Kate Mendolia’s all-too-common childcare problems started long before the pandemic.
Mendolia, a senior sales manager for a multinational manufacturing company, was 35 and living in her native St. Louis in 2017, when she had her first child. After three months of maternity leave, she was ready to return to the office—if she could just find an affordable, convenient childcare center for her son. But many day-care facilities don’t accept infants and toddlers because it’s so expensive to hire enough people to responsibly watch them.
“There were waiting lists for years,” recalls Mendolia, a fiercely practical MBA-holder and marathoner whose husband, an events producer who runs his own small business, doesn’t get paid leave. Eventually the couple found an opening at a St. Louis center run by KinderCare, the nation’s largest for-profit childcare provider, which serves more than 126,000 children at its 2,000-plus locations. It wasn’t a perfect solution: Mendolia says the staff turnover seemed high, and as time went on—she had a daughter, moved to Phoenix, and enrolled both kids in another KinderCare—she found herself paying more than $2,500 a month, or “more than my mortgage.” But it was a national company, which promised a certain standardized level of care, and for a while, it was the best option she could find. “As a working mother,” she says, “this is necessary for me to succeed.”
Then the COVID-19 pandemic came crashing across the U.S. KinderCare—like most schools and childcare providers of any size—shut down many of its centers. And suddenly the system that had sustained Mendolia’s career, and that of most U.S. working mothers, had its fundamental weaknesses exposed in a massive, public implosion. More than 2 million women left the paid labor force entirely, erasing more than three decades’ worth of employment gains. Most of them still haven’t returned today, a year and a half into the pandemic, amid rising uncertainties about whether the Delta variant will continue to keep schools and offices closed this fall—and whether it will be safe for unvaccinated children to return to childcare centers trying to resume operating at full capacity. Those women who did manage to keep working endured an unsustainable hell of trying to meet deadlines while changing diapers or breastfeeding; toggling between running Zoom meetings and assistant-teaching Zoom kindergarten; and swimming through endless feelings of failure. “I was working at 5 a.m. and at 8 p.m. When I was working, I felt like I should have been a mother—and when I was being a mother, I should have been working,” Mendolia says. “It was terrible.”
Today, the crumbling of the nation’s childcare infrastructure—a crisis that has been exacerbated, though not created, by the pandemic—has become an accepted fact, recognized by Fortune 500 employers and top policymakers as well as the parents, caretakers, and childcare providers caught in the destruction. Childcare is at the center of the larger caretaking crisis that has disproportionately hurt women, who still shoulder the vast majority of unpaid labor in U.S. households, and that created what the White House has declared to be a “national emergency” in women’s employment. That emergency has fueled the Biden administration’s sweeping—if tenuous—proposals to overhaul the country’s highly fragmented childcare industry, which ranges from individual nannies and small, in-home or community-based operations to private equity–owned KinderCare and a handful of other national, for-profit providers of “center-based” care. The other big center-based companies include private equity–owned Learning Care Group and publicly traded Bright Horizons, which together have capacity for more than 250,000 children at about 1,000 locations each. And unlike many of the smaller providers, these companies often offer larger centers with longer hours, more locations and flexibility, and promises of standardized curriculums, allowing them to serve a wider swath of U.S. parents.
Call them Big Day Care, or perhaps more accurately, Big Childcare: KinderCare, Learning Care Group, and Bright Horizons are the largest players in the $47.2 billion childcare market, which is dominated by center-based care. In 2019, 12.5 million children under age 6 and not yet enrolled in kindergarten spent part of every week being cared for by someone other than their parents, according to the U.S. Department of Education. Of those children, 62% spent time in center-based care. COVID-related shutdowns, safety concerns, and ongoing staff shortages devastated this industry; a third of centers had not reopened by April 2021, one study found. (And even before the pandemic, their reach fell short: More than half of U.S. children live in childcare deserts, without adequate access to licensed childcare, according to the Center for American Progress.) But the biggest players have so far weathered the pandemic-sparked crisis that decimated many of their smaller counterparts, and are now snapping up business from employers newly awakened to the importance of offering childcare benefits to employees—and from desperate parents who need someplace, anyplace, to turn.
