Of the many professions disrupted by COVID-19, few have been as severely affected as that of direct care workers, especially those working in areas such as home healthcare and childcare. This work is essential for the rest of the economy to function properly; for example, more than 15% of mothers with young children left their jobs because of childcare issues in 2020, when the height of the pandemic forced widespread closures of childcare facilities.¹

And yet, despite this importance, care facilities and workers are in crisis. An industry that already faced a challenging work environment and disproportionately low wages before the pandemic is now facing historic staffing shortages. To that end, this insight seeks to explore trends behind the labor shortages in the direct care industry, as well as the menu of solutions that could possibly alleviate the issue.

The Size of the Problem

Millions of Americans regularly rely on care workers to provide aid to either their loved ones or themselves. As of 2021, about 25% of families with children pay for childcare (defined as a private preschool, daycare at a private center, or paid in-home care).² Eldercare is also a large component of the care industry; roughly 1.2 million people live in certified nursing facilities³, and many more receive in-home healthcare. Finally, long-term care is frequently necessary for individuals with chronic conditions that interfere with their daily lives. As the United States continues to age and undergo a demographic transition, these needs will only become more pronounced. The eldercare and disability services organization PHI estimates that the U.S. will need to fill 7.4 million direct care jobs by 2029, with most of the needed vacancies in home care.⁴

Since the pandemic, however, the care industry has been in the midst of an acute labor shortage. At its most dire point near the end of 2022, the industry had 100,000 fewer childcare workers than before the pandemic, constituting a nearly 10% sectoral decrease.⁵ The American Health Care Association’s January 2023 State of the Nursing Home Industry report similarly found that 84% of nursing homes are facing moderate to high levels of staffing shortages.⁶ In the home healthcare field, a Wall Street Journal article from the same month documents that even with the number of home care workers doubling between 2008 and 2018, more than 85% of home care agencies were turning down cases because of labor shortages in 2021.⁷

These labor shortages impede workers in other areas of the economy from being able to work. Women are particularly affected when childcare comes into short supply; research from UNC Kenan-Flagler Business School Professor Elena Simintzi and co-authors demonstrates that childcare friction sharply impedes women’s career progression.⁸ Moreover, this problem is particularly pronounced in the United States, which reports some of the lowest women’s labor force participation rates of any of the Organization for Economic Cooperation and Development’s 38 member countries – a phenomenon that has been tied to the lack of universal childcare in the U.S.⁹ More generally, U.S. workers who are not able to source sufficient paid care workers for their family members are either going to have to drop out of the labor market or take on multiple roles, increasing the probability of burnout.

Immediate family members of those needing care are not the only ones affected, however, as the shortage sends ripples through the entire economy. Bipartisan government estimates indicate that lack of childcare access could cost as much as $217 billion in economic productivity over the next decade.¹⁰ (As another way of conceptualizing this impact, the same estimates find that each missing childcare slot will cost the U.S. economy almost $63,000 over the next 10 years).

The shortage also sends ripples that affect the U.S. healthcare system. Hospitals find themselves unable to discharge patients in need of a skilled nursing facility or nursing home because of insufficient staffing at those institutions.¹¹ This leads to longer hospital stays for patients who could be cared for elsewhere – as well as hospitals’ being unable to take in new patients, who may be more in need of care.

Finally, the shortages and high rates of turnover have been shown to decrease not only the quantity of care but also the quality. High turnover in low-wage care positions has a strong and adverse effect on patient outcomes, including mortality.¹² Similarly, children in centers with low quality and high turnover have been shown to have poorer language and social development.¹³

Where Are the Shortages Coming From?

A major cause of these shortages stems from the arduous nature of this tier of care work. To be sure, the pandemic has been difficult for healthcare workers of all kinds, as demonstrated by the increased incidence of burnout among physicians and nurses.¹⁴ However, workers in childcare, home healthcare and long-term nursing care face long, grueling hours without the wage premiums that other healthcare workers are able to command. On average, childcare workers and home healthcare workers are paid roughly half the hourly wages of the average U.S. worker.¹⁵ A 2022 study found that holding a second job is incredibly common in the long-term care industry – and may be as high as 40%¹⁶ – which speaks to the point that wages in the care industry are insufficient for many workers to support themselves.

Against the backdrop of these factors, the arrival of a global pandemic strained care facilities’ capacities past their breaking point. The “great resignation” signaled that workers were burned out and ready to seriously rethink what they want from their jobs. In a profession with long hours, relatively low income and increased risk of exposure to infectious disease, care workers were ready to find other employment – especially during a tight labor market that offered numerous opportunities elsewhere for higher wages. The pandemic also caused tremendous mortality and health costs to workers in care provision fields. As of February 2022, more than 3,000 staff members of long-term care facilities are known to have died because of COVID-19¹⁷, with many more suffering from related complications and dealing with the burden of healthcare costs.

