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Crisis in childcare and the state of work in America

Access to childcare is becoming a headwind to economic growth.

May 28, 2024

Introduction

The childcare crisis, which was simmering prior to the pandemic, has come to a boil. Pandemic-era aid has lapsed or is about to lapse. Work from home (WFH) and more flexible work schedules helped some working parents, but most workers still need to work in person. Millennials are in the thick of it. They make up the largest generation of thirty-somethings we have ever seen and are now forming households and having families.

Women are bearing more of the costs, but all of us are paying the price. Absences due to childcare problems remain elevated, hours parents can work are dropping, coworkers are picking up the slack and children are suffering. Those shifts are hurting bottom lines and eroding our potential to grow as an economy.

This report provides a deep dive into the childcare crisis, its breadth, who it is hitting the hardest and how it is undermining potential business and overall economic growth. Recent economic gains are only papering over a much more deep-seated problem. There are solutions, with companies and states stepping up to the plate. The challenge is to get more on board and catch up with peers around the world to unlock the potential of our workers, employers and economy.

Assessing the crisis: runaway costs and a lack of access

Chart 1 shows the yawning gap between the costs of childcare versus the overall consumer price index (CPI). Between 1991 and 2024, the costs for daycare and preschool rose at nearly twice the pace of overall inflation.

Chart 1

CPI, all items vs. daycare & preschool (January 1991 - April 2024)

Index, dec 1990=100, SA

Source: KPMG Economics, BLS, Haver

A baseline estimate of childcare affordability is when the cost comprises up to 7% of family household income. Today, childcare costs are often in the 10-20% range.1

Childcare is not available for many Americans where they live. As of 2018, some 51% of Americans lived in what is known as a “childcare desert.”2 Those are areas where access to childcare facilities is either non-existent or the number of children is three times higher than the number of slots available at licensed facilities.

The shortage of workers in the childcare sector remains acute. Workers in the sector earn less than $15 per hour, well below the wages in other low-wage sectors. That raises the question about the quality of workers childcare centers can attract in an already tight labor market.

Many states have made significant investments in childcare services; it is one of the few bipartisan issues. The most proactive states view it as an advantage when competing for business and workers. Access to universal pre-school, known as pre-K, is a factor on which states are ranked for determining the state attractiveness for businesses.

The problem is that those programs are still ramping up and large gaps remain. Many states have yet to adopt them, and those that do only offer services for children three or four years of age. Care for infants and toddlers is still lacking. These initial years are when parents make key decisions about employment.

There are also consequences for children’s education. Research by the American Enterprise Institute shows that absences from school have increased and become chronic, especially in low-income households.3 One way that low-income parents are dealing with the need to work and the gap in childcare is having older children watch their younger siblings. That adds insult to injury to the learning lost during the pandemic and is yet another hurdle to social mobility.

Headwinds to labor force participation

The participation rate of prime-age workers, defined as adults aged 25-54, hit its pre-recession peak in 2023 and remained above its February 2020 level in early 2024.

Sadly, those gains have done little to recoup what was lost in the 2000s. Prime-age labor force participation was 83.5% in April 2024, still more than a percentage point below the peak it hit during the boom of the late 1990s. That translates to roughly 1.2 million fewer 25–54-year-old workers in the labor force, all else equal.

Those figures are even more discouraging given the context of the tightest labor market conditions we have seen in decades. In April, the unemployment rate was below 4% for the 27th consecutive month, tying the record last hit in the 1960s.

Why does that matter? Tight labor markets force employers to cast a larger net and lure people who might have otherwise stayed on the periphery into the labor force. They also enable workers to find better matches and escape under-employment, which boosts productivity.

Women doing better, but still lagging

Chart 2 breaks down the labor force participation rate by gender. Two takeaways are:

  1. Women’s participation in the labor market hit a record high in 2023 and again in April 2024, following a 23-year hiatus.
  2. Men’s participation in the labor market has basically recovered what it lost to the recession for the first time since the 1950s but remains on a multi-decade downtrend.

The gains made by women were all that more impressive given the employment shock of the COVID-recession. The recession was dubbed a “she-cession” for the disproportionate hit it dealt to low-wage jobs in the service sector, which tend to be dominated by women. (See Chart 2.)

