Child care costs are skyrocketing around the world

Around the world, rising inflation is pushing child care costs up to unprecedented levels. Average day care fees went up 6 per cent in 2023 from the previous year, according to mobility company ECA International, while in the US, costs jumped by 9 per cent. Reversing this trend is key to pulling economies out of recession, promoting growth and creating more equitable societies, but so far, many governments have done little to relieve the financial burdens facing parents of young children.

The stress falls disproportionately on women, who are usually the ones to take on the bulk of child care responsibilities. Given the choice of working just to afford daycare, women are opting to reduce their hours, forego promotions, or drop out entirely. Others are deciding to have fewer children, or none at all. Pressure to return to office hasn’t helped, as many mothers are only able to join or stay in the workforce under flexible arrangements.

“The economy as a whole pays a high price for leaving women out of the workforce,” said Adriana Dupita, an analyst at Bloomberg Economics. “Global GDP could be some 10 per cent higher if female labor participation matched that of men.”

In the US, an estimated $237 billion a year vanishes due to women paring back their workloads to care for kids. In the EU, that number is around €242 billion ($255 billion). Study after study has shown that increasing female workforce participation, by contrast, increases output and reduces levels of inequality and extreme poverty.

Credit: Bloomberg Photo

Given the benefits, governments and companies are experimenting with ways to accommodate working parents. In Japan, some businesses provide subsidized child care and family-friendly housing as part of employee benefit packages. In the UK, where many employers offer “enhanced maternity pay” to retain new mothers, the government is planning to expand subsidised rates for childcare.

Yet so long as costs stay high, everyone loses out. When it comes to how women choose to live, work, and form their families, “child care cost is the key driver,” said Joeli Brearley, founder of UK charity Pregnant Then Screwed.

Bloomberg looked at five countries to examine the effects of higher child care costs, and the ways in which mothers are being forced to make tradeoffs between their families and jobs.

UNITED STATES

Four and a half years ago, Amy Funes was making $38,000 in an administrative role at a New York City nonprofit when she found out she was pregnant. She began looking for child care options, and was informed that she earned too much to qualify for the state subsidy that she would need to afford full-time daycare.

Americans currently pay among the most in the world for child care in terms of share of income, according to the latest OECD figures — a ratio that has worsened as costs have risen. In 2023, the average weekly daycare rate for one child in the US was $321, up from $284 the year prior. In New York City, the rates are around 16 percent higher. Partly as a result, the US has one of the lowest percentages of women in the workforce among developed countries.

The last time the US had a universal child care system for pre-elementary school-age kids was during World War II, when women supported their families while men fought overseas. Since that ended in 1946, nothing has replaced it. Parents now often rely on a patchwork of expensive private carers, part-time daycare for children too young to enroll in kindergarten, help from grandparents or other family members who live nearby and babysitters and nannies to fill in the gaps.

Once her son was born, Funes, now 44, came to the conclusion that New York’s public assistance system was structured in a way that made it impossible for her to both work and access subsidized daycare. Leaving her job was the only way she was able to receive short-term benefits. Eventually, she and her son Leo moved into a shelter. “I cannot believe it’s this difficult for a single parent to take care of one child,” she said.

Many New Yorkers feel the same way. In 2022, according to a study by the Economic Development Corporation, the city lost roughly $23 billion as a result of parents scaling back their working hours or relocating due to child care issues.

With child care becoming increasingly unaffordable, some states are testing creative solutions. Kentucky enacted a rule that made all child care workers eligible to receive free child care themselves. In New Mexico, one of the poorest states in the country, voters passed a measure that would allow it to fund universal preschool through oil revenue.

When local governments provide free daycare services, parents do use them — if they fit their schedules. In 2014, Vermont rolled out 10 hours per week of universal pre-K to children between the ages of three and five. A follow-up analysis of the 2018/2019 school year found that such free partial programs were less likely to be at capacity than full-day private ones, suggesting that for many parents, a complete day of care outweighed concerns over cost.

UNITED ARAB EMIRATES

In the United Arab Emirates, a federation consisting of seven cities with a disproportionate number of high-income earners who hail from abroad, well-off parents usually choose between two options: nanny or nursery.

