Craig Mitchelldyer/AP Photo
Child care workers and nursing home aides have been and remain among the most poorly paid workers in the U.S.
This story is part of a Prospect series called The Great Inflation Myths, which takes on the dominant orthodoxies mainstream economists and the Federal Reserve have been espousing about inflation and the need for interest rate hikes to tame it. The series was developed in collaboration with the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst. You can read every piece in the series at prospect.org/
The primary cause of inflation, supposedly, is macroeconomic overheating—excessive demand in the economy raising prices, in this case stimulated by too much government anti-recession spending. But this diagnosis doesn’t work for long-run trends in relative prices driven by more complex dynamics. A case in point is the care economy, where rising costs have nothing to do with macroeconomic pressures.
Since 1997, the rates of increase in the prices of important services such as day care and preschool, nursing homes and adult day care, like medical services, far outpaced increases in the overall Consumer Price Index for All Urban Consumers, commonly termed the CPI.
Inflation in the cost of care matters. It helps explain why the employment rates of the working-age population have been declining in the U.S. since 1999, especially among less-educated workers. It’s hard to get and keep a decent job if paid work conflicts with responsibilities for the care of a young child or a family member or friend in need of assistance. At the same time, low wages make people more dependent on family and community ties as a social safety net; moving away from home in search of a better-paying job becomes a risky strategy. The institutional environment in this country penalizes many who need time off from paid employment to care for themselves or anyone else. Non-college-educated workers have taken a beating in real wages, making it hard for them to buy increasingly costly care services.
Rising care prices can’t be attributed to rising wages: Child care workers and nursing home aides have been and remain among the most poorly paid workers in the U.S. Health care workers other than physicians have seen only modest wage increases. Many factors come into play, but the general pattern of escalating prices reflects the distinctive nature of services that directly produce, develop, and maintain human capabilities. These services can’t be outsourced to poor countries, although low-wage immigrants have probably helped buffer price increases.
Paid care services obviously benefit their direct consumers, but also spill over in ways that benefit society as a whole, enhancing the value of what economists casually refer to as human and social capital. Care recipients enjoy many of the benefits, but they also pass them on to others, with big multiplier effects.
Many studies of public investment in health care, education, and social services show a high social payoff, a diffuse, long-term “monetization” that doesn’t directly reward investors or even current taxpayers. Appreciation of the benefits rests partly on concern for the well-being—and productivity—of future generations. These benefits are rendered largely invisible by conventional economic accounting, which flouts the real meaning of human and social capital by treating expenditures on them as consumption rather than investment.
Heavy reliance on market-based paid care provision in the U.S. essentially pits low-wage workers providing care services against low-income consumers.
Lukewarm commitments to public provision of care services go a long way toward explaining price increases in marketized services. As economist Misty Heggeness vividly explains, most of the pandemic policies of 2020 largely ignored the care economy, tying cash transfers to income tax returns and offering scant aid to the child care industry, while deeming liquor stores “essential businesses.” Mothers of young children reduced their paid work hours four to five times more than fathers, increasing the gender gap in employment hours.
The child care industry has yet to recover, as many chronically underpaid workers have moved on to better-paying jobs. A national shortage of home care workers has emerged for similar reasons. Companies catering to upscale families are far more likely to offer quick wage increases than those with a less affluent clientele.
Increasing income inequality exacerbates the problem. One of the major forces driving the prices of care services upward is a process that William Spriggs of Howard University (and chief economist for the AFL-CIO) labels “inequality inflation.” Affluent families who prioritize high quality bid up the prices of care services, while families below the threshold simply can’t afford to buy. Economists’ preoccupation with prices as magical arbiters of efficiency distracts attention from what are politely called “quantity adjustments.” The price of heating oil goes up and some simply can’t afford to heat their homes. The price of housing goes up and homelessness increases. The price of medical services goes up and those without access to adequate insurance go without. The price of nursing homes goes up and those with profound disabilities such as dementia must rely more heavily on family care. The price of child care goes up and many potential parents conclude they can’t afford to raise children.
Heavy reliance on market-based paid care provision in the U.S. essentially pits low-wage workers providing care services against low-income consumers. In the absence of social provision of the kind that is standard in much of Europe, it’s difficult to raise child care workers’ wages without pricing the families that need child care the most out of the market. Likewise, workers providing home and community-based care for adults with disabilities and the elderly are constrained by the dual market of poor and rich. They cater either to families so poor that they qualify for Medicaid or means-tested care services—or to those for whom the expense of paid care seems almost trivial. No wonder families with incomes just above the official thresholds for public assistance are politically disenchanted.
