The Daycare Drain: How Rising Childcare Costs Ripple Through Local Economies

According to a Pew Research analysis of 2025 U.S. Census Bureau data, most American households now have two earners for the first time in history. While having two incomes offers financial benefits, many families no longer see it as an option, but as something they must do to get by.

Raising a child now costs more than $300,000, almost twice as much as it did 25 years ago. Most families are struggling to keep up, and about one in five Americans are falling even further behind.

What does this mean for the wider economy when families have to stretch their budgets even more? We used IMPLAN’s economic impact modeling to track where the money goes. Here’s what we discovered.

How we modeled it 

We looked at what happens when families have to pay an extra $7,500 per child each year for things like daycare, food, and clothing. Since fixed costs like housing and utilities remain the same, families have to cut back elsewhere in their budgets.

Our analysis includes the U.S. national average and three metro areas: Los Angeles, Dallas, and New York City. For each, we examined three income groups: low income ($50,000 per year), median income (between $75,000 and $83,000, adjusted for location), and high income ($130,000 per year).

For each group, we asked three questions: Which industries lose business? What happens to tax revenue? And does extra spending on childcare actually grow the economy? The short answer to the last question is no.

The national picture: A forced reallocation 

High-Income Households

When a household earning $130,000 a year spends an extra $7,500 on childcare, that money has to come from somewhere. Nationally, it comes from businesses across the economy, with Total Output falling by 4%-5% across multiple industries. Offices of physicians, dentists, and other health practitioners take a hit, as do recreational activities like museums and historical sites, full-service and limited-service restaurants, and financial investment services and life insurance carriers.

As families pull back on retail, dining, and entertainment, sales tax revenue shrinks right along with them. Tax revenue drops around 1.5% to 2% at the sub-county general and special district, county, and state levels.

This shift in spending does not grow the economy. Overall, things stay about the same as before, since families are just moving money from one part of their budget to another. Total Output goes up by less than $1,000, Labor Income drops by $130, and the contribution to GDP falls by $315. Employment changes very little, with only 0.02 more jobs created.

Median-Income Households

For median-income households, the pullback is much sharper. Total Output falls by 11% to 12% across sectors including limited- and full-service restaurants, hospitals, offices of physicians, dentists, and other healthcare practitioners, amusement and recreation, and retail.

That lost spending carries through to public budgets. Tax revenue decreases by 2% to 3% at the sub-county, general and special district, county, and state levels.

Again, the overall economy remains about the same as before. Labor Income increases by $260, the contribution to GDP rises by $341, and Output increases by just over $2,000. This isn’t real growth, just a shift in where the money goes.

Low-Income Households

For households earning $50k a year, the cuts go deeper. Total Output falls 11% for insurance carriers, monetary authorities, depository credit intermediation, and other financial investment activities. Offices of physicians, dentists, and other health practitioners see a 13% to 14% reduction, and full-service and limited-service restaurants see a 12% to 13% reduction.

Nationally, tax revenue falls by 3% overall. The heaviest losses land closest to home, with a 6% decrease in sub-county general, special district, and county taxes. State taxes fall 5%, and federal taxes fall 1%.

The overall economy does not grow, and in this case, some measures actually get worse. Total Output rises by only $41, while Labor Income drops by about $400 and the contribution to GDP falls by about $950. Employment stays nearly the same, with just 0.02 more jobs.

Los Angeles: Sunshine and sticker shock

High-Income Households

In the Los Angeles MSA, high-income households cut back across everyday spending. Total Output falls by 5% to 6% across all retail industries, including food and beverage stores, health and personal care, and gas stations, as well as full-service and limited-service restaurants and the offices of physicians, dentists, other health practitioners, and hospitals.

Tax revenue falls roughly 3% overall. Sub-county general, special district, and county-level tax revenues drop 4%, state-level revenues drop 3%, and federal-level revenues drop 2%.

There is no real growth here, just a change in how families spend their money. Both Total Output and Labor Income fall by 2%, and the total contribution to GDP drops by 1.5%.

Median-Income Households

Median-income households in Los Angeles pull back in some less obvious places. Total Output falls 7% to 8% for elementary and secondary schools, junior colleges, universities, and professional schools. Offices of physicians, dentists, other health practitioners, and hospitals see a 9% to 10% reduction, and monetary authorities and depository credit intermediation see a reduction of about 8.5%.

Tax revenue falls 4% in total. Local governments feel it most, with a 7% decrease in sub-county general, special district, and county-level tax revenues. State-level revenues fall 4%, and federal tax revenues fall roughly 3%.

Compared to before, both Labor Income and Total Output drop by 3%, and the contribution to GDP falls by 2%.

Low-Income Households

For low-income families in Los Angeles, the numbers are stark. Spending falls by 15% to 17% across multiple industries, including all retail industries (food and beverage stores, health and personal care, and gas stations), offices of physicians, dentists, and other health practitioners, hospitals, and limited-service and full-service restaurants.

