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Amid labor shortages, child care shapes parents' employment choices in the Ninth District

Income levels and available benefits influence parents’ decisions to engage in the labor force as the child care industry faces increased pressures through the pandemic

March 18, 2022


Haley Chinander Writer/Analyst
Erick Garcia Luna Director, Regional Outreach
Pensive woman next to a list of monthly expenses
Jake MacDonald/Minneapolis Fed; Getty Images

Article Highlights

  • Long-existing pressures on the child care industry intensified during the pandemic
  • Most working parents in the Ninth District have reduced hours and taken time off to care for children
  • Reactions to child care needs vary depending on working parents' household income
Amid labor shortages, child care shapes parents' employment choices in the Ninth District

When Emily Clark, a parent from Wadena, Minn., had to look for a job to support her family after being laid off in early 2021, finding accessible and affordable child care was a priority.

“If you found a day care provider, you went with them whether you really wanted to or not,” shared Clark, who has a 2-year-old son and 12-year-old daughter. “There just aren’t any options. So many [providers] closed and didn’t reopen.”

After searching for more than two months, Clark finally found a family provider who could watch her son while she worked. But continuing to afford that care has become increasingly difficult.

“Since my provider increased tuition and projected gas prices are rising, I’m back to wondering if it’s worth it for me to continue to work,” Clark explained. “I don’t want to think about that—because I do want to work—but if we end up paying more in gas and day care than I take home in income, then it doesn’t make sense to continue.”

Long an issue in the region, child care availability and affordability has taken center stage as demand for workers has greatly outpaced supply during the pandemic. Clark’s challenges exemplify the variables that many must consider in order to be both parents and workers.

Supply and affordability pressures

When the COVID-19 pandemic began and child care enrollment dropped, revenue losses brought financial strains to a sizable number of providers, leading to high closure rates and tuition increases that exacerbated the existing capacity and affordability issues in the Ninth District.

From 2019 to 2021, Montana and South Dakota saw a 10 percent decline in available providers, according to Kids Count data. In Minnesota, data from the Department of Human Services show that the state has also experienced a number of closures in the last few of years—total licensed providers decreased by 11 percent since 2018. Because of these declines, many counties across the region have a limited number of licensed providers at best, and some have none at all.

Without enough child care services to meet demand, organizations like MAHUBE-OTWA, a nonprofit serving low-income communities in rural Minnesota, must often put families on waitlists until spots open up.

“We want to inspire families and promote them to get out of poverty, but many can’t get day care [right away] and they’re missing out on good job opportunities,” expressed Darcey Fritze, operations manager for MAHUBE-OTWA.

As child care centers reduced or ceased operations during the pandemic, the industry’s workforce was also disproportionately hurt. Employment in child care services plummeted 36 percent between January and April 2020, and the recovery has been slow. As of January 2022, employment in the industry is still nearly 13 percent below pre-pandemic levels. Many available providers now face staffing shortages that further limit the number of children they can take in, and some must temporarily shut down when there are simply not enough staff to safely operate.

The availability of child care is of particular interest to Amy Watson, senior economist at the Montana Department of Labor and Industry, who has researched the impacts a shortage of child care has on the state’s workforce.

“Our licensed capacity only meets about 44 percent of our estimated demand in Montana,” Watson explained. “This demand doesn’t account for individuals who are currently out of the labor force due to child care issues, this is just to maintain our existing employment levels.”

The Great Reallocation

With the child care industry weakened by closures, tuition hikes, and staffing shortages throughout the pandemic, more working parents have had to shape their employment decisions around finding care for their children.

The Census Bureau’s Household Pulse Survey provides a snapshot of how Ninth District working parents have balanced job responsibilities and caring for young children during the pandemic. Since the survey was launched in April 2020, Ninth District respondents indicated that having to care for children not in school or day care was a consistent reason for not working, whether they were unemployed or simply taking time away from work.

In April 2021, the survey began asking respondents about care arrangements when formal child care was unavailable or unaffordable. Among Ninth District respondents, a small but notable portion said they quit their jobs or were fired due to taking too much time away to take care of their children (Chart 1); 10 percent of respondents said someone in their household had stopped looking for work for the same reason.

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Survey responses suggest, however, that most workers in the Ninth District took paid or unpaid leave, cut down the number of hours they worked, or supervised their children while working instead.

“In Montana, we find parents are employed but unable to work their typical hours because of a lack of consistent, reliable child care,” Watson explained. “Underutilization of parents in the labor force has exacerbated Montana’s workforce shortage, making it more difficult for businesses to recruit and retain staff, and ultimately grow their company.”

Overall labor force participation rates are still down from pre-pandemic levels across the region and job-quitting rates are trending higher, leading to staffing shortages across most industries (Chart 2). The compounding effect of the many lost hours of work and vacated jobs due to a lack of available child care illustrates the important role of these services in relation to current staffing problems.

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Job quality matters too

For some, leaving a job or cutting back hours because of child care challenges is not an option. This is particularly true for lower-income parents, who must continue to work to provide for their families but earn little pay or lack jobs with flexibility.

