weigh up when you go back to work. Is it
worth it. Basically I wasn't working as a result of the COVID pandemic when I got pregnant, and it was easier to stay out of the workforce and look after her than trying to get back into the workforce. A fair portion of that decision was about the cost of childcare, but also the availability of places and the competitiveness of the market. My wife did reduce her hours when we
had children. She switched from working for a regular full time job to working in a school so that she would be available during half terms and holidays and we wouldn't have to pay for the expensive holiday camps and other things that people use during those kinds of times. That decision was driven entirely by the cost of those things.
Looking at the other side of this, even for people who can afford childcare, oftentimes you write that they're not able to find childcare centers that can take their kids if there's a shortage. Yeah, definitely. So that was some other numbers that came out this year which were also pretty depressing, and that I think it was finding that around fifty percent of local areas said that they didn't
have enough childcare for working parents. Apparently I didn't realize that it's normal to enroll your kids for childcare before they're born. But for some people, they still aren't able to find like the hours that they need all that case to them if they're and the hours. So yeah, like you're saying, it's pretty bad, and is that to do with the pay that childcare providers make that they're just unable to find enough people who wanted to work
long hours under stressful conditions for a relatively low pay. Yeah, So it's one of those situations which people describe as a perfect storm in that there was COVID, and COVID really knocked the sector in that it had to keep running, but it was under really really challenging circumstances. Obviously, there's staffing issues, as you were saying, it's not very well paid at all, and they're really having problems in terms
of finding enough people and retaining them. And on top of that you've had inflation, so they've also got this rising kind of running course. So all of that together means a lot of businesses have had to close down and that's partly fed into the issues with availability. So this is an issue where a lot of people care about it, but there hasn't been a whole lot of political action in the UK until fairly recently, and now it seems like the government is really sitting up and
taking notice. Yeah, it was interesting. In the latest budget childcare was kind of the flag shaped reform that it was announced today. Childcare reforms will increase the availability of childcare, reduced costs, and increase the number of parents able to use it. Taken together with earlier conservative reforms, they amount to the most significant improvements to childcare provision in a decade.
So Chancellor of the Exchequer Jeremy Hunts ahead of the Treasury, he made a really big point about how childcare was so important and that it was terrible that people weren't working because it was so expensive, and he really made it one of the biggest things about the budget that was announced earlier this month. And so what exactly did the government announce. The things which people probably say are
good are the things such as on universal credit or benefits. Basically, the people who get that get a higher amount of child benefit, and the way that it's given to them is it's basically paid to them upfront instead of them having to pay the childcare and then get it, which seems might not seem like that bigger deal, but potentially people would kind of go into debt doing that because they'd have to pay those costs and then ask for
it back from the government. But the big thing that they did was three to four year olds up to this point they got a certain amount of so called free childcare hours. They basically got quite a big discount on their childcare and they've extended that through two children for nine months. The problem is that that will cost a lot of money, and that program that was already in place was already underfunded, which is partly why providers have to hype their costs and so on and so forth.
So what providers are now saying is that there's going to be this massive amount of demand which they can't meet and also can't pay for and can't afford, and that's kind of where a lot of the tension has come up. So very broadly, the industry said, thank you for paying us attention, thank you for kind of giving us this platform, but we need more money otherwise this very much isn't going to work, and people's hopes are going to be up only for more providers closed down.
The government has announced this new program, how long until people actually start to see that money, so it we'll be in stages though, I think the first trance, as it were, if people will be eligible, I think next year, and it won't be fully rolled out until the autumn or the fall of twenty twenty five, so it will take a long time, and there's a general election in the middle of that. So it's very possible that the government ultimately won't do it because it will be a
different government more with Olivia after the break Olivia. So obviously this is a big problem across the UK other countries for a lot of people, and it doesn't look like in the UK they've really found the solution. But you do right that there are some countries who are doing childcare better. Can you tell us about what they're doing and which countries they are. Yes, there's some really
interesting things that different countries are doing. So when it comes to things like rankings of childcare systems, people are looking at affordability, So how much of people's incomes does it take, quality, other teachers highly qualified, how many stuff are their children? That kind of thing, and an accessibility, so how difficult is it for you to find childcare?
