If Amazon sponsored its own on-site day-care center, it could meaningfully impact the overall market.
The child-care market in Seattle is broken.
As a recent article in The Seattle Times pointed out [“ ‘You should get on a waiting list’: Seattle’s child-care crunch takes tolls on parents, providers”], demand for child care is far outstripping supply, resulting in astronomical costs of roughly $12,000 per year and yearlong wait lists.
The problem is an acute shortage of supply and the situation is worsening as the number of licensed facilities in King County has fallen in the past five years by 285, leaving 1,939 providers for parents to wrestle over. This seems puzzling: high tuition and long wait lists indicate a lucrative market for providers, so why the decline? The simple answer is: high costs.
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Setting up a child-care facility is not cheap. Providers must deal with high fixed costs, like expensive real estate, insurance costs and licensing fees. These fixed costs don’t decline with scale as the state requires fixed ratios of square footage and child-care workers per child, with even higher ratios for babies. Thus, provider margins are razor thin and limit new entry into the market.
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To meet the needs of Seattle parents, the market requires external intervention. In the absence of child care, we see parents choosing to stay at home, and more often than not, this results in women dropping out of the workforce. This decline in female labor force participation is only one of the many negative externalities of not solving this issue.
If high costs are the cause, the obvious solution is for the state to subsidize child-care providers. But, as with any state-sponsored service like education or health care, this looks to be an expensive undertaking. With limited state budget and competing priorities, the state may not be able to provide parents relief any time soon.
To make things worse, current state policies only exacerbate the problem.
First, the state has increased licensing requirements to regulate quality. Increased regulations — while good for quality — work to increase provider costs, further decreasing supply. (The state’s recent increase in minimum wage to $15 an hour has further pinched providers’ profit margins.)
Second, recognizing the equity impacts of high child-care costs, the state provides vouchers to low-income families. These vouchers, while well-intentioned, only increase demand and inflate prices.
A better solution is to turn to employers.
The only providers that are profitable at scale are companies like Bright Horizons that enter into employer-sponsored contracts, reducing their fixed costs greatly.
This poses an interesting solution for the Seattle area. The region is dominated by behemoth employers like Amazon, Microsoft and Boeing that employ approximately 8 percent of the workforce. If Amazon sponsored its own on-site day-care center, it could meaningfully impact the overall market.
Providing employees with on-site child care improves employee productivity and long-term retention. Patagonia touts its on-site child-care center and paid family-leave policy as responsible for 100 percent retention of mothers. For tech giants like Amazon and Microsoft, the benefits are greater, with a potential boost in public image in an industry that is under severe attack for its treatment of women.
Currently, employers are incentivized by a 25 percent federal-tax credit on child-care facilities’ expenditures. States like Georgia provide further incentives with 100 percent state tax credits. Washington can leverage employer investment and kick-start much-needed growth in child-care supply with similar incentives.
For companies like Amazon, on-site child care may already be affordable without incentives. CEO Jeff Bezos’s recent $2 billion donation will partly fund high-quality pre-K. But the Seattle child-care market may be more impacted if all Amazon employees just asked, “If I can bring my dog to work, why not my baby?”