Child care affordability is a barrier for many, but lower-income households feel the pressure of high tuition costs the most. Many may find that the available child care providers in their area, if any, are too costly.

“Based on the average wages in Montana, we find that about 88 percent of our households don't have access to affordable child care,” Watson said. “Lack of affordable child care is certainly a significant workforce barrier in our state.”

The choices available to low-income parents are further curbed by a lack of leave benefits. According to the Bureau of Labor Statistics, only 40 percent of workers in the lowest income quartile had access to any type of sick leave and vacation time, while more than 80 percent of workers in the third quartile had these benefits.

The Household Pulse Survey shows that Ninth District households with annual incomes of less than $50,000 were much less likely to take leave (paid or unpaid), reduce their working hours, or have had the opportunity to supervise their children while working (see Chart 3).

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Furthermore, just 1 percent of respondents in households with annual incomes of $25,000 or less and experiencing child care difficulties said they had used paid leave to care for children, 10 percent said they took unpaid leave, and 7 percent cut back hours. Those conditions improve only modestly for households with incomes between $25,000 and $50,000, but they also remain significantly constrained in their choices to take any time away from work to care for their offspring.

Although cutting hours or taking unpaid time off comes at a high cost for lower-income workers, many must resort to taking unpaid leave when no other options are available.

When Emily Clark’s child care provider became sick with COVID-19, her day care abruptly shut down for two weeks, leaving Clark with little time to figure out how to continue to work while caring for her son.

“Luckily, my parents were able to watch him that time, which isn’t always the case,” Clark said. “I don’t know what I would have done if they weren’t available, because if I couldn’t work for those two weeks, I would have lost a lot of income that I was expecting.”

This is not the first time Clark was left without care on short notice. Last fall, her day care closed abruptly, and Clark’s parents were not available to watch her son. Without anyone else to provide care, Clark stayed home from work the duration of the closure and did not get paid.

For parents like Emily, there may come a point when the cost of child care, or the amount of income lost when taking unpaid leave, becomes more expensive than it would be to simply provide that care themselves. Household Pulse Survey data show that the largest share of working parents who reached this point came from households with less than $50,000 in annual income.

The transitional point to a broader range of alternatives seems to reside at the $50,000–$74,999 income threshold. Relative to those in lower-earning households, more respondents in this category said they took advantage of paid leave—and while far from being ideal solutions, they had an expanded ability to cut working hours and take unpaid leave to care for children. On the flipside, a significant share also reported leaving or losing their job as a consequence of their parental responsibilities, and they remained limited in their opportunities to supervise children while working.

Pressures appear to lessen, and more solutions become available for households earning $75,000 or more per year. Survey responses show that the largest share of working parents who took paid leave or reduced hours came from these high-earning families.

Many top-paying jobs also provide teleworking options and allow for more flexible schedules, which can benefit working parents. Nearly 70 percent of high-earning households switched from in-person work to telework during the pandemic, compared to just 13 percent of the lowest-earning, according to a 2021 Census report. With telework more widely available to high-earning parents, it makes sense that the largest share of Household Pulse Survey respondents who were able to supervise children while working came from households that made over $100,000 per year.

Because of the wide variety of options available, high-earning households were more likely to remain employed and less likely to take unpaid leave or lose their jobs due to taking time off to care for their children.

Questions for the future

Some employers recognized the broader economic importance of child care and took steps to address workers’ child-rearing needs even before the pandemic.

In 2017, Brunswick Boat Group partnered with the city of New York Mills, Minn., to purchase and renovate a house that today hosts a Head Start child care program managed by MAHUBE-OTWA and provides child care services for Brunswick employees.

"The hours are geared toward accommodating workers’ shifts, which are often outside normal business hours," said Fritze, the operations manager. “I hope more [employers] are starting to have these conversations about helping provide child care.”

Market-based subsidies and low-cost or free programs are not always available for eligible families. Prior research has found that subsidized access to high-quality early childhood education can also have a big impact for families with low incomes and is an investment that provides large returns for the public.

While there is no silver bullet to address the child care challenges in the short-term, their effects on labor supply—and the productivity of the economy—cannot be shelved as one-off occurrences or as symptoms of the COVID-19 pandemic.

“To be able to work, you have to have child care," acknowledged Emily Clark, “but how do we find that balance where we can work and have our children in care, when child care is so expensive and hard to find?”

Haley Chinander

Haley Chinander is an analyst and writer at the Federal Reserve Bank of Minneapolis. In her role, Haley tracks and reports on the Ninth District economy with a focus on labor markets and business conditions. Follow her on Twitter @haleychinander.

Erick Garcia Luna
Director, Regional Outreach

Erick Garcia Luna is a Minneapolis Fed regional outreach director. In this role, he focuses on gathering and analyzing economic intelligence on the regional economy to help inform the work of the Fed. Follow him on Twitter @ErickGarciaLuna.