“We’ve gone through this pandemic and came out the other side okay—but we lost a lot of the smaller providers, and that’s going to cause great pain,” says Tom Wyatt, CEO of KinderCare. “We are not where we were—and I don’t know when we’re going to get back there.” (Of Mendolia’s mixed experience with his company, Wyatt said via a statement that KinderCare “places a high value on teacher retention” and tries to inform families quickly about staffing changes, adding: “I’m sorry to hear that wasn’t the case for this family.”)
Now for-profit Big Childcare players are emerging from the pandemic as the strongest remaining pieces of the nation’s decrepit childcare infrastructure. These companies have both critics and fans among the parents, childcare workers, smaller childcare providers, industry executives, senior government officials, Fortune 500 human resources executives, and policy experts interviewed for this article. They sit at the nexus of Big Business, national policy, the acute and long-simmering labor crisis among caretakers, the needs of parents across all socioeconomic statuses, and the debate over the future of childcare. And they are carefully watching to see whether Washington will step in to fundamentally reshape their industry.
But if that potential government overhaul fails to materialize—or if, as seems possible, the federal plan includes a meaty role for Big Childcare providers—these companies will likely play an outsize role in determining what care will look like in the coming years. Will they be able to prop up the post-pandemic U.S. childcare system, overcoming the many long-standing problems that have plagued parents, employers, care workers, and even the providers themselves?
‘Childcare is a failed market’
The oldest members of the Big Childcare bunch, KinderCare and Learning Care Group, were founded in the late 1960s—just before the last great missed opportunity of U.S. childcare infrastructure. The United States once had a government-founded universal childcare program; it was established during World War II, to help women contribute to wartime production, but federal funding lapsed after 1946. Then, in 1971, Congress overwhelmingly passed a bipartisan bill that would have established a national, federally funded childcare program, with tuition subsidized based upon a family’s income. But President Richard Nixon unexpectedly vetoed the bill, citing the “family-weakening implications” of legislation that would enable more women to work outside the home.
More women went to work anyway. During the 1970s and 1980s, female paid labor force participation grew at a rapid clip—as did the scattered childcare industry that these women relied on. Today, parents must navigate an incredibly fragmented landscape that includes informal arrangements with grandparents, relatives, or neighbors; hiring nannies or babysitters, often through tech platforms like Care.com; small businesses or nonprofits that women run out of their homes or local churches or other community centers; preschools, pre-Ks, and Head Start programs; and franchises or branches of the handful of Big Childcare providers. Then there’s an array of startups including Winnie, Kinside, Helpr, Vivvi, and Wonderschool, most promising to offer higher-tech approaches to existing models.
Parents who work unusual hours, or those who have school-age children but can’t finish working when the school day ends (meaning: most of them), usually have to cobble together some mixture of the above. When that patchwork fails to come together, as frequently happened even before the pandemic, mothers often step back from professional responsibilities until their children grow up. As the sociologist Jessica Calarco put it in a viral November interview: “Other countries have social safety nets. The U.S. has women.”
And many of those women can’t afford to pay for consistently high-quality care. America’s childcare system is funded by a mixture of tax credits and government subsidies for lower-income families (who still spend a third of their income on childcare, on average); employer subsidies, for those fortunate enough to work at companies that do provide childcare benefits; and, especially, out-of-pocket spending. The total cost has mounted astronomically since 2000, growing twice as fast as inflation. U.S. parents today pay an average of almost $10,000 per child per year—accounting for more than 10% of household income for a married couple, and 34% for a single parent, according to Child Care Aware of America. Yet those prices don’t guarantee high-quality care, for which few national regulatory requirements exist.
“Childcare is a failed market,” says Elliot Haspel, an early education policy expert at the Robins Foundation and the author of Crawling Behind: America’s Child Care Crisis and How to Fix It. “The pain point is so deep, and it cuts across so many income levels and classes. At some point this decade, the dam is going to break.”