Chart 2

Prime-age (25-54 years) workers labor force participation rate (January 1948 - April 2024)

Percent, SA

Source: KPMG Economics, BLS, Haver

A Brookings study found that women with children under the age of 5, especially highly educated, married or foreign-born, accounted for the bulk of that rise.4  Women in the workforce still face a penalty for having children, though WFH has muted that penalty.5 The challenge is that the share of workers who can work fully or even partially remotely is still low. Nearly 60% of all workers still need to work fully in-person.6

Immigration also picked up after the pandemic; foreign-born workers participate at higher rates than native-born workers.

Women with a high school degree or less had a harder time recovering. Work done by the ADP Research Institute showed that women are now working one hour less on average per week than they were in 2019.7

The hours worked gap between men and women has also grown by an hour, which is a setback to weekly earnings. Women aged 16-24 and 25-35 were hit hardest in the wake of the pandemic. Men in those age groups saw no change in the hours they worked from 2019 to 2023. 

Women with young children have a much lower labor force participation rate as compared to other groups. Women with children under six had a participation rate of only 69% in 2023, while men in the same group had a rate of 95%. Participation among women with children between six and 17 was 78%, while that for men was 92%.

No one expects the labor force participation rate of women to necessarily equal that of men. Parents should be able to choose to work or stay at home if they can afford it. However, the US has gone from leading its peers in women’s workforce participation rates in the 1990s to lagging them dramatically today. That suggests a more systemic problem.

US moves from a leader to a laggard

Women’s prime-age participation rate in the US now lags its peers, including Japan, as well as many developing countries. In 2022, Germany, France, Canada, Austria and Sweden, among others, all had participation rates at least seven percentage points higher than the US. 

According to a study by the US Department of Labor, if the US had the same participation rate as Canada and Germany, around five million more women would be in the workforce today.8 That translates to approximately $775 billion (about $2,400 per person in the US) in additional economic activity each year in addition to better outcomes for children.

Men are not immune to disruptions from childcare problems. Their participation in the labor force has largely recovered since the pandemic but remains on a long-term downward trend. There is a whole field of research studying the causes of this. As men take more active roles in childcare, they are also facing the challenges of being full-time workers and full-time parents. 

The Federal Reserve’s new survey about US households found that 29% of prime-age women were not working for pay.9 Nearly two-fifths of this group cited childcare responsibilities as a reason why. This raises the question about how much of a choice mothers with children have to work or not to work.

Voluntary work not truly “voluntary”

The Bureau of Labor Statistics (BLS) definitions separate part-time work into economic reasons, or involuntary part-time work, and noneconomic reasons, or voluntary part-time work.10 Involuntary part-time work includes reasons such as “slack work; unfavorable business conditions; inability to find full-time work; and seasonal declines in demand.”

Voluntary part-time work includes the following reasons: “illness or other health or medical limitations; childcare problems; family or personal obligations; in school or training; retirement or Social Security limits on earnings; having a job where full-time work is less than 35 hours” (emphasis added).

A rise in voluntary part-time work is typically seen as a sign that economic conditions for workers are improving. However, the surge in voluntary part-time work we have seen in recent years may not all be by choice.

Someone who must devote a significant amount of time to caregiving responsibilities due to high costs and the lack of public and private benefits would still respond to a surveyor of the Household Survey that they prefer part-time work. That might conceal their true preferences and obscure both the current state of work and the crisis in care in the US.

The number of voluntary part-time workers has spiked in recent years. It reached a new series high in March 2024 at 22.9 million and remains elevated at 22.3 million (seasonally adjusted) as of April 2024.

Chart 3 shows the large uptick in part-time work due to childcare problems. Childcare problems as a share of total voluntary part-time work have also risen from an average of 3.8% pre-2010 to 4.4% in the 2010s to 4.9% since the pandemic. Historically, women, teenagers and older individuals are overrepresented among voluntary part-time workers.11

Chart 3

Working part-time due to childcare problems (January 1994 - April 2024)

Thousands, 3 month moving average, NSA

Source: KPMG Economics, BLS, Current Population Survey

Full-time workers are not immune to the struggles due to childcare. The number of full-time workers who had to cut work hours to fewer than 35 per week due to childcare problems spiked in response to initial lockdowns and the pivot online. The ranks of those workers have abated slightly but remain well above pre-pandemic levels. (See Chart 4.)

