The Economics of Building a Childcare Business

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, the economics of care work, one of these topics that I think we're both interested in, but news developments keep derailing our pursuit of this area, right?

Tracy Alloway (0:26)

Things keep happening.

Joe Weisenthal (0:27)

Yeah, really.

Tracy Alloway (0:28)

And so we can't talk about the economics of preschool.

Joe Weisenthal (0:30)

And I guess the one other time we sort of talked about it, so much of the conversation about infrastructure or making this economy more productive, so much emphasis on the built economy.

Tracy Alloway (0:43)

The good side of the economy.

Joe Weisenthal (0:44)

The good side, factories, and can the factories make good batteries and stuff like that. But I do think that when you look at long-term challenges for the US., so many things related to child care, elder care is a really big one, and the economics of these industries that aren't gonna have some huge productivity breakthrough tomorrow, where it takes a lot of labor and they seem to keep getting more challenging for people.

Tracy Alloway (1:12)

Right. In many respects, they seem more troublesome than some of the good sides. I think we talked about this before, but certainly if you look at inflation numbers and if you divide them up by consumer goods versus services, the really long-term price pressures are mostly on the services side. So again, things like health care and education. And then secondly, to your point, in some respects it feels like, okay, if there's a bottleneck of a particular good, well, we can build a new factory or increase capacity at the ports.

And I'm sort of simplifying it. But when it comes to care work, there's this massive labor issue, which you can't just build 50 new preschools in a particular city because you would still need to man them. And even then, even if you could get the labor to keep them going, there is a fundamental issue with the business model itself.

Joe Weisenthal (2:08)

Totally, and you mentioned the ports and you said you're oversimplifying, but I don't think so. I mean, that is sort of what a lot of this conversation is about. You can expand them. You could repeal the Dredge Act and allow more boats into the port of Los Angeles. And then in theory, some ports are automated so that one person can do what 10 people did in terms of unloading containers and things like that.

I mean, maybe at some point we'll have robots take care of all old people and children at some point, but that does not seem imminent.

Tracy Alloway (2:37)

It seems rather dystopian though, not imminent, but very dystopian. But okay, so we have done an episode on this with Nancy Folbrey where we talked sort of generally about the issues at play with preschool education.

But I think we need to delve in a little bit more on some of the practical difficulties of running this type of business.

Joe Weisenthal (2:59)

Right, and this is one of those things that's not like a post pandemic. I mean, it's worsened in this sort of current post March 2020 era, like the stress that families feel about childcare. But like, in least in New York City, people were stressed about it in 2019 and 2018 and probably as long, you know, for years and years. So there's like something like deeply structural going on. And you asked a really good question in the interview with Nancy Folbrey. It's like, where does the money go?

Tracy Alloway (3:26)

Where does the money go?

Joe Weisenthal (3:27)

Where does the money go? What is the cost?

Tracy Alloway (3:28)

I think I'm just gonna be asking this question over and over again on this episode, but I do not understand how people can pay $2,000 a month for childcare, and yet the childcare workers themselves seem to be not paid very well. So where is the money going?

Joe Weisenthal (3:46)

And I think there are many people listening who'd be like, wait, Tracy knows of a place where you can get childcare for $2,000 a month.

Tracy Alloway (3:52)

Oh, really?

Joe Weisenthal (3:53)

No, no, no, I know. Is that cheap?

Tracy Alloway (3:55)

I was trying to think of something reasonable.

Joe Weisenthal (3:57)

I think that there are many people who pay, I don't know. I actually don't know, but you're right. It is an expensive cost for any family, particularly in cities.

And also it seems to be the case that the workers generally are not paid all that well in many locations at least. So your question of like, where's the money going? What's the cost, et cetera? Like we just need to dive more into that.