Most of the expat community live or work in Dubai, known for being the regional hub for business and leisure. Many people there hire nannies, who tend to charge as much or more than day care — which cost an annual average of 64,275 dirhams ($17,500 USD) a year in 2023 — with fees going up depending on a person’s experience, language skills and nationality. Almost all nannies come from abroad, and under the UAE’s kafala, or “sponsorship,” system, must be hired through a government process that can take up to two years to complete and require employers to pay for visas and fees associated with insurance and travel.

Credit: Bloomberg Photo

Amber Dale considered these factors when she began looking for child care. She ultimately opted to send her son to a nursery — partly to cut costs, and partly because, after years of pandemic isolation, she wanted him to be around other children.

Yet that decision forced Dale to reorganise her life around child care. To afford nursery, the 46-year-old had to dip into her savings. To make sure somebody was home when her son got out at 2 pm, she had to significantly reduce her hours at her marketing consultancy.

The emirate is the 18th most expensive city in the world, and according to Dale, about two-thirds of her income goes towards her son. Now that he is in school, she and her partner spend $23,958 a year on school, up from $17,424 when he was in day care. Working fewer hours has meant getting fewer clients, and rising costs have made budgeting necessary. The price of her son’s favorite biscuits has gone up by a third since early 2023. Two hours in an indoor play area — a necessity in the scorching city-state — sets her back $44.

For people like Dale, who is neither Emirati nor extravagantly wealthy, it’s getting harder to live in Dubai, a place the Indian national has called home for more than two decades. About 4,500 millionaires were expected to move to the UAE last year, and while Emiratis can defray higher costs through benefits including cheaper tuition and medical care, there are no such protections for foreigners. As a result, many are downsizing or considering other options, like Saudi Arabia.

“As expats, we also have to factor in visa costs and unexpected expenses,” Dale said of herself and her husband, “We’re lucky to live in Dubai, we love it here, but it’s definitely hard to budget for kids.”

BRAZIL

Cirlea Paulichi manages a nursery that serves about 100 children in the city of São Paulo. Paulichi is a lawyer by training, but after losing her job nine years ago, the 51-year-old transitioned to child care.

The kids who attend Paulichi’s center are between the ages of four months and five years old. Most arrive at 7 a.m. and stay until 7 pm five days a week. For this, families pay about 2,000 reais ($406) per child per month, in a country where minimum wage is $268 a month. While the government technically provides free public daycare, long waiting lists and a shortage of spots mean that only a lucky few can access these services. As a result, only 30% of children in Brazil younger than three are enrolled in daycare.

This access gap has only widened in recent years. More than 2,500 of Brazil’s roughly 74,400 daycare centers permanently closed during the pandemic, and private centers have reopened at three times the rate as public ones.

In her nine years running the daycare, Paulichi says that her biggest challenge has been striking a balance between covering the center’s expenses and staying competitive — especially as inflation and higher energy prices have driven up operating costs. “What I spend to feed 100 children today is what I spent on 140 children before the pandemic,” she said. When families struggle to make ends meet, she sometimes offers flexible arrangements to keep kids at her center.

While Paulichi worries that many parents see daycare as expendable, Brazil has demonstrated the difference it can make. In 2007, lawmakers in Rio de Janeiro began allocating spots in free public daycare through a lottery system, replacing a first-come, first-serve model. A decade later, households that had secured spots had higher average incomes, driven largely by the fact that grandparents and older siblings were able to join the workforce, and parents could keep their jobs, rather than quitting to take care of kids.

UNITED KINGDOM

Monthly nursery costs for Fawn Hudgens’s two-year-old daughter rose last April from £1,200 to £1,335 ($1,459 to $1,698 USD). Hudgens, who worked as a vice-president of marketing for a London-based software company, was also spending $182 a week on a Friday nanny share. When she and her partner broke down the numbers, they realized that child care was costing them more than $19,000 a year — approximately 15 per cent of her salary.

While the couple had been considering another baby, they couldn’t see a way to afford the additional care, which is most expensive for infants. Instead, the best options were for Hudgens to either leave her job to watch both children or wait until her older daughter turned three before having another, at which point they would become eligible for up to 30 hours a week of free nursery care. But that was a year and a half away.

