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Minnesota's tight labor market is hitting the child care sector hard, making it tougher for families to find care as jobs go unfilled and classrooms sit empty.

A March survey by the Minneapolis Fed and First Children's Finance found even though hiring woes have eased since the height of the COVID-19 pandemic, child care providers are still struggling to attract qualified employees. Child care center respondents reported more than 700 open teaching positions resulting in more than 2,000 unavailable child care slots statewide.

"A center may be licensed to care for, let's say, 75 or 100 kids. But if they don't have enough staff in place to meet the [state staffing] ratios required for each age group, they can't operate at their licensed capacity," said Suzanne Pearl, Minnesota director of First Children's Finance, during a virtual event Monday. "Over the past couple of years, we've seen many centers operating with empty classrooms. They have the space, they just don't have the people."

The 1,266 survey respondents — about three-quarters licensed family child care providers and a quarter child care centers — represent about 16% of licensed child care programs in Minnesota. Most are operating at about 85% of their licensed capacity, survey results showed, with family providers and those in Greater Minnesota tending to report higher enrollment.

Tu-Uyen Tran, who writes about the regional economy for the Minneapolis Fed and facilitated Monday's event, said child care has been essential for his own family in educating his children, ages 7 and 4, while allowing him and his wife to work.

"Many other families, other workers, depend on child care providers to earn a living," he said. "A lot of employers depend on providers, too, because employers depend on parents to show up for work."

The survey results showed a link between child care enrollment and family employment and finances. While enrollment is beginning to stabilize across the sector after taking a hit during the pandemic, more child care centers reported decreased enrollment this year compared to last year. Across the board, providers cited tuition costs and parents leaving the workforce among the top reasons for enrollment declines.

"They're a private business that is essentially filling a public good, and they're limited to what they can charge by what families can afford," Pearl said. "And every business does this, but few industries or businesses are as critical to everybody else as child care."

In general, providers' optimism about their ability to stay open has improved: About 30% said they're unsure whether they'll be able to make it work, compared to about 50% last year. But making ends meet often requires a mix of funding mechanisms beyond tuition, from the state's Great Start Compensation Support Payment Program grants — which about 90% of surveyed providers reported using — to reducing expenses, tapping emergency funds and taking out business loans.

Family providers — who are more likely to be their business' sole employee — take the biggest risks, with their personal finances often on the line. More than 30% of family providers reported using personal savings or retirement funds to supplement their business, and 20% reported using high-interest financing like credit cards or payday loans. Nearly a quarter of family providers said they were unable to pay themselves at some point last year, compared to 15% of center directors.

There's also a pay disparity between family providers and centers, according to First Children's Finance: Family provider revenue equates to just more than $8 an hour in rural areas and $17 in urban areas, while hourly salaries for teaching staff at child care centers range from $13 to $19. While most child care center respondents reported in the March survey they had raised hourly pay, the sector often lacks benefits like health insurance and retirement plans.

Among all respondents, less than 10% agreed child care workers earn a fair living, and most agreed the child care sector is in crisis.

"Child care is a majority woman-owned business. The pay is low, the hours are long, and as we have seen, the profit margins are thin to negative," Pearl said. "Yet the child care sector provides a service to the state's entire workforce. If the child care sector fails, the rest of the economy follows."