The Workforce Behind the Workforce: North Carolina’s Childcare Service Industry Throughout the Pandemic

North Carolina’s childcare service industry serves an essential role for both the current and future workforce. For parents, the availability of childcare services can either be an enabling or limiting factor to labor force engagement. For children, experiences in the first years of life lay the foundation for future health, learning, and employment outcomes. Yet as the COVID-19 recession and ensuing recovery have progressed, the childcare service workforce has struggled to recover, even as the broader state economy has recovered to pre-pandemic levels. 

To better identify underlying issues/causes, we rely on data from the North Carolina Common Follow-up System (CFS)¹ to examine the lingering employment shortfall in the childcare service sector.² Our findings suggest most of the shortfall can be attributed to more people either leaving the workforce or switching to higher-paying industries. Childcare workers younger than 55 have driven most of these aggregate outflows.

Before the pandemic, employment in the childcare service industry was trending upward, growing from 35,150 workers in 2017 to just over 36,000 in 2019 (see Figure 1). With the onset of COVID-19, the industry’s employment trend experienced a significant reversal, falling 4.6% from 2019 to 2020. A combination of health restrictions, declining enrollment, and financial difficulties made childcare center closures and employment losses prevalent early on. As of 2021, North Carolina had 33,800 childcare workers, about 3,120 workers fewer than would have been expected if the 2017-2019 growth trend had continued.

Figure 1

What explains the widening employment shortfall in the childcare service workforce? We find a majority of the shortfall can be attributed to an outflow of workers to other industries or out of the workforce altogether.³ Specifically, 34% of the shortfall is due to more people leaving the workforce⁴, and 30% is due to more people switching from the childcare service industry to other industries (see Figure 2). Fewer people entering the workforce (23%) and fewer people transferring to the childcare service industry (12%) constitute the remaining reasons for the shortfall. 

Figure 2

Although it is difficult to pinpoint the exact reasons why individuals left the workforce, some of the exits can be credited to earlier retirements among those older than 55. However, unlike some of the outcomes in other industries—where early retirements predominated—a majority of the workforce exits in childcare occurred among younger workers. Around 54% of the workforce leavers were younger than 55, whereas 41% were aged 55 and above (see Figure 3).

Some of these younger workforce exiters likely enrolled in a curriculum program within the University of North Carolina System (UNC) or North Carolina Community College System (NCCCS). Our data suggest that of the increased number of childcare workers who left the workforce between 2019-2021, about 11% can be attributed to higher education enrollment. Yet for the vast majority of workforce exiters, it remains unclear what drove these departures.

A tight labor market has also yielded notable opportunities for childcare workers to switch to higher-paying industries. Former childcare workers switched to other industries at higher rates from 2019-2021 when compared to 2017-2019, leading this factor to account for 30% of the overall shortfall in childcare service employment. Younger childcare workers were the driving force in accelerated industry switching, with 80% of job switchers being younger than age 55 (see Figure 3).

Figure 3

The top industries that former childcare workers went to in 2021 included: Elementary and Secondary Schools; Restaurants and Other Eating Places; Individual and Family Services; General Medical/Surgical Hospitals; and General Merchandise Stores (see Figure 4). In 2021, all these industries, except restaurants, paid higher wages than childcare.  For example, Elementary and Secondary Schools—the top industry destination for former childcare workers—had median annual wages of $46,400 in 2021, about 68% higher than in childcare.⁵

Based on the CFS data, the median real wage boost for those who switched industries between 2019-2021 was $3,800. By comparison, for those who remained in the childcare service sector from 2019-2021, the median real wage gain was around $1,900.⁶

Figure 4

For the childcare service industry, COVID-related disruptions have exacerbated the recruitment and retention challenges that pre-dated the pandemic, contributing to significant workforce headwinds. Research has found that the childcare service industry is more sensitive to business cycle fluctuations than most other sectors and often recovers slower than the rest of the economy following a recession. These features may be problematic as the sector continues to contend with workforce shortages while the aggregate economy appears to be slowing.

Pay has been a powerful determinant in subsequent employment decisions for childcare workers, decidedly so for younger workers pursuing higher-paying opportunities in other service-oriented industries. Although raising wages in childcare may seem like a simple remedy, the labor-intensive childcare service industry often operates on thin margins, making wage increases financially unfeasible in most cases without decreasing affordability for families. 

Nevertheless, adequate compensation remains crucial to addressing recruitment and retention challenges in the childcare service industry. Continued funding from the North Carolina Department of Health and Human Services (NCDHHS) Child Care Stabilization Grant or the Child Care Services Association (CCSA)’s WAGE$ program can be effective measures to provide compensation support. Additionally, whether through apprenticeships, dual enrollment, or specialized scholarship programs, creating a robust talent pipeline of early childhood workers is another long-term priority that warrants further attention.

The childcare service industry remains central to supporting the current workforce and cultivating the future workforce. In 2021, parents with children under 5 represented nearly 11% of North Carolina’s total workforce.⁷ Many of these parents rely on some form of childcare to stay engaged in the labor force.

Investments in early childhood education can also yield long-term economic and societal benefits for North Carolina’s economy.

¹Compared to other data sources of childcare service employment, the CFS provides a distinct advantage of enabling longitudinal analysis—studying the same individuals over time to identify any workforce or education-related changes that might have occurred.

²Throughout this article, we refer to the Child Day Care Services industry [North American Industry Classification System (NAICS) code: 6244] as the “childcare service industry (sector).”

³We compare the 2019-2021 employment change in childcare workers to the 2017-2019 change to parse out the factors contributing to the overall shortfall.

⁴Some of these workers may have left the state of North Carolina, became self-employed, or obtained employment with a non-Unemployment Insurance (UI)-covered employer. All these categories are not captured in the CFS data. Also, based on our analysis, some 11% of workforce leavers can be attributed to subsequent enrollment in higher education.

⁵Based on median wage data from the Occupational Employment and Wage Statistics (OEWS) program.

⁶To account for inflation, the wages used in the calculation were adjusted to 2021 price levels.

⁷Based on author calculations of Current Population Survey (CPS) public-use microdata.