Child Care Demands Could Make the Fed's Inflation Fight Harder. Here's How.

While women have gained the ground lost during the Covid-19 epidemic, their availability to work is still limited by caregiving needs. This could be a problem for central banks trying to control inflationary pressures.

In January this year, 77% of women participated in the labor force. This means that roughly three quarters of all women were either actively seeking work or working. This number is slightly higher than pre-crisis levels, but the recovery in women's participation in the workforce has been uneven. However, a deeper analysis of that headline number reveals some of the problems facing women, which are complicating the Federal Reserve’s fight against inflation.

Wages continue to rise as more job opportunities exist than available workers. This makes it difficult for the Fed and other central banks to control rising consumer prices. Analysts say that the tight labor market is due to high child care costs and caregiver demands, which disproportionately affect women.

Bank of America analysts wrote this week to clients that women spend three times as long as men doing unpaid care work around the world, and rising child care costs could make them lose their jobs or push them out of the workforce.

Part-time work is more common for women than it is for men. According to the Bureau of Labor Statistics, 2022 saw a record number of people who were part-time working. They cited child care responsibilities for their inability to work full time. In a survey conducted by Care.com in 2022, 21% of respondents said that they were cutting back on work hours, and 25% said that they were leaving the workforce. Care.com is an online marketplace for child-caregiving services.

According to an economist note from Bank of America Institute, the recovery of businesses in sectors that have a higher proportion of women workers (e.g. retail) has been slower. This is partly due to a lack of workers. These areas saw a decrease in payroll payments by two percentage points in 2022, compared to a year ago.

Inflation has made it more difficult for women to participate in the labor force. For years, there was a shortage of child care. Bank of America analysts have found that child care costs have increased faster than income growth. They rose 25% over the past decade and 2144% since 1990. Preschool and daycare prices have increased 11% since January 2020.

Women continue to be disproportionately affected by unpaid caregiving needs. According to the World Economic Forum's Global Gender Gap Report, before the pandemic, the men's unpaid work time was 19% relative to total hours worked. This is compared to 55% for women. The report showed that women were more likely to report an increase of child care duties after the outbreak of the pandemic.

This is a problem for central bankers who still have to deal with an over-hot labor market because there are not enough workers. The policy problem of the worker crunch is becoming more serious. Inflation Reduction Act and Chips Act as well as the infrastructure package are dependent on women's willingness and ability to work in the workforce. This is in light of the labor shortage that the country currently faces, Joe Quinlan, Head of CIO Market Strategy at Bank of America Private Bank, and Lauren Sanfilippo, Senior Investment Strategist, wrote to clients.

In a JPMorgan report on the global gender gap, analysts wrote that decreasing the amount of unpaid care work women do could increase labor-force participation rates up to 10 percentage points. The analysts found that half of women working age are either employed or looking for work in countries where women spend five hours per week on unpaid care activities. Comparatively, women who spend three hours doing unpaid care work saw a rise in labor force participation to 60%.