Tax revenue falls 8% in total. Sub-county general, special district, and county-level tax revenues drop 11.5%, state-level revenues drop 8%, and federal tax revenues drop 6%. These results show that the economy is becoming more fragile. When families spend more on basic childcare, they cut back on other spending, and business activity slows down in the region. Total Output drops by $4,000 (6.5%), Labor Income falls by $1,500 (7%), and the contribution to GDP goes down by $2,000 (5%).

Dallas: Everything’s bigger, including the bill 

High-Income Households

In the Dallas MSA, high earners pull back sharply on financial services and education. Total Output falls 20% in financial investment activities and 11% in life insurance carriers. Elementary and secondary schools, junior colleges, universities, and professional schools see the steepest drop of any sector in this analysis, at 23% to 28%.

Tax revenue falls 2% in total. Sub-county general, special district, county, and state-level tax revenues each fall 4% compared to the baseline, while federal-level revenues fall 0.5%.

Labor Income and contribution to GDP each decrease by 0.5%, and Total Output falls 1.5% across the Dallas MSA among higher-income households.

Median-Income Households

Median-income households in Dallas cut back on the basics. Total Output falls 9% to 10% in multiple industries, including all retail industries (food and beverage stores, health and personal care, and gas stations), offices of physicians, dentists, other health practitioners, and hospitals, and life insurance carriers.

Tax revenue falls 3% in total. Sub-county general, special district, county, and state-level tax revenues fall 6% compared to the baseline, and federal-level revenues fall 0.6%.

The overall economy does not really grow. Contribution to GDP goes up by less than $1,000, while Labor Income drops by $12 and Total Output falls by $1,900.

Low-Income Households

Low-income households in Dallas show the same pattern of fragility seen in Los Angeles. Total Output falls 13% to 15% for all retail industries, including food and beverage stores, health and personal care, and gas stations. Nondepository credit intermediation and related activities, monetary authorities and depository credit intermediation, and other financial investment activities see a 9% to 13% reduction, and offices of physicians, dentists, other health practitioners, and hospitals see a 15% reduction.

Tax revenue falls 7% in total. Sub-county general, special district, county, and state-level tax revenues drop 11% compared to the baseline, and federal-level revenues drop 4%.

When families spend more on basic childcare, they cut back on other purchases, and business activity slows down in the Dallas area. Total Output drops by $3,500 (5%), and the contribution to GDP falls by $2,000 (4.5%).

New York City: A tough market gets tougher

High-Income Households

In the New York City MSA, high-income households trim spending across retail, healthcare, and dining. Total Output falls by 5% to 6% across all retail industries, including food and beverage stores, health and personal care, gas stations, offices of physicians, dentists, and other health practitioners, hospitals, and full-service and limited-service restaurants.

Tax revenue falls 2% in total. Sub-county general, special district, and county-level tax revenues fall 3%, and state and federal-level revenues each fall 2%. Total Output, Labor Income, and the contribution to GDP all fall by 2%.

Median-Income Households

Median-income New Yorkers pull back on education and healthcare. Total Output falls 7% to 8% for elementary and secondary schools, junior colleges, colleges, universities, and professional schools, and 9% for offices of physicians, dentists, other health practitioners, hospitals, and life insurance carriers.

Tax revenue falls 3% in total. Sub-county general, special district, and county-level tax revenues fall 4%, state-level revenues fall 3%, and federal-level revenues fall 4%.

Just like with high-income households, Total Output, Labor Income, and the contribution to GDP all drop by 2%.

Low-Income Households

For low-income households in New York City, the impact is widespread. Total Output falls 14% for monetary authorities and depository credit intermediation and other financial investment activities, 15% to 16% for offices of physicians, dentists, other health practitioners, and hospitals, and 16% across all retail industries, including food and beverage stores, health and personal care, and gas stations.

Tax revenue falls 6% in total. Sub-county general, special district, and county-level tax revenues drop 8%, state-level revenues drop 6%, and federal-level revenues drop 5%. Here as well, higher childcare costs show that the economy is becoming more fragile. When families spend more on basic care, they cut back on other spending, and business activity slows down. Labor Income and the contribution to GDP both fall by 5% in the region, and Total Output drops by 6%.

What comes next

As childcare costs take up more of the family budget, families have to spend less on non-essential items to pay for basic care. This is especially hard for lower-income families.

This financial pressure hurts local economies. Money that would usually be spent at local restaurants, stores, entertainment, and services is now going mostly to childcare. Over time, this reduces household buying power, slows small business growth, lowers city sales tax revenue, and makes money move more slowly through the community.

For policymakers, economic development leaders, and workforce planners, affordable childcare is not just a family concern; it’s a local economic issue. Understanding how changes in household spending affect a region is the first step to finding solutions. To learn what rising costs mean for your community, request a demo and see where the money goes.