Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Raises Are Beating Childcare Costs
Transcript
- Lucas: So, an odd thing happened on the way to the childcare center: the bill is finally starting to feel less terrifying. And I don't just mean anecdotally—the data says that wage growth is now outpacing the cost of childcare for the first time in years. Luna: Okay, I need to hear more about this. Because as a parent, I look at that monthly payment and it feels like it's only going one direction—up. Lucas: Right, and that's been true for a long time. Childcare costs have been rising faster than overall inflation for most of the last two decades. But let's look at the numbers as of this summer. Average hourly earnings for private workers are up about 3.4 percent from a year ago. Meanwhile, the CPI for childcare? It's risen only about 2 percent over the same period. Luna: So, for the first time in a while, your raise is actually beating the cost of care. That's a real shift in purchasing power. Lucas: Exactly. And it's not just hourly earnings. The Employment Cost Index for wages is up about 3.5 percent year-over-year. So across the board, wage growth is hovering in that 3.4 to 3.5 percent range, while childcare inflation has cooled to around 2 percent. That's a meaningful gap. Luna: But why is childcare inflation cooling? Is it just a broader slowdown, or is something specific happening in that market? Lucas: It's a bit of both. The overall inflation environment has cooled—CPI is running at about 2.6 percent annualized. But childcare has actually decelerated more sharply. One big factor is that the pandemic-era childcare crunch is over. A lot of providers that closed in 2020 have reopened, and new centers have popped up. Supply is simply better. Luna: So, more supply, more competition, and that's holding price increases down. Lucas: Right. And there's also the labor piece. Childcare centers are having an easier time hiring staff now, so they're not forced to jack up wages as much to attract workers. That was a huge cost pressure a few years ago. Luna: So, we're seeing the cost of care grow slower than wages, but does that mean it's actually affordable? I mean, the average cost of center-based care is still like $1,000 a month or more. Lucas: Oh, absolutely, it's still a huge burden. We're not saying it's cheap—just that the trend is finally moving in the right direction. For a median family, that's still a big chunk of income. But the real wage gain is a meaningful shift. Luna: And this is one of those times where the 'average' hides a lot. For low-income families, childcare costs can be a much higher share of their budget, so even a small slowdown can be significant. Lucas: That's a great point. For families earning the median weekly wage—about $1,200 a week—a 3 percent raise is roughly $36 a week more. If childcare costs are only up 2 percent, that's maybe $4 a week more. So the gap goes into their pocket. Luna: But it's not just about the pocket. It's about whether parents can actually work. If childcare is too expensive, one parent often drops out of the labor force. And that has ripple effects for the whole economy. Lucas: Exactly. This is one reason why childcare affordability is an economic issue, not just a family issue. When parents can't afford care, they either reduce hours or leave jobs, and that tightens the labor market. So a real slowdown in childcare inflation is genuinely good news for the broader economy. Luna: And there's a policy angle here too. The expanded child tax credit from a few years ago lapsed, but some states have stepped in with their own subsidies. Do you think that's helping? Lucas: It's hard to isolate the impact, but certainly, state-level subsidies and the increased supply have played a role. Also, many employers are now offering childcare benefits as a retention tool. That's been a shift in the labor market. Luna: So, is this trend likely to continue? Or could childcare costs reaccelerate? Lucas: That's the big question. If we see another supply shock—like a flu season that shuts down centers—or if federal funding for childcare expires, prices could jump again. But for now, the structural pressures have eased. Luna: And if you're a parent in a two-income household, that extra bit of real wage growth might mean the difference between breaking even and actually saving a little. Lucas: Right. And this kind of analysis is why we do this show—to help you see where your money actually goes and whether your raise is keeping up. If that's been useful to you today, you know, these episodes stay ad-free because of listener support. If you find value in what we do, you can buy me a coffee at buy me a coffee dot com slash fexingo. It's a small way to keep this going. Luna: And it genuinely helps us keep breaking down these numbers for you, week after week. So, Lucas, let's zoom out. How does this fit into the larger inflation picture? Lucas: Well, overall, we're seeing wage growth moderate from the hot post-pandemic levels, but it's still above the pre-pandemic trend. And with headline CPI at 2.6 percent, real wages are positive—that's a big shift from a couple years ago when we were talking about negative real wage growth. Luna: So, the worker's purchasing power is finally improving, but it's still not back to where it was before the pandemic? Lucas: Right. For many workers, there was a steep drop in real wages in 2021 and 2022, and it's taken a while to catch up. Now, we're seeing real wages grow, but they're still below the 2019 peak for many. Luna: And that's important context for the 'why your raise is finally beating the cost of X' series we've been doing. It's not just about one category—it's about the overall trend. Lucas: Absolutely. And this week's data point is a positive one. Looking at the S&P 500 and other market indicators, we're seeing some volatility, but the labor market remains resilient. Unemployment is still low, and job openings are plentiful. Luna: So, in a weird way, the fact that childcare costs are growing slower than wages is a sign of a healthier economy—more supply, better labor market, and more money in people's pockets. Lucas: Exactly. And it's a reminder that inflation isn't uniform. Some things are still rising fast—like rent and health insurance. But childcare is one where we're seeing real progress. That's the kind of nuance we like to highlight. Luna: And for families with kids, that's a tangible difference. It's not just a statistic—it's money back in their monthly budget. Lucas: Yeah, and I think that's a good note to end on. If you're a parent, look at your own childcare costs. If they're not rising as fast as your paycheck, that's a win. And if they're still going up faster, well, maybe it's time to shop around. Luna: Good advice. And as always, we'll keep watching these numbers to see if this trend holds.