And so then audics do really really well. Iceland comes top a lot of the time, and that's partly because it's pretty cheap relatively speaking, and also because it's high quality,
so teachers are pretty well qualified. As a very very small amount of children per teachers last big as I saw, Iceland spends more than two percent of its GDP on childcare, so it's obviously a priority for the government and that really shows what are other countries are doing things like Iceland wages to invest in childcare as a national priority. Canada is also really interesting because historically it's had different systems across different provinces, but now it's going to roll
out the same system that was in Quebec. So up to this point, someone in Toronto paid much, much, much, much more than a parent in Quebec would pay. But now Canada basically wants to do this thing where on average they want parents to pay ten dollars a day I think for childcare, which is obviously a massive thing and it's going to be one of the biggest things
that Justin Trudeau potentially does. And the way that they want to do that is potentially try and set up these kind of heavily subsidized not for profit centers, which has its drawbacks because often there's way more demand for
these centers than is available. But at the same time, you know, it does substantially bring down the cost for the majority of people, and it will be one of those things where, yeah, they definitely have to spend a lot of money on it, but they make the investment case that you see that money kind of later in the growth of the economy, in that it's a really important sector for the growth of GDP, So that's the
kind of business case that they're making for it. Another place you write about there's been really leaning forward and this question is Estonia. They have a really high mass and literacy proficiency rate in Estonia. One of the things about it is that childcare is basically part of the education system, whereas for most countries that's not the case. So it's another thing where teachers are highly qualified. That's
very high quality of care and it's really affordable. Let's talk about when more that you look at, and there's New Zealand. I thought the example of New Zealand was really really interesting because one of the big drawbacks is that it is expensive. It's almost in line with the UK,
so it is pretty unaffordable. But they have a national curriculum which is rolled out across the country and it really kind of places values like community in self empowerment and teach them to children quite early and it says that children's emotional well being as a result, we're pretty good. And also the quality is really really high. And yes, it's kind of like a national decision that they took,
so I thought that was really really interesting. It doesn't seem that there's a really big secret here where the solution is, even though a lot of countries like the UK, like the US, have been very slow to adapt it. Do you think that the UK would look to some
of these other countries and try to do what they're doing. Potentially, the Labor Party has been quite clear that that's what they're doing, and with the Conservative government, I'd be interested in what they think about the pushback because on the one hand, they really did kind of nail their colors to the mast and say we're doing a good job, and then they had quite a big amount of pushbacks. So I'd be interested in if they feel like they need to go further and where they would take their
inspiration from. But yeah, it's very possible. Earlier in our conversation, we were talking about how this childcare situation causes a lot of women, especially not to enter the workforce when they want to or need to. In these other countries where the system just works better. What have we seen when it comes to women's participation in the workforce. So it's not an entirely clear cut line. The one exception is Germany, where childcare is very affordable. It's high quality.
In some places it's almost free. But female participation in the workforce isn't fantastic, and it's a bit complicated. There's other kind of government policies which some people kind of come into play, but very broadly speaking, the quality of the childcare system, on top of things like maternity leave and parents will leave policies, so seems to have some kind of a link with female participation in the labor market. You also mentioned just a little bit ago that we
start to see economic benefits from childcare early on. That shows up not just at the time with their parents, but later when those kids grow up and into the labor force. Are there numbers where you can actually tell what the impact is in countries where they have strong childcare systems. When it comes to the economic benefits of these kind of policies, what one group has done, PwC,
the consultancy group. They've calculated to what the economic impacts to the gross domestic products of different countries would be if women were in the workforce, and for some countries it's more than a trillion dollars. There's more complicated factors that go into that than just childcare pullars seats, but it does at least seem to be for some individuals a factors, so I think it is definitely something to
think about. Olivia Connotia Hulu. Thanks so much for speaking with me today, Thanks for having me, Thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from my Heart Radio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicky Bergolina.
Our senior producer is Catherine Fink. Federica Roman Yellow is our produce. Our associate producer is Zeneb Sidiki hilde garcias our engineer. Our original music was composed by Leo Sidrin. I'm Wescasova. We'll be back tomorrow with another Big Take.