Parents are settling in and scraping by after the initial chaos of the pandemic. Some work is better than no work, but the elevated levels of both data series point to the underlying stress in the labor market due to the childcare crisis and its negative impact on employment and output.

Chart 4

Full-time workers who worked part-time due to childcare problems (January 1994 - April 2024)

Thousands, 3 month moving average, NSA

Source: KPMG Economics, BLS, Current Population Survey

Moreover, the data does not fully capture the degree to which childcare problems are affecting working parents, and therefore employers. In recent years, many parents have had to take care of a child who is home due to illness, not in school or a lapse in coverage by a care provider.

They may be able to take a sick day or vacation time but that is not always possible. Doing work and childcare at the same time leads to inevitably lower quality work and more stress. These unpredictable absences and distractions are costly for employers and increase the burden to coworkers, which is accelerating burnout and undermining productivity.

Flexible work arrangements help

In the wake of the pandemic, more flexible working arrangements have become the norm, including full-time remote, or WFH, and different hybrid models. This sudden increase in flexibility, especially WFH, was met with a backlash. Debates immediately arose about WFH’s effect on employee satisfaction and its impact on productivity and profits.

Research has yielded a range of findings, from lower productivity to no effect to higher productivity. Research by Stanford University Professor Nick Bloom and colleagues found that WFH resulted in higher productivity and lower wage growth.12 Firms save money on wages and office space with fully remote and hybrid options.

Mothers with young children (especially those who are college-educated) have benefitted from WFH.13

Indeed Hiring Lab data show that women are more likely to say that remote work is a reason for looking for new employment.14

Hybrid work tends to boost productivity, as it allows for more mentoring, collaboration and engagement.15 The peak days in the office are Tuesday through Thursday. Younger and older workers want to be in offices more than millennials in their thirties.

Millennials moved the furthest from their offices, seeking space and schools for their burgeoning families.16 That shift in commutes has made it harder for companies to bring the largest share of the labor force back into offices.

When it comes to return-to-office (RTO) mandates, the evidence is clear. Research found that RTO mandates do not increase firm performance but do decrease employee satisfaction.17 An MIT Sloan article found that such mandates decrease employee engagement and increase turnover, especially for high performers and caregivers.

The KPMG U.S. CEO Outlook Pulse Survey, a survey of 100 CEOs of large companies, found that CEOs are increasingly predicting that hybrid work is here to stay. Only 34% stated employees would be back in the office within three years, down from 62% last year.

The problem is that flexible work arrangements tend to accrue to white collar workers. However, there are options that in-person establishments are exploring, including four-day work weeks. One study conducted in the UK on 61 companies that experimented with a 4-day workweek found that workers were more efficient, happier and had lower turnover rates.18

These debates will continue, but more flexible work arrangements are here to stay. Companies should pay attention to their employees’ different preferences. Instead of a strict company-wide policy, different business units, functions or teams could experiment with what their ideal arrangements might be.

Productivity growth still suppressed

Productivity slowed dramatically in the wake of the 2008-09 recession and remains below its pre-pandemic trend, despite substantial gains in 2023. The challenge is how to change that.

Generative AI (Gen AI) has extraordinary potential. Work done by the Census suggests that the number of firms investing in GenAI is low but moving up rapidly – it has increased from about 3.7% of all businesses in September 2023 to 5.4% in February 2024.19 Adoption is following a U-shape, with the largest and smallest firms investing the most.

The KPMG U.S. CEO Outlook Pulse Survey also found that nearly all CEOs will continue investing in GenAI next year with 41% responding they will increase their investments. Nearly 70% of CEOs stated that their companies are using GenAI to fill gaps in the workforce.

The costs of GenAI shift the dynamics of use cases that are theoretically versus economically feasible, at least for now. It has variable costs (e.g., costs increase as use increases). Add the time it takes to adopt a new technology, and GenAI alone cannot solve our current productivity challenges; it typically takes at least a decade to see the benefits of a technological innovation.

Even if adoption is much more rapid than historical norms, that means we are not likely to see the economy-wide effects of GenAI until the late 2020s and early 2030s. That raises the question: how can firms boost productivity growth more today?

This is where childcare policies can play a larger role. A growing body of research shows the benefits that companies and the economy at large can gain from childcare support and benefits.