The economics of childcare are brutal for businesses as well as their customers. Providers can’t care for children without workers, and in some cases must hire one teacher for every three or four children—meaning that labor costs can account for 60% to 80% of expenses. Then there are a tangle of state and local regulations, governing everything from insurance requirements and staff background checks to the ratio of children per teacher and the amount of square feet per student. That last requirement expanded enormously during the pandemic and its social-distancing era, increasing the costs to providers just as their overall tuition base dropped. But even before March 2020, the industry’s fixed costs have long made the business of providing childcare very expensive—even though providers pay workers only about $12 per hour as a national median, lower than the starting salary for comparatively lower-skill roles at Target and Amazon. For small childcare providers especially, these margins are pretty unsustainable, especially in the most expensive markets.
“We’re all being priced out,” says Fela Barclift, executive director of Brooklyn’s Little Sun People, who in 1980 founded her community-based childcare center with an emphasis on teaching Black children about their African heritage.
Her nine-teacher, 55-student nonprofit survived the pandemic thanks to the Paycheck Protection Program, Zoom sessions during the pandemic’s early months, and a grueling hybrid experiment before it reopened full-time in January. But “the rent increases have just been going through the roof; the health department requires that we have X amount of feet per child; and even nine teachers is very pricey,” she says. “Just trying to hang on is where we’re at right now.”
When employers split the bill
Larger, for-profit childcare companies face many of the same economic hurdles Barclift describes—and were sent reeling by the same pandemic shutdowns—but their size and scale has offered some advantages. While private equity–owned KinderCare and Learning Care Group have allowed that 2020 was an unprofitable year, both emerged poised for growth: KinderCare is now laying the groundwork for an IPO, while Learning Care Group acquired and built about 80 new locations last year. And publicly traded Bright Horizons, which in 2019 reported $180 million in profit, managed to stay in the black in 2020—eking out $27 million in profit, despite seeing revenue fall by nearly a third, to $1.5 billion.
That level of financial wherewithal is on display at Bright Horizons’ brand-new (and, thanks to COVID-19, still mostly empty) corporate headquarters in Newton, Mass., where CEO Stephen Kramer sits in his unused employee cafeteria, looking a little like a school principal whose students forgot to come back from summer vacation.
“Can I put a plug in for the fact that we don’t like the word ‘day care’?” asks Kramer, who, like his fellow Big Childcare CEOs, prefers “center-based care” or “early childhood education”—terms that evoke a rigorous curriculum well worth the often sky-high tuition, and distinguish their services from the nannies, relatives, small in-home groups, and other independent childcare services relied on by U.S. working parents.
It’s also true that “day care” inadequately describes the scope of what Bright Horizons and its competitors offer: care options that go beyond the traditional nine-to-five workday—operating, in some cases, up to 24 hours a day. Even among the other big players, Bright Horizons is unique in that it focuses on the employer-based market, meaning that its primary customers are big companies and their employees rather than individual parents. The company’s bread and butter is winning multiyear enterprise contracts to operate childcare centers at office towers, university campuses, warehouses, or manufacturing plants. Parents usually still pay the bulk of Bright Horizons fees, but employers often subsidize some of the cost—and tout the convenience for their employees of having a nationally known childcare center at the office. (The company’s new HQ has its own lavish on-site childcare center—complete with a kid-scaled kitchen and manicured garden—for employees, who will receive a 50% discount.) This business model “allows for a very wide range of families from a socioeconomic standpoint to be able to enjoy high quality care,” Kramer says.
By the end of 2020, Bright Horizons counted more than 1,300 employers as customers, including Goldman Sachs, JPMorgan Chase, Cisco, Genentech, Weill Cornell, and Toyota. And it was seeing growing demand for one particular offering: “backup care” days, to use when your usual day-care center is closed or your nanny is sick. This benefit, which sometimes requires a co-pay, usually allows employees either to bring their children to a corporate-run center or to hire an in-home babysitter, through a Big Childcare company or through an online platform like Care.com. Some employers, including Bank of America and Verizon, offered unlimited pandemic backup-care days through at least the beginning of this year—and covered all the costs for employees, up to $100 per day.
