New state mandates like paid family and medical leave are squeezing childcare providers

Thank you, government

Back in 2023, I noted that childcare is relatively expensive in Minnesota because, as my colleague Martha Njolomole has written at length, the regulatory burden on providers is relatively high here. An “unprecedented” spate of day care closures in St. Paul illustrates this, and inidicates that the problem is getting worse.

The Star Tribune reports:

After 55 years, Children’s Country Day School plans to close at the end of this summer. Last week, Children’s Center Montessori ended a 53-year run. And 42-year-old Sandcastle Early Learning Center also shuttered last month.

Before that, two other St. Paul child care centers — both of which served kids for more than 90 years — closed their doors.

“They weathered the Great Depression and World War II, OK? What is happening in 2025?” asked Celeste Finn, executive director of Big Wonder Child Care.

A good question:

Child care owners and staff describe a host of problems making it hard to continue.

Low pay for challenging work makes it difficult to attract and keep staff. Burnout continues to be high post-pandemic. Profit margins can be razor-thin — particularly if providers are trying to keep their rates more affordable, offer staff better pay and benefits or maintain lower staff-to-child ratios. And inflation is eating further into those margins.

The issue of low pay is a difficult one in an industry such as this. As I’ve noted before, where the labor is effectively the product, there is little scope for the sort of productivity gains which drive real wage increases. Yet, if these jobs are to be done we have to pay people a rate which will attract them: this increase in wages without commensurate increases in labor productivity is known as “Baumol’s cost disease.”

Given these difficulties, we should not be acting to make the problem worse. Yet, that is what the state government has done:

They noted new policies — including earned sick and safe time and the upcoming paid family and medical leave program — that compound challenges.

Census Bureau data show that the number of residents under 5 years old in Minnesota fell by 5.4% from 2020 to 2023. While that might not be the ideal way for this situation to ease, it does indicate that the problems ought not to be getting worse at quite the rate they seem to be. State government, which claims to be concerned about Minnesota’s high and rising childcare costs, shoulders a good part of the blame.