Childcare issues are leading to absenteeism and its associated costs for employers. Chart 5 shows that American workers are increasingly taking time off work due to childcare problems.

Chart 5

Full-time workers who missed work due to childcare problems (January 2003 - April 2024)

Thousands, 3 month moving average, NSA

Source: KPMG Economics, BLS, Current Population Survey

Companies also benefit via improvements in employee satisfaction and engagement, retention and productivity. One study found that companies offering caregiving benefits were rewarded with higher retention and employee productivity.20 Company case studies found that every dollar spent on caregiving benefits resulted in gains of $18.93.

As firms benefit, so does the economy. Research has shown the clear link between childcare and better employment outcomes, especially for women. A meta-analysis of the empirical literature about childcare costs and employment found that “a 10% reduction in the price of childcare would lead to a 0.25-11% increase in maternal employment, likely near 0.5-2.5%.”21

An increase in labor force participation leads to an increase in economic growth. An Economist Impact study found that increased access to childcare could result in millions of women entering the workforce, increasing GDP growth between 0.19% to 1.09% per country per year.22

Childcare as a strategic investment 

American workers’ access to childcare from employers is low. According to the BLS, as of March 2023 only 13% of full-time and 6% of part-time private industry workers have access to employer-provided childcare benefits.23 These figures vary by income – higher-earners are more than three times as likely to have access than lower-earners.24 Those who are least able to afford childcare are the least likely to have access, disproportionately affecting people of color.

Childcare-related benefits are increasingly on the agenda in corporate America. A recent care.com survey found that 56% of employers responded that childcare benefits will be prioritized in 2024.25 An analysis by Revelio Labs found that job postings mentioning childcare benefits have increased since 2021.26 They remain very low overall at only 2% of postings.

Working parents are increasingly looking for these benefits. A survey of more than 2,000 parents with children conducted by KinderCare and Harris Poll found that 72% of respondents “say that if they knew they would always have quality childcare coverage, they would be able to focus better on their work.”27

That shows the potential gains in engagement and productivity that could come from childcare policies. Up to 57% said they “would [even] take a pay cut to work for a company that provided childcare benefits.” Moreover, 46% of the respondents in the Modern Family Index say they “want help paying for childcare.”28

Companies face many constraints and competing demands. They cannot provide everything to everyone. However, many companies are expanding and publicly disclosing their childcare-related benefits. They are meeting demands by top talent, especially millennials, and they have reaped the business benefits by doing so. Companies disclosing these policies are dispersed across industries and geographies with different types of workforces.

Employer-provided childcare-related benefits include subsidized childcare or childcare discounts; on-site childcare; backup childcare; dependent care flexible savings account (FSA); childcare referral services; or flexible working hours.

Childcare-related policies should be understood as strategic investments. Though there is no one-size-fits-all childcare-related policy, companies can identify the right policies for their workforce by actively engaging with employees.

Frontline workers may prefer on-site childcare. White collar workers may instead seek flexible work options and subsidized center-based daycare. These are not zero sum. Listening to employees will help avoid losing top talent.

After instituting a new policy, companies can make sure employees are aware of it, encourage employees to use it and evaluate its effects on employee engagement, satisfaction and productivity. This data-driven approach will ensure the policies are achieving the best ROI. 

In addition to childcare-related benefits, another policy that leads to positive outcomes is paid parental leave, which can help parents navigate the dizzying initial period of a child’s life.

Parental leave expanded

The United States is one of just seven countries in the world without paid maternity leave and one of 83 without paid paternity leave.29 For those countries with mandatory paid parental leave, the average time is 29 weeks for maternity leave and 16 weeks for paternity leave.

In the US, the Family and Medical Leave Act (FMLA) guarantees that eligible workers have access to up to 12 weeks of unpaid leave.30 Only 56% of American workers are eligible. The share is lower for people of color and low-income workers.

With the absence of federal policy, state and local governments have started to step in. As of January 2024, 13 states and Washington DC offer paid parental leave.31 This means that 37 states do not. Among those that do, not all offer 12 weeks, whereas the evidence-based minimum best practice for paid parental leave is 26 weeks.32

Data show that American workers are increasingly taking time off from work for parental leave. (See Chart 6). The number reached record highs in the data series two separate times in 2023. It is on a general upward trend despite recent declines.