While the rise of remote work and telemedicine has granted some relief to other healthcare workers, the nature of care work prevents these occupations from enjoying similar increases in flexibility. Occupations such as childcare and nursing home care require workers to be present on-site to provide support for children and patients. As remote work rises in popularity, labor shortages in direct care may become even more pronounced; preliminary research indicates that companies without remote work options may be highly disadvantaged in bidding for applicants.¹⁸

Immigration barriers also serve as another causative factor behind the decreased supply of care workers. Foreign-born workers constitute roughly one-fifth of direct care workers, according to an extensive 2016 study.¹⁹ Given the centrality of immigrants to the direct care industry, a number of analyses also indicate that broad immigration reform is essential to increasing the provision of direct care workers.²⁰ Indeed, a recent paper from authors at Harvard and the University of Rochester teases out this relationship, finding that increased immigration positively affects nursing home labor supply as well as patient outcomes.²¹

What Solutions Exist?

One immediate and direct solution for workers in this industry would be the provision of higher wages and greater job flexibility. In particular, higher earnings for low-wage healthcare workers have been found to increase employee retention, as well as a slate of patient outcomes.²² Even a broad minimum wage increase would likely increase prospects for those in this field; a 2019 study published in the American Journal of Public Health found that raising the federal minimum wage to $15 would reduce poverty incidence among female healthcare workers by 27.1% to 50.3%.²³ Some of those costs will naturally be passed downstream to consumers in the form of higher prices, given that labor is often the major component of these services. While efficiency wage arguments – or the idea that higher pay induces greater worker effort and thus higher productivity – suggests that an additional $1 of compensation will not necessarily translate into an additional $1 in the cost of these services, but any significant change in compensation for workers in these occupations is likely to affect prices. Given that care services can be prohibitively expensive for many families at their current price level, these provisions need to be designed thoughtfully.

Another set of possible solutions has to do with care-related federal policies. As a country without universal childcare and paid family leave, the United States is an outlier among developed countries. The depth of current political divisions has prevented much progress from being made on this front; bills offering potential remedies have stalled in Congress.²⁴ Just as with many similar issues that have become gridlocked at the national level, certain states have taken up the mantle and passed laws of their own. In 2022, New Mexico expanded its free childcare program to cover all families earning 400% of the federal poverty level, the most comprehensive program of any state thus far.²⁵

Despite this federal gridlock and subsequent relegation to the states, there are an array of ways that the U.S. government could take action on this issue. One possible approach has recently been implemented as part of the CHIPS Act, wherein firms seeking more than $150 million in direct funding for semiconductor R&D must also submit a plan to provide affordable childcare.²⁶ Another approach would be to use the financial vehicles created by the $1 trillion infrastructure legislation passed in 2021. A separate piece of legislation now in the House of Representatives would classify childcare facilities as infrastructure, thus allowing them to receive funds for physical renovations as well as workforce development.²⁷

Yet another set of factors that may ease the pain stems from technological advancement. As we’ve discussed in the American Growth Project, innovation and new technologies have the power to make workforces more productive without necessarily increasing the number of workers. However, in an industry so heavily reliant on soft skills, there may be limits to the gains technology can provide. Japan has invested heavily in developing robots to aid with caring for seniors, but studies have found that these tools may actually cause more work for existing healthcare workers, as well as diminishing the amount of interpersonal interaction between nursing home staff and residents.²⁸ That said, technological supports have demonstrated some promise in assisting with specific tasks, such as the usage of handheld devices to improve communication between the client and care workers.²⁹ In addition, the impact of job sharing – in which a full-time job is divided into several smaller roles that can be filled by part-time workers – may also serve as a recent technological advancement that could improve the care work space. Dedicated job-sharing technologies have been developed in recent years that allow workers to communicate and coordinate in their joint fulfillment of a single full-time role. This arrangement would allow workers into the space who might be unable to commit to a full-time contract, as well as create a wider set of shift options, thus providing more flexibility to workers.

A final approach has to do with lessening the occupational and licensure requirements for care workers, with the goal of making it easier for individuals to enter the field. Alternatively, some tasks that now require licensure could be recoded so as to allow them to be performed by uncredentialed workers. To be sure, mandatory training requirements are necessary to ensure a desired level of quality in care. However, recent research indicates that occupational credentials may be exacerbating labor shortages by requiring licensure when none is needed.³⁰ Moreover, the cost of regular certification and licensure programs, which falls upon the employee, may prevent qualified workers from entering the sector.³¹

Conclusion

The COVID-19 pandemic has reshaped our world in many ways, with some of the most notable impacts taking place in the way we work. However, it also offers the opportunity to recognize types of work that are essential to our society, as well as to provide more robust support to workers in those professions. Care work is a prime example of such a sector. Its operations directly affect functionality in other sectors of the economy, performing work that is taxing across a number of dimensions. It is hoped that these recent labor shortages bring greater attention to the issues faced by workers in this industry – and, subsequently, spur concerted action that allows the direct care industry to continue doing what it does best: taking care of us.

Kenan Institute Technical Business Writer Thomas Nath authored this insight.

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