First, although child-care workers aren’t expensive on an hourly basis—their median hourly wage is less than that of non-farm-animal caretakers and janitors—labor is the biggest line item for child-care facilities. Unlike, say, car companies, they can’t cut spending by moving labor to poorer countries or by replacing human workers with machines. Like health care and education, child care requires lots of domestic salaries, which means that its costs will continuously rise faster than overall inflation.
The industry is highly regulated, perhaps reasonably so, given the vulnerability of the clientele—which is the second key driver of child-care costs. As Jordan Weissmann has reported in The Atlantic, states with strict labor laws tend to have the most expensive facilities. In Massachusetts, which requires one caregiver for every three infants, the average annual cost is more than $16,000. In Mississippi, which allows a one-to-five ratio, the cost is less than $5,000. Thanks to high turnover rates—a result of those low wages—companies have to constantly train new workers to meet regulatory standards. Other costs include insurance to cover damage to the property and worker injuries, as well as legal fees to deal with inevitable parent lawsuits.
Finally, there’s the real estate. The most expensive child-care facilities tend to be situated near high-income neighborhoods or in commercial districts, where the rents are high. And they can’t downsize in a pinch, because most states require them to have ample square footage for each kid.