Though usage has grown across the board, one estimate found that fewer than 5% of working fathers take more than two weeks of paid parental leave (and three-fifths of low-income fathers take no time).33 This reflects access and economic necessities, but it also reveals the staying power of traditional gender norms and the social stigma around working men taking leave to care for their babies.

Chart 6

Full-time workers who missed work due to maternity or paternity leave (January 2003 - April 2024)

Thousands, 3 month moving average, NSA

 

Source: KPMG Economics, BLS, Current Population Survey

Increased usage of parental leave is due to state government policies and the fact that large companies are increasingly offering paid parental leave as an employee benefit. Public disclosure of paid parental leave among the Russell 1000 universe is growing but is still relatively low.34 To ensure equity, the best practice is to provide parity in paid parental leave, but three-quarters of R1000 companies do not offer parity.

Company policies include 26 weeks of paid leave for all parents, including after birth, adoption, surrogacy or foster care placement. Many companies enhanced their paid parental leave in 2023, increasing the number of weeks offered for both maternity and paternity leave. Not all companies are moving in this direction; some have announced cuts to their policy.

Research shows the benefits of paid parental leave. It increases employee commitment and cooperation, reduces absenteeism and helps companies attract and retain top talent and thus lower turnover and hiring costs.35

Moreover, paid parental leave results in better health outcomes for mothers and children.36 When men take paternity leave, research shows it leads to lower divorce rates, closer relationships between fathers and children and lower rates of postpartum depression and other maternal health issues.37

One study found that maternal earnings increase 6.7% each month that fathers stay on paternity leave.38 Paid parental leave also saves lives.39 California’s eight-week partial paid family leave law reduced infant mortality rates and prevented the deaths of 339 infants.

As many small and mid-sized companies may not be able to provide paid leave, states can play a key role to help employers boost retention and productivity with these benefits. California’s paid leave program is 100% funded via employee contributions to the state disability insurance fund and provides partial-wage replacement for up to eight weeks to eligible workers.

Bottom Line

The crisis in childcare in the US is a headwind for women’s labor force participation and parents more broadly and is disrupting the lives of children, extended families and coworkers. It is exacerbating income, gender and racial inequalities.

Conversely, efficient and relatively inexpensive childcare benefits can boost participation in the labor force and productivity growth. The benefits tend to accrue to white collar workers but can also lift the fortunes of low-income households and their children. Many states are actively trying to level the playing field and enact policies that benefit a larger swath of constituents. Large gaps remain.

Leading companies understand this. They are competing via the expansion and disclosure of their childcare policies. It is rare to see so many incentives align as they do with childcare policies. The benefit versus the cost proposition is clear – it is a win-win.

Footnotes

1 “Childcare Prices as a Share of Median Family Income by Age of Children and Care Setting.” Women’s Bureau, US Department of Labor.

2 “Do You Live in a Child Care Desert?” Center for American Progress. 2020.

3 Malkus, Nat. “Long COVID for Public Schools: Chronic Absenteeism Before and After the Pandemic.” American Enterprise Institute. January 2024.

4 Bauer, Lauren and Sarah Yu Wang. “Prime-age women are going above and beyond in the labor market recovery.” Brookings. August 30, 2023.

5 Kleven, Henrik, Camille Landais and Gabriel Leite-Mariante. “The Child Penalty Atlas.” NBER Working Paper 31649. February 2024 and Harrington, Emma and Matthew E. Kahn. “Has the Rise of Work-from-Home Reduced the Motherhood Penalty in the Labor Market?” October 31, 2023.

6 Barrero, Jose Maria, Nicholas Bloom and Steven J. Davis. “The Evolution of Working from Home.” WFH Research. July 2023.

7 “People are working less.” Today at Work. ADP Research Institute. Issue 5. March 2024.

8 Glynn, Sarah Jane. “The Cost of Doing Nothing, 2023 Update: The Price We STILL Pay without Policies to Support Working Families.” US Department of Labor. November 2023.

9 “Economic Well-Being of U.S. Households in 2023.” Board of Governors of the Federal Reserve System. May 2024.

10 “Labor Force Statistics from the Current Population Survey, Concepts and Definitions (CPS).” US Bureau of Labor Statistics. November 28, 2023.

