Impact of Labor Inflation in Child Care
The Wage Squeeze in Child Care: Why Rising Labor Costs Are Reshaping Provider Profitability
Child care has always been a people-first business. The quality of a program rises and falls with the quality of its teachers, directors, and support staff. But over the past few years, one thing has become impossible for operators to ignore: wages have risen sharply in real terms, and for many providers, labor costs are now increasing faster than tuition revenue.
At SchoolWise Partners, we work with high-quality child care owners across the country, and we’ve consistently seen the same pattern play out: margin compression. Providers are doing “everything right”—strong enrollment, strong reputation, stable demand—yet profitability is being pressured by a labor market that’s moved meaningfully upward.
This post breaks down what’s happening, why it matters, and the practical steps operators can take to protect margins without compromising program quality.
What’s Driving Real Wage Growth in Child Care?
“Real wages” refer to wage increases after accounting for inflation. In other words, it’s the true purchasing power of wages—and in many markets, that number has climbed quickly as employers compete for talent.
Several forces have converged:
Tight labor markets: Hiring has been challenging across the broader service economy, and child care competes with jobs in retail, hospitality, health support services, and education.
Competition for dependable staff: Turnover is costly and disruptive. Many operators have responded by increasing wages to retain key people.
Rising expectations: Benefits, paid time off, schedule flexibility, and career pathways are increasingly “table stakes,” especially for director-level and lead teacher roles.
Minimum wage and local wage floors: In some states and municipalities, wage policies and market expectations have ratcheted up payroll costs structurally—not temporarily.
The result: labor has gotten meaningfully more expensive, even as many operators face constraints on how quickly (or how much) they can raise tuition.
Why Labor Inflation Hits Child Care Harder Than Most Industries
Child care is uniquely exposed to wage pressure because:
Labor is the largest line item.
For most providers, payroll and payroll-related expenses are the dominant cost—often the difference between healthy profitability and break-even operations.Staffing is tied to ratios.
Unlike many industries, you can’t “do more with less” indefinitely. Ratio and licensing requirements create a natural floor on staffing levels.Tuition increases have limits.
Even in strong markets, parents feel pressure from housing costs, food, insurance, and overall cost of living. Raising tuition is possible, but it’s not infinite—and it can be uneven across age groups.Back-office overhead doesn’t scale as cleanly as people assume.
When wage costs rise, many owners try to “absorb it” by cutting elsewhere. But most providers don’t have enough discretionary overhead to offset recurring payroll inflation.
The Operational Reality: Margin Compression and Profitability Pressure
When wages rise quickly, the business gets squeezed from both sides:
Costs rise immediately (to recruit and retain staff)
Revenue adjustments lag (tuition changes may happen once per year, and enrollment cycles can delay the impact)
Even well-run centers can see:
Reduced EBITDA margins
Greater volatility in monthly profitability
Lower cash flow available for reinvestment
More owner time spent on hiring, scheduling, and retention
And for operators thinking about a future sale, wage pressure affects not only today’s profitability—but also how buyers underwrite stability and risk.
What Strong Operators Are Doing to Protect Margins (Without Sacrificing Quality)
The best operators aren’t simply “cutting costs.” They’re reengineering the business to keep quality high while ensuring the model remains economically sustainable. Here are several strategies we frequently see working:
1) Adopt a More Dynamic Pricing Strategy: Annual tuition increases may not be enough in a fast-moving labor market. Providers are increasingly:
Implementing mid-year adjustments where appropriate
Differentiating pricing by program value and demand
Repricing underperforming schedules or age groups with low contribution margin
2) Optimize Scheduling and Staffing Deployment: Many centers leak margin through inefficiencies that are fixable:
Tightening staff scheduling around real-time attendance patterns
Reducing overtime creep
Improving float coverage planning
Building staffing models that protect ratios while minimizing “dead hours”
3) Upgrade Enrollment Management and Mix: Revenue isn’t just about price—it’s also about:
Maintaining higher occupancy in the strongest age bands
Reducing churn
Improving conversion from tour → enrollment
Strengthening re-enrollment systems and parent communication
4) Invest in Retention Economics: It can be cheaper to pay well and retain great staff than to constantly rehire:
Clear pathways to lead roles
Training and development
Performance-based incentives tied to attendance, punctuality, and quality benchmarks
Benefits and scheduling policies that reduce burnout
5) Know Your True Unit Economics: The most profitable operators understand contribution margin by:
Classroom
Age group
Schedule type (full-time vs part-time)
Teacher mix and staffing structure
This clarity makes it much easier to make confident decisions about pricing, staffing, and growth.
About SchoolWise Partners
SchoolWise Partners (SwP) is the nation's leading sell-side advisory firm that provides strategic services to owners and operators of preschools, primary, and secondary schools. SwP's principals and its team have deep experience as former owners of 42 private schools combined with profound institutional knowledge in the fields of finance, private equity, investment banking, and accounting. It is uniquely positioned as the premier sell-side advisor to school owners and, since its founding, SwP has helped hundreds of owners throughout the U.S. realize value in excess of $900 million.
SchoolWise Partners' passion for education inspires us to not only create value for our clients. We exclusively assist owners of early childhood, primary, and secondary school owners realize value that is often left behind because they are under-represented. SwP's mission is to ensure all the hard work that school owners invest to educate America's children is returned to them at the appropriate time and in the appropriate manner. We strive to embody the highest standards of integrity, excellence, commitment, stewardship, and partnership.
If you have any questions, feel free to contact the SchoolWise team at info@schoolwisepartners.com.