Category: Data Source

Everyone talks about the soaring cost of child care (e.g. here, here and here), but have you looked at the soaring cost of pet care? On a recent trip, it cost me about $82 per day to board my dog (a bit less with multi-day discounts). And no, that is not high for northern VA and that price does not include any fancy options or treats! Doggie boarding costs about about the same as staying in a Motel 6.

Many explanations have been offered for rising child care costs. The Institute for Family Studies, for example, shows that prices rise with regulations like “group sizes, child-to-staff ratios, required annual training hours, and minimum educational requirements for teachers and center directors.” I don’t deny that regulation raises prices—places with more regulation have higher costs—but I don’t think that explains the slow, steady price increase over time. As with health care and education, the better explanation is the Baumol effect, as I argued in my book (with Helland) Why Are the Prices So Damn High?

Pet care is less regulated than child care, but it too is subject to the Baumol effect. So how do price trends compare? Are they radically different or surprisingly similar? Here are the two raw price trends for pet services (CUUR0000SS62053) and for (child) Day care and preschool (CUUR0000SEEB03). Pet services covers boarding, daycare, pet sitting, walking, obedience training, grooming but veterinary care is excluded from this series so it is comparable to that for child care. 

As you can see, the trends are nearly identical, with child care rising only slightly faster than pet care over the past 26 years. Of course, both trends include general inflation, which visually narrows the gap. When we normalize to the overall CPI, we get the following:

Over 26 years, the real (relative) price of Day Care and Preschool has increased 36%, while Pet Services have risen 28%. If regulation doesn’t explain the rise in pet care costs–and it probably doesn’t–then regulation probably doesn’t explain the rise in child care costs either. After all, child and pet care are very similar goods!

The similar rise in the price of child day care and pet day care/boarding is consistent with Is American Pet Health Care (Also) Uniquely Inefficient? by Einav, Finkelstein and Gupta, who find that spending on veterinary care is rising at about the same rate as spending on human health care. Since the regulatory systems of pet and human health care are very different this suggests that the fundamental reason for rising health care isn’t regulation but rising relative prices and increasing incomes (fyi this is also an important reason why Americans spend more on health care than Europeans).

Thus, my explanation for rising prices in child care and pet care is that productivity is increasing in other industries more than in the care industries which means that over time we must give up more of other goods to get child and pet care. In short, if productivity in other sectors rises while child/pet care productivity stays flat, relative prices must rise. Another way to put this is that to retain workers, wages in stagnant-productivity sectors must rise to match those in (equally labor-skilled) high-productivity sectors. That means paying more for the same level of care, simply to keep the labor force from leaving

But rising productivity in other sectors is good! Thus, I always refer to the Baumol effect rather than the “cost disease” because higher prices are not bad when they reflect changes in relative prices. As with education and health care the rising price of child and pet care isn’t a problem for society as whole. We are richer and can afford more of all goods. It can be a problem, however, for people who consume more than the average quantities of the service-sector goods and people who have lower than average wage gains. So what can we do? Redistribution is one possibility.

If we focus on the prices, the core problem is that care work is labor-intensive and labor has a high opportunity cost. One solution is to lower the opportunity cost of that labor. Low-skill immigration helps: when lower-wage workers take on support roles, higher-wage workers can focus on higher-value tasks. As I’ve put it, “The immigrant who mows the lawn of the nuclear physicist indirectly helps to unlock the secrets of the universe.” Same for the immigrant who provides boarding for the pets of the nuclear physicist.

Another solution is capital substitution—automation, AI, better tools. But care jobs resist mechanization; that’s part of why productivity growth is so slow in these sectors. Still, the basic truth remains: if we want more affordable day care—for kids or pets—we need to use less of what’s expensive: skilled labor. That means either importing more people to do the work, or investing harder in ways to do it with fewer hands.