11 Dunn, Megan. “Who chooses part-time work and why?” Monthly Labor Review. US Bureau of Labor Statistics. March 2018.

12 Shah, Krishan et. al. “Managers say working from home is here to stay.” VoxEU, CEPR. February 18, 2024.

13 Casselman, Ben, Emma Goldberg and Ella Koeze. “Who Still Works from Home?” The New York Times. March 8, 2024.

14 Bunker, Nick. “Remote Work Holds More Appeal for Female Job Seekers.” Indeed Hiring Lab. March 27, 2024.

15 Bloom, Nicholas, Ruobing Han and James Liang. “How Hybrid Working from Home Works Out.” NBER Working Paper 30292. January 2023.

16 Akan, Mert et. al. “Americans Now Live Farther From Their Employers.” February 2024.

17 Ding, Yuye and Mark (Shuai) Ma. “Return-to-Office Mandates.” SSRN. January 26, 2024.

18 “Making it Stick: The UK Four Day Week Pilot One Year On.” Autonomy. February 2024.

19 “Business Trends and Outlook Survey.” United States Census Bureau. May 9, 2024.

20 “The R.O.I. of Caregiving Benefits.” VIVVI and The Fifth Trimester. February 2024.

21 Morrissey, Taryn W. “Child care and parent labor force participation: a review of the research literature.” Review of Economics of the Household. Springer. Volume 1. March 2017.

22 Ballesteros, Monica, Shreya Mukarji and Lavanya Sayal. “The childcare dividend initiative: bridging the access gap: quantifying the economic returns of public investment in childcare.” Economist Impact. 2023.

23 “Percentage of private industry workers with access to employer-provided benefits by work status, March 2023.” US Bureau of Labor Statistics.

24 “Percentage of civilian workers with access to quality-of-life benefits by worker characteristic, March 2023.” US Bureau of Labor Statistics.

25 “2024 Future of Benefits Report.” Care.com. March 2024.

26 Abdelwahed, Loujaina and Beyza Arslan. “Are Current Child Care Benefits Enough to Keep Mothers at Work?” Revelio Labs. October 19, 2023.

27 “KinderCare Confidence Index.” KinderCare Learning Companies. 2024.

28 “10th Annual Modern Family Index: The New Working Parent.” Bright Horizons. 2024.

29 Cain Miller, Claire. “The World ‘Has Found a Way to Do This’: The U.S. Lags on Paid Leave.” The New York Times. October 25, 2021.

30 “Family and Medical Leave Act.” US Department of Labor.

31 “State Paid Family Leave Laws Across the U.S.” Bipartisan Policy Center. January 16, 2024.

32 “Paid Family Leave: How Much Time Is Enough?” New America.

33 Turner, Terry. “Average Paid Maternity Leave by State: 2024 Statistics.” Annuity.org. January 10, 2024.

34 Avila, Jordyn and Matthew Nestler. “Only 9% of America’s Largest Companies Provide Parity in Paid Parental Leave of 12+ Weeks for Primary and Secondary Caregivers.” JUST Capital. April 27, 2023.

35 Bartel et. al. “The impact of paid family leave on employers: evidence from New York.” Community, Work & Family. January 29, 2023; Shaak, Natalie. “Making the Case for Paid Family Leave.” Policy Brief. Drexel University Dornsife School of Public Health. March 2023; and Davison, H. Kristl and Adam Scott Blackburn. “The Case for Offering Paid Leave: Benefits to the Employer, Employee, and Society.” Compens Benefits Rev. 55 (1). January 2023.

36 Van Niel, Maureen Sayres et. al. “The Impact of Paid Maternity Leave on the Mental and Physical Health of Mothers and Children: A Review of the Literature and Policy Implications.” Harvard Review of Psychiatry. 28 (2). 2020.

37 Saxbe, Darby and Sofia Cardenas. “What Paternity Leave Does for a Father’s Brain.” The New York Times. November 8, 2021.

38 Johansson, Elly-Ann. “The effect of own and spousal parental leave on earnings.” The Institute for Labour Market Policy Evaluation. Working Paper. March 22, 2010.

39 Chen, Feng. “Does paid family leave save infant lives? Evidence from California’s paid family leave program.” Contemporary Economic Policy. 41 (2). October 5, 2022.

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