Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Childcare Industry
Transcript
- Lucas: So Luna, I was looking at the latest JOLTS data — job openings ticked up to just over 7.6 million in May. That's still a lot of vacancies. Luna: Right, but the labor force participation rate hit a 50-year low last week, outside of the pandemic era. People are just giving up. Lucas: Exactly. And one of the biggest reasons people drop out — especially women in their prime working years — is childcare. It's become unaffordable. The cost of daycare has been rising faster than inflation for years, but in a stagflation environment, the squeeze gets brutal. Luna: We've talked a lot about how stagflation reshapes industries — rental markets, art, gold mining. But childcare feels like a foundational one. If parents can't afford care, they can't work. If they can't work, labor participation drops further. It's a vicious cycle. Lucas: And it echoes the 1970s in an ironic way. Back then, high inflation and slow growth actually pushed women into the workforce — they needed the income. But today, the math doesn't work. Let me give a concrete example. There's a mid-sized daycare chain in Ohio — four centers, about 300 kids total. They raised tuition by 18 percent this year to cover higher rent, higher wages for staff, higher food costs. And in six months, they lost a third of their families. Luna: Wait — a third? That's massive. Those families didn't just switch providers. They either had a parent quit work or found informal care with grandparents. Lucas: Exactly. The chain's owner told me that most of the families who left had both parents working in retail, hospitality, or admin jobs — hourly wages around $18 to $22 an hour. After the tuition hike, full-time daycare for one child was eating up more than 30 percent of their household income. For two kids, it was over half. Luna: So the economics just break. And that's with the national average for infant daycare now over $1,400 a month. In cities, it's $2,000 plus. Lucas: Right. And here's the stagflation twist: the centers themselves are squeezed too. Their biggest cost is labor — they need low child to staff ratios. But to attract workers in a tight labor market, they have to pay more. The Ohio chain raised wages for teachers by 12 percent this year, just to keep staff from leaving to Target or Amazon warehouses. Luna: Which then forces them to raise tuition even more. It's a cost-price spiral that feels very 1970s. But there's a difference this time, right? Lucas: Yeah. In the 1970s, real wages were falling, but dual-income households became the norm because families needed two paychecks just to stay afloat. Today, even two paychecks often aren't enough to cover childcare for two kids. So one parent — disproportionately the mother — drops out. That's part of why the participation rate is so low. Luna: And the data backs that up. The June payrolls report showed only 57,000 jobs added — way below expectations. Some of that is the labor market cooling, but I suspect some is workers who just can't make the childcare math work. Lucas: Let me tie in the inflation numbers. The May CPI came in at 334.0 — that's a 3.2 percent annualized rate. Core CPI is even stickier. But childcare costs are rising at more like 8 to 10 percent nationally. So it's not just inflation — it's a structural cost problem. Luna: Which hits low- and middle-income families hardest. The kind of families that can't absorb an 18 percent tuition hike. Lucas: Right. And there's a broader implication: when parents leave the workforce, the economy loses potential output. Nominal GDP is $31.8 trillion, but real GDP growth is only 2.1 percent annualized. If more parents could work, that growth rate could be higher. It's a drag on the whole economy. Luna: We should also mention the supply side. The number of licensed daycare centers has actually shrunk since 2020 — many never reopened. So even if families want formal care, there are fewer slots. Lucas: That's a great point. The Ohio chain I mentioned is one of the few remaining in its county. They have a waiting list now, even after the tuition hike. But the families on that list are higher-income — the lower-income families just dropped out of the market entirely. Luna: So what's the solution? In the 1970s, we didn't have much of a policy response for childcare. Today, there are some state-level subsidies, but they're often underfunded. Lucas: Yeah, and federal proposals like the expanded child tax credit expired in 2022. There's been talk of a new childcare bill, but nothing's passed. Meanwhile, the private market is struggling to provide affordable care. It's a classic market failure amplified by stagflation. Luna: And this connects back to the labor force participation rate. If we can't solve childcare, we can't bring people back into the workforce. The participation rate is at 62.5 percent — near a 50-year low. That's a huge structural problem. Lucas: Exactly. And that's why we keep coming back to stagflation. It's not just about oil prices or monetary policy. It's about how slow growth and high inflation hit the everyday infrastructure of people's lives. Luna: And if walking through the economy with us has made something click, you can support the show at buy me a coffee dot com slash fexingo. It's what keeps us ad-free and able to dig into stories like this. Lucas: Yeah, listener support makes a real difference. Back to the childcare question — one thing I'm watching is whether more employers start offering on-site daycare or subsidies. A few big tech firms already do, but that's a tiny fraction of the market. Luna: Right. And that would only help higher-wage workers anyway. The real challenge is for the retail and hospitality workers who make up a big chunk of the labor force. Lucas: So it's a stubborn problem. And in a stagflation environment, with government budgets tight and household budgets tighter, I don't see a quick fix. But understanding the mechanics — the cost spiral, the labor participation trap — is the first step. Luna: Well, we'll keep tracking it. Thanks for listening — and if you want to help us keep digging, that's buy me a coffee dot com slash fexingo. Lucas: Next episode, we're looking at how stagflation is reshaping the funeral industry. It's a sobering topic — pun intended. But there's some fascinating economics behind it.