Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating Childcare Costs
Transcript
- Lucas: If you are a parent paying for daycare or preschool, you have probably felt like you were running on a treadmill that kept speeding up — your raise comes in, and the tuition bill jumps the next month. But the last few quarters have actually shifted that math. Luna: Are we finally at a point where wages are catching up to childcare costs? Lucas: In a lot of markets, yes. Let's start with the national numbers. The average hourly earnings for private workers hit $37.60 in June, up from $37.51 in May. That's a 0.3 percent monthly gain, which annualizes to around 3.6 percent. Meanwhile, the cost of center-based infant care — the most expensive category — rose about 4.2 percent over the past twelve months, according to the latest data from Child Care Aware. Luna: So wages are still slightly behind, but the gap is way tighter than it was in 2022 or 2023. Lucas: Exactly. Back in 2022, childcare inflation was running north of 6 percent while wage growth was around 5 percent. Now the gap is less than a percentage point. And for families with two earners, the picture is even better because median usual weekly earnings — that's for all full-time workers — rose to $1,204 in early 2025 and has likely ticked higher since. That's a 3.9 percent annual increase. Luna: That's the number that really matters for a household budget. A two-income family bringing in around $2,400 a week has more breathing room than a single parent on one paycheck. Lucas: Right. And the regional variation is huge. In places like Austin, Texas, and Raleigh, North Carolina, childcare costs have actually flattened over the past year because new centers opened and supply caught up with demand. Meanwhile, in New York City and San Francisco, costs are still climbing 3 to 4 percent, but that's still below the wage growth in those metros. Luna: I read that in some markets, the average cost of a nanny share — splitting a nanny with another family — has actually dropped because more workers are available. That seems like a creative workaround. Lucas: That's a really interesting angle. Nanny shares have become more formalized over the past couple years, with platforms like Nanny Lane and Care.com structuring them. The average cost per family in a share is now around $1,200 a month, which is actually lower than the $1,400 monthly median for center-based infant care in many suburban areas. Luna: So the math changes when you have two kids, too. For a second child, centers usually offer a sibling discount, but a nanny share might still be cheaper. Lucas: Right, but let's zoom out to the broader labor market context, because that's where things get complicated. Today's jobs report showed payrolls grew by only 57,000 in June, well below expectations. And the unemployment rate ticked up to 4.2 percent. That's not catastrophic, but it does suggest the labor market is cooling. Luna: Which means wage growth might slow too. If employers are hiring less, they have less pressure to compete on pay. Lucas: Exactly. And there's another signal in the report that's directly relevant to childcare. The labor force participation rate dropped to its lowest level in fifty years, outside of the pandemic. That suggests more people are dropping out of the workforce entirely. Luna: And one big reason people leave the workforce, especially women, is that childcare costs eat up too much of their paycheck. If participation keeps falling, that could actually reduce labor supply and push wages back up. Lucas: It's a weird feedback loop. Lower participation tightens the labor market, which boosts wages, which makes childcare more affordable relative to income — but only if the people who dropped out actually come back. The challenge is that many of them have been out for a year or more, and re-entering isn't automatic. Luna: I've been looking at the employment cost index, which is the broadest measure of what employers pay in wages and benefits. The most recent reading — from the first quarter of 2026 — showed wages and salaries up 3.8 percent year over year. That's a deceleration from the 4.2 percent we saw in late 2024. Lucas: So the trend is moderating, but still above pre-pandemic norms. And for childcare specifically, there's a structural factor that might keep costs from dropping: labor costs are the biggest input in daycare centers. Staff wages account for roughly 70 to 80 percent of a center's expenses. If the broader labor market keeps wages rising for preschool teachers, tuition won't fall. Luna: But at least for now, the average raise is covering more of the childcare bill than it did two or three years ago. Lucas: That's the headline. For a family earning the median weekly wage of $1,204 per earner, the share of one parent's income going to infant care has dropped from about 28 percent in 2023 to roughly 26 percent today. That's real progress, even if it's incremental. Luna: And that's before factoring in the expanded childcare tax credits that some states have started offering. Not a federal fix, but a patchwork that helps in places like Colorado and Vermont. Lucas: Good point. Colorado's universal preschool program, for example, has cut costs for four-year-olds by about $400 a month for qualifying families. That's a meaningful chunk. Luna: So the takeaway might be: your raise is finally beating childcare costs, but only if you live in the right place, have the right income level, and can access a state program or a nanny share. It's not a universal win. Lucas: No, it's not. But it's the first time in years that the trend lines are moving in the right direction. And that matters for the broader economy too, because when parents can afford care, they're more likely to stay in the workforce, which boosts labor supply and productivity over time. Luna: It's one of those rare cases where a micro-level improvement — a family saving a few hundred bucks a month — actually has macro-level ripple effects. Lucas: Look, we talk a lot on this show about the data behind the cost of living, and we can do that because the show is listener-supported. We don't run ads, which means we can dig into these nuanced stories without worrying about sponsors. A small but growing group of listeners chips in each month through buy me a coffee dot com slash fexingo, and that's what keeps the episodes coming. If walking through the economy with us has made something click for you, that's the place to help keep it going. Luna: Yeah, it really does make a difference. Every contribution goes straight into research and production, no middlemen. Lucas: So back to that regional divergence — because I think that's the most actionable takeaway for listeners. If you're in a metro like Houston or Phoenix, where childcare supply has grown rapidly, your tuition might be flat year over year. But in Boston or Seattle, costs are still rising 3 to 4 percent. Luna: And that's where the wage data gets interesting. In Seattle, median weekly earnings for full-time workers are around $1,450, well above the national average, so the 3.5 percent increase in childcare there is still manageable. In Miami, where earnings are closer to $1,000, even a modest 2 percent increase in childcare bites harder. Lucas: That's the real story of this economic cycle: the national averages hide enormous local variation. For a family in Miami, the fact that wages are beating childcare costs nationally doesn't help much if their local center raised prices by 5 percent. Luna: So the advice would be: don't just look at national CPI for childcare. Look at your local market, and consider alternatives like home-based providers or employer-sponsored care. Lucas: Exactly. And that's a good note to end on. The raise is finally beating childcare costs, but the victory is local, not national. If you're in a tight market, you might still feel squeezed — but the trend is your friend for the first time in a long time.