“It takes a toll,” the 39-year-old said of her situation. “The idea of my having to stay home instead of working if we wanted a bigger family is not great.”

Government benefits are relatively generous in the UK, granting up to six months of paid maternity leave and subsidies to offset nursery costs for children older than three, regardless of income. Low-income families are eligible for additional subsidies through a program called “universal credit,” which offers up to 15 hours a week of free child care for two-year-olds, a small monthly revenue from the state, and as much as 85 per cent reimbursement for child care costs.

Even so, OECD data shows that parents in the UK spend on average 29 per cent of their household income — about $17,000 a year — on child care, one of the highest ratios in the world.

This puts many women in the UK in the position that Hudgens found herself in — earning too much to qualify for low-income government subsidies, yet not enough to comfortably afford full-time child care. Close to 40 per cent of women in the UK rolled back their hours in the year to March 2023 to look after kids, according to a poll conducted for Bloomberg News by Deltapoll. The poll also found that one in five Britons have left the workforce altogether for the same reason. The economic impact of child care costs — that is, the missing output of women who have reduced working hours because of a lack of good care options — is estimated to be at least $32.7 billion, according to the UK think tank Center for Progressive Policy.

Efforts are being made to unwind these dynamics. Nearly three-quarters of all companies now offer “enhanced maternity leave,” which provides at least six weeks of full pay for new mothers, and last March, the ruling Conservative party unveiled a plan to increase funding to care providers, and to gradually roll out benefits over the next two years. All working parents with children under the age of five should be able to access 30 hours of subsidized child care a week by September 2025, when the full measures will be implemented.

Under the plan, Hudgens estimates her child care spending would be reduced by half. That wouldn’t fix everything, she said, but it would still be “a godsend.”

JAPAN

Women don’t have the option of dropping out of the workforce in Japan — instead, they’re typically expected to hold down a job, take care of kids and run a household.

Rie Yanagisawa, 35, does all of this. Alongside her daily five-hour shifts at a semiconductor-related firm in central Japan, Yanagisawa spends eight hours a day looking after her two young children while her husband works between 60 and 65 hours a week, often getting home around 10 p.m.

“I’m basically a single parent on weekdays,” said Yanagisawa, who worked full-time until the birth of her first child five years ago.

Such arrangements are common in Japan, where women with small children shoulder about seven hours a day of unpaid housework and child care, roughly five times as much as men, often while holding down a job. Female labor participation rates have shot up in the past decade, and as of last August, nearly three-quarters of working-age women held some form of employment.

While Japan’s roughly 40,000 state-backed nurseries are far more affordable than their counterparts in the US and UK, costing an average of 29,500 yen ($200 USD) a month, the system lacks flexibility — Yanagisawa has to pick up her kids the moment one of them has a slight fever, and child care isn’t on offer when she’s not at work. Other options are also limited. Hiring nannies is socially frowned upon and expensive, and as young people from rural areas flock to cities, grandparents are far less available to look after kids.

Such challenges, combined with persistent wage stagnation, are contributing to Japan’s falling birthrate, which is already among the world’s lowest.

Prime Minister Fumio Kishida has pledged around $23.5 billion to reverse this decline, but previous efforts to incentivize having children — including making child care free for three-to-five-year-olds, providing cash handouts to households with kids, and subsidizing children’s medical fees — have fallen flat.

For now, some of the more promising initiatives are coming from the private sector.

Cosmetics giant Shiseido, for instance, offers up to five years of maternity leave, reduced working hours until a child turns nine, employee subsidies for breast pumps and pumping breaks twice a day. Trading firm Itochu Corp. has adjusted its core work hours toward a morning-focused schedule, allowing employees with small children to leave after 3 pm, and prohibiting work after 8 p.m. These family-friendly policies have made an impact: Shiseido has topped local rankings of Japanese firms with the most empowered female employees, and for the year ending in March 2022, the fertility rate among Itochu’s employees rose to 1.97, far above the national average.

For Yanagisawa, having the flexibility to work part-time means that she'll probably stay with her current employer for a while, despite being paid less than she’d like.

“Right now I'd rather focus on looking after my kids,” she said. “I'll probably use my company’s shorter-hour work program to the full, until my youngest turns seven.”