That option to provide in-home sitters helped backup care grow to 26% of Bright Horizons revenue last year—up from 14% in 2019. The company has picked up 75 more backup care customers so far in 2021; as CEO Kramer puts it, “backup care absolutely skyrocketed” thanks to the pandemic, even while most of Bright Horizons’ center-based business was shutting down. “We were living in two very different worlds.”
Making ‘a dime to nothing’
As the pandemic hit, Kramer and his fellow executives were also living in a world different from the one inhabited by their employees. In March 2020, after getting an associate’s degree from a community college and working her way up from a floating “resource teacher” position, Lauren Floyd had become an assistant director at a Bright Horizons center in Austin. She was making about $17 per hour—up from her entry-level pay of $14, or “a dime to nothing,” and much better than the industry’s median $12.24—while pursuing her bachelor’s degree online, through a program that Bright Horizons pays all expenses for.
When her center shut down, Floyd was furloughed for three months. “It was terrifying,” she recalls. She was able to survive with both parental help and unemployment assistance, and she was grateful that Bright Horizons continued to cover her degree costs during the furlough. But “financially, it was a very humbling experience,” she says.
After more than a year and a half on the front lines of the pandemic, workers across the childcare industry have lived through the same financial fears, intense worries over their physical safety, and burnout. Taking care of young children—inarguably one of the most important jobs in society—pays worse than other occupations that don’t require formal education (or immediate responsibility for human life), such as janitorial services or construction. Even those employees who have specialized educational degrees, like Floyd, earn less on average than kindergarten teachers. Little wonder, then, that the industry already suffered a turnover rate of 30% to 40% per year—before the pandemic’s shutdowns caused mass furloughs and layoffs of childcare workers, who are more than 95% women and disproportionately women of color.
The industry has lost more than 115,000 childcare jobs since February 2020, and has been slow to come back. (Last month, while women gained 87,000 jobs in the education and health services sector, the entire childcare sector added only 900 jobs, according to the National Women’s Law Center.) And providers of all sizes acknowledge that it’s a struggle to attract new talent in the currently tight labor market. “It’s such a poorly paid sector, and such an intense job,” says Julie Kashen, director for women’s economic justice at the Century Foundation. “Folks are exhausted after this year, and are finding ways to get jobs that pay better.”
Floyd is one of the holdouts, determined to stay in a job and an industry that she loves. After her furlough ended last summer, she was transferred and promoted to a health and safety director role with a salary that works out to about $19 per hour. Floyd calls herself “a walking billboard” for Bright Horizons and clearly loves working at the company, which put me in touch with her. But her ambivalence around the industry’s pay underlines one of the thorniest problems facing all childcare providers, even those that—like Bright Horizons, which Fortune has repeatedly named to its list of the 100 Best Companies to Work For—are recognized for their employee benefits and above-average pay. “Do I do it because I love it? Yes. Could I do it if I didn’t have a living wage? No—I wouldn’t be able to love it,” Floyd says.
Big Childcare CEOs all say that they generally pay above the industry minimum wage—but that, essentially, their hands are tied by the enormous fixed costs of their business, and the already high prices they pass on to parents. “The only way we can pay more is to charge more,” says KinderCare’s Tom Wyatt.
Now the Biden administration is taking aim at this economic impasse, among the childcare industry’s many other structural problems. Its proposals, including the $1.8 trillion American Families Plan, would expand child tax credits, provide direct support to families to cap their spending on childcare, provide universal preschool to 3- and 4-year-olds—and pay all childcare employees a minimum of $15 per hour. Such infrastructure would directly help big businesses and other private employers desperate for qualified workers in this tight labor market: Offering accessible, affordable childcare could bring up to 5.3 million to 12.4 million more U.S. workers into the paid workforce, according to calculations by U.S. Census Bureau principal economist Misty Heggeness.
“If you invest in childcare, it’s so beneficial. The women who are doing the childcare get paid a living wage. The moms and dads who drop their kids off at childcare get to participate fully in the economy. And oh, by the way, the children in high-quality childcare get a great start in life,” Gina Raimondo, the U.S. Secretary of Commerce, told me in July.
