Where Supply and Demand Won’t Work

More of the mothers that work outside the home need childcare and many lower income women are hired by them.

But even with steady demand and lower supply, wages refuse to rise meaningfully.

Childcare Workers

If we first ask who composes the childcare labor force, we list minority women without college degrees:

Their average age (38 years old) is similar to all workers as is the percent that is non-Hispanic White (56%) and foreign born. (20%). By contrast, compared to other workers, they are twice as likely to be female, and earn less than most other low pay occupations:

Our Bottom Line: Supply and Demand

In a circular flow model of the market system, goods and services move between businesses and households in the upper loop. At the same time, in the lower loop, you can see that labor leaves households. Then, in return, they take wages and salaries back home.

A process rather than a place, factor markets composed of land, labor, and capital are “where” labor and businesses determine wage levels:

For childcare, the “Household” sends labor to the business that could also be a household. Alternatively, it might be a child day care services provider or a public school:

Typically, when we shift our supply curve to the left as people leave their jobs, wages rise. However, because their employers have little elasticity, they cannot elevate their employees’ pay. Instead, reflecting a tradeoff, they compare what they earn at work and what they pay for childcare. If childcare is too much, mothers stay home.

Looking more closely at the supply and demand sides of childcare markets, we can see why wages remain low.

My sources and more: Thanks always to Emily Peck for again inspiring an econlife post. From there, her link to the Chicago Fed report provided more detail.

Please note that one section of “Our Bottom Line” was in a previous econlife post.