Low-wage workers are not the only ones affected. Highly credentialed professionals in care industries, including teachers, nurses, doctors, and social workers, often pay a significant price for commitment to the quality of the services they provide. When budgets are cut, many schools, hospitals, child care centers, and nursing homes simply decrease staffing requirements while holding pay constant. Because it’s difficult to efficiently shop around for care services, “consumers” don’t have much sovereignty and are often stuck with lower quality—less personalized attention and assistance—while workers are so stressed that many leave the field.
Economists pointing to the impact of distributional conflict on inflation generally focus on tensions between employers and workers or lenders and debtors, but these don’t tell the whole story. Conflict over the distribution of the costs of care provision (sometimes dubbed the costs of social reproduction) also seethes in the background. Employers prefer to offload the costs of producing, developing, and maintaining workers onto taxpayers. High earners and major wealth holders lobby effectively against progressive taxes. Racism, sexism, and xenophobia provide convenient excuses for those who want to minimize any responsibilities for social investment.
As a result, neither public assistance nor publicly provided services have done much to blunt the rising cost of care services. Both a general lack of compassion and a misogynistic disinterest in “women’s issues” are partly to blame, but another factor comes into play: general disregard for the value of unpaid care work (mostly by women)—which, after all, comes relatively cheap. Republicans opposing expansion of the Child Tax Credit announced that it would discourage work—meaning, obviously, paid work. Apparently, anyone not engaging in paid work is lying on the sofa watching soap operas.
Mainstream economists also buy into this assumption, equating workers with wage earners. Recent discussions of the distributional impact of inflation point to wage increases among the bottom 40 percent of earners and conclude that these tend to counterbalance average price increases. Asking “Does Inflation Disproportionately Hurt the Poor?” Paul Krugman answers with a confident “No!” A more recent Wall Street Journal article analyzing the purchasing power of paychecks concludes “Inflation Takes Biggest Bite From Middle-Income Households.” These inferences are incorrect because many low-income families don’t get a paycheck.
Even in 2021, a year when the unemployment rate was quite low by historical standards, adult poverty was concentrated among non-wage earners. According to the latest Census Report on Poverty in the U.S., about 66 percent of adults ages 18-64 living in poverty did not work for pay for even one week. Many women engaged in unpaid care were probably pooling income with a wage earner, but access to an individual wage matters: The poverty rate was much higher among those in the “non-work” category—30 percent, compared to about 5 percent among those who worked for pay either full or part time. Many “non-working” caregivers face constraints on their ability to work for pay: Single mothers of young children obviously fall in this category, but so do those taking on responsibilities for an ill, disabled, or frail family member or friend.
How have levels of public assistance responded to the recent inflation trends? While the Earned Income Tax Credit (EITC) and Supplemental Nutrition Assistance Program (SNAP) are indexed to inflation, Temporary Assistance for Needy Families (TANF) is not; real federal funding has fallen by 40 percent since 1996 as a result. A recent report from the Century Foundation notes that the real value of the Child Tax Credit is eroding and makes a strong case for indexing all public assistance against inflation. It’s hard to find much discussion of the impact of inflation on state and local programs apart from anecdotal accounts. My local newspaper, The Montague Reporter, describes a huge backlog in responses to requests for state-funded fuel assistance.
Attention to the care economy doesn’t vitiate the importance of considering the relationship between unemployment and inflation, but it should expand how we understand public-policy choices. As economist Robert Frank, among others, has observed, high interest rates are not the only way to combat inflationary pressures. A steeply progressive tax on consumption, targeted to those most able to pay (and most likely to spend) would effectively cool the inflation engine. The main reason to tax the rich is that both inflation and unemployment are an especially burdensome tax upon the poor.
Our economic system runs on human capabilities, and these are not a costless resource supplied by some self-sacrificing Mother Nature. Our own production, development, and maintenance requires both personal commitments and public support. As Josh Bivens of the Economic Policy Institute points out, increased public investments in child care and the elderly could reduce inflationary pressures. We will never be as cheap to produce as television sets, cars, or even robots. We will remain more valuable, even if we can’t be bought and sold.