But although affordable childcare has bipartisan appeal, the price tags and tax increases required to pay for it do not. Lacking widespread support among Republican lawmakers, Senate Democrats this month endorsed a budget framework that includes funding toward childcare and preschool, which they will attempt to pass along party lines through the reconciliation process. Meanwhile, some Fortune 500 companies and other large employers have increased the caregiving benefits and subsidies available to their employees—although they have an enormous gulf to bridge. Before the pandemic, U.S. employers only covered 1% to 4% of care costs, according to some estimates. Such individual measures won’t be nearly enough to bring a missing 1.6 million women back to the paid labor force.
Employers are increasingly turning to the Big Childcare centers, as well as to Care.com, now owned by Barry Diller’s IAC. The caretaker platform has partnered with large employers including Uber and McDonald’s to join Time’s Up’s Care Economy Business Council, and is advocating for the extension of tax credits, among other Biden administration proposals. “It’s a bipartisan issue,” Care.com CEO Tim Allen says. “How do you really provide dollars to parents, to really help get care back on track, so that our economy can go back to work?”
The Big Childcare CEOs welcome the tax-credit expansions but range from cautious to unenthusiastic about the Biden administration’s other childcare proposals; Kramer, for example, expresses skepticism that the federal government will be able to successfully fund everything. “I do think now is the time that government will invest more in childcare, [but] it’s more just getting realistic about what might be possible,” he says. “We understand what it takes to deliver high-quality care. And we understand what it costs.”
He and his fellow CEOs are particularly ambivalent about the goal to expand universal preschool, at least until they have more specifics about how it will be implemented. If, as many policy experts expect, the government expands this access to preschool by partnering with and subsidizing existing childcare providers, the Big Childcare companies will likely benefit from this “mixed-delivery” system. (Providing care to older children often subsidizes the costlier infant classes at big centers, because providers can hire fewer teachers per child as the kids grow up; so anything that threatens to take away the older children would threaten their business model. “If universal pre-K is developed for only a public-delivery model”—meaning in a government-administered system—“that’ll take 3- and 4-year-olds out of our centers, and our costs will skyrocket,” Wyatt says.)
The public-delivery model is one that many progressive policy experts, and some lawmakers, prefer; Sen. Elizabeth Warren has introduced legislation that would create universal, government-funded childcare without going through the existing big companies. The debate goes beyond policy to the nature of the business—and the fundamental question of whether childcare should be a business at all, especially one that’s controlled by private equity firms and publicly traded companies with incentives to maximize profits. “I don’t like the idea of people thinking about shareholders when they’re making decisions for toddlers,” Haspel says.
But these views (and Warren’s legislation) seem less likely to gain much traction in Congress, which will need to keep moderate Democrats in line for the reconciliation process to work. And some childcare policy experts worry about destroying the remains of the current system, however flawed, before building a theoretically better one: “The worst thing that can happen right now is that we lose the spots we already have. We don’t want to build childcare infrastructure by starting over,” says Haley Swenson, deputy director of New America’s Better Life Lab.
For the foreseeable future, whatever does or doesn’t happen in Washington, Big Childcare is emerging from the pandemic increasingly intertwined with the lives of many U.S. parents. Back in Phoenix, Kate Mendolia is one of the fortunate women who was able to hold on to her job during the pandemic—thanks to having a supportive partner, an understanding employer, and a salary that eventually enabled her to hire two of her KinderCare’s laid-off teachers to come to her home and watch her children.
The center reopened in June 2020, and Mendolia kept her kids enrolled there for the rest of the year—until her daughter turned 2, aging into a larger universe of childcare providers who don’t provide infant care. Now Mendolia has both children enrolled at a small, local preschool run out of a Lutheran church, and says she’s generally happier with the center. But, she acknowledges, “KinderCare played a huge role in my children’s upbringing.”
Nor can she completely walk away from the Big Childcare providers. In July, the local preschool closed for a one-week summer vacation, forcing her to scramble for replacement childcare. Fortunately, this year Mendolia’s company also started offering employees 12 business days of “backup care” benefits—through Bright Horizons. “It was amazing—and allowed me to feel as though my work valued childcare,” she says. “It’s a benefit of the pandemic.”
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