Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Childcare Costs Shape National Birth Rates
Transcript
- Lucas: Luna, I've been digging into something that feels like it should matter more in the birth rate conversation: the actual cost of childcare. Not just the sticker price, but how it interacts with everything else a family is juggling. Luna: It's one of those things people talk about anecdotally all the time — 'daycare is basically a second mortgage' — but I don't think we've ever pinned down the economic evidence. Lucas: Right. So the OECD has been tracking this for years, and the most recent data from their 2025 family database is striking. In countries where net childcare costs — after subsidies and tax breaks — exceed 15 percent of the median household income, fertility rates cluster below 1.5 children per woman. In countries where costs are under 10 percent, the average is closer to 1.8. Luna: That's a meaningful gap. A third of a child per woman, just based on what people pay for daycare. Lucas: Exactly. And the stand-out case right now is Germany. In August 2025, the federal government rolled out a 7.6 billion euro package to make daycare essentially free for families with children under three. Previously, costs varied wildly by state — some families were paying over 400 euros a month. The new law caps parental contribution at zero for the first three years. Luna: That's enormous. Seven point six billion is about 0.2 percent of GDP. What's the early data showing? Lucas: Well, it's only been nine months, but the early birth registration data from the first quarter of 2026 shows a noticeable uptick in births among women aged 25 to 34 — the cohort most likely to be making that first-child decision. The Federal Statistical Office reported a 3.2 percent year-over-year increase in that group for Q1 2026. That's the first positive quarter in that demographic since 2021. Luna: Three point two percent doesn't sound huge, but in a country with a fertility rate around 1.5, that could be the difference between stabilising and sliding further. Lucas: Exactly. And it's not just Germany. Let's look at the counter-example: the United States. The average cost of full-time daycare for an infant in the US is about 1,300 dollars a month. In some states like Massachusetts or New York, it's over 2,000. As a share of median household income, that's around 18 percent nationally — and for single parents, it can be over 40 percent. Luna: And the US fertility rate has been below replacement — 2.1 — since 2007. It hit a record low of 1.62 in 2024. I've seen the argument that it's not just cost, it's also the lack of paid parental leave and the cultural expectation that mothers should stay home. But cost is the one that shows up in every survey. Lucas: Yeah, the Pew Research Center's 2025 survey on family formation found that 64 percent of American adults who say they want children but haven't had them cite the cost of childcare as a major reason. That's higher than housing costs, student debt, or job stability. Luna: So if you were advising a government that wants to raise its birth rate, where do you start? Just cut the cost and hope for the best? Lucas: That's the question. And it's not that simple. Look at Sweden: they have heavily subsidized childcare, and their fertility rate is 1.7 — higher than the EU average, but still below replacement. Meanwhile, France spends about 3.5 percent of GDP on family policies and has a rate around 1.8. So subsidies help, but they're not a silver bullet. Luna: There's also the role of informal care. Grandparents, for instance. In many Southern European countries, grandparents provide a huge amount of childcare, and that keeps costs low for families. But that's not a scalable policy. Lucas: It's actually a hidden subsidy. The OECD estimates that if you imputed market value to grandparent-provided childcare in Italy, it would be worth roughly 1.2 percent of GDP. But relying on that has its own risks — what happens when those grandparents age out or move away? Luna: Right, and it also assumes grandparents live close by, are healthy, and want to provide that care. That's not a given. Lucas: So the policy takeaway seems to be: reducing the direct cost of childcare can move the needle, but it works best when combined with other supports — paid leave, flexible work arrangements, and maybe even cultural shifts around parental roles. Luna: Speaking of what works — you know, we spend a lot of time on this show digging into data and policy like this, and we deliberately don't run ads on these episodes. Lucas: Yeah, that's a conscious choice. We want this to be a resource you can just listen to without interruption. If walking through the economy with us has made something click, and you want to support that approach, the link is buy me a coffee dot com slash fexingo. Luna: It's a small way to keep the show exactly what it is. Appreciate anyone who does. Lucas: Alright, back to the numbers. One thing I find really interesting is the gap between stated preferences and actual behavior. Surveys consistently show that people in developed countries want around two children on average. But they have fewer. That gap — the 'fertility gap' — is partly about cost and partly about coordination problems within households. Luna: Coordination problems meaning who does the childcare? Because even when daycare is affordable, someone has to drop the kid off and pick them up. That's often still the mother. Lucas: Exactly. The OECD's 2025 time-use data shows that in dual-earner households with a child under six, women spend about 3.2 hours per day on childcare, compared to 1.8 for men. That gap hasn't budged much in a decade. So even if daycare is cheap, the mental load and the time cost remain unevenly distributed. Luna: That might explain why some Nordic countries, despite generous policies, haven't seen fertility rates rebound to replacement. The gender equity piece is still incomplete. Lucas: Right. There's a great paper by economists at the University of Oslo that found that in municipalities where fathers took more parental leave — beyond the earmarked 'daddy quota' — fertility rates were about 0.1 children higher. It's a small effect, but it suggests that when care responsibilities are shared more equally, the second or third child becomes more feasible. Luna: So it's not just about the price of daycare. It's about who's expected to use it. Lucas: Exactly. And that brings us to another case: Japan. They've tried subsidizing childcare aggressively. In 2023, they made preschool free for all children aged three to five. But their fertility rate kept falling, hitting 1.2 in 2025. Why? Because the work culture remains brutal — long hours, limited flexibility, and a strong norm that mothers should handle the home. Luna: So the cost was removed, but the time cost didn't change. And the opportunity cost for women — in terms of career advancement — remained huge. Lucas: That's a key point. A 2024 IMF working paper modelled the effect of childcare subsidies alone versus childcare plus paid parental leave plus workplace flexibility. The combo package had roughly double the impact on fertility intentions compared to subsidies alone. So policy makers need to think systemically. Luna: What about the private sector? Are there companies that have tried to address this? Lucas: A few. Patagonia has had on-site childcare for decades and reports that 100 percent of mothers return to work after maternity leave. That's not typical. In general, corporate childcare benefits are still rare outside the tech sector. But the business case is there: lower turnover, higher productivity. Luna: It's interesting that we're talking about fertility as an economic outcome. It's such a personal decision, but it's shaped by these very concrete economic forces. Lucas: I think that's the demographic lens. Individual choices aggregate into national trends, and those trends have huge implications for everything from pension systems to housing markets to innovation. The cost of childcare is one of the few levers that policy can actually pull. Luna: And pulling it the right way seems to require more than just writing a check. Lucas: Yeah. It's about designing a system where having a child doesn't feel like a financial gamble or a career sacrifice. That's the real challenge.