Note: This update to a previous blog aims to highlight key impacts to the child care industry should the minimum wage increase. It does not intend to comment on whether the minimum wage should be increased.
Proposals to increase the national minimum wage have emerged from both sides of the aisle: A few prominent Senate Republicans proposed a $10/hour minimum wage, while a $15/hour minimum wage has been a common goal of the Democratic party. In a more targeted approach, President Biden’s American Families Plan proposed increasing wages for all employees in Pre-K, Head Start, and child care programs.
There is no doubt that the early childhood education workforce is severely underpaid and that something urgently needs to change. The median hourly pay for child care workers was $12.24 per hour, or $25,460 per year in 2020, below the current federal poverty level of $26,200 for a family of four. This under compensation has long been unacceptable for a workforce that is educating our nation’s children and serving as a backbone to our economy by making it possible for so many parents to go to work.
Consequently, national discussions concerning raising the minimum wage are of great interest for the child care workforce and providers and could have significant impacts on them. While an increase to the minimum wage would improve salaries for early childhood educators, it would challenge the child care business model as child care businesses operate under slim margins. Below is an update to our 2019 analysis, describing how the potential effects of a minimum wage increase underscore key structural flaws in the child care market that must be addressed in conjunction with such wage increases. Without a clear plan on where funding for these wage increases would come from, policymakers should not overlook that there are possible unintended impacts on the child care workforce, providers, and parents.
As we wrote previously, changes in the federal minimum wage could have far-reaching implications for the cost of child care. Many studies have shown that increasing the minimum wage would impact small businesses differently than large corporations. This would be particularly true for child care businesses. For these reasons, it is critical to understand the potential domino effect of an increased federal minimum wage and how higher labor costs might be passed on to parents, who are already struggling to afford child care. Understanding these impacts from the outset and developing a plan to address them could help minimize these unintended cascading effects.
As it stands, two-thirds of parents report they are unable to pay more than $200 per child per week, or $10,400/year, for child care, including more than a quarter (27%) of parents who said the most they could afford was $100 per week and 12% saying they can afford nothing at all. Before a minimum wage increase is implemented, policymakers should consider how to support the child care sector on a longer-term basis so providers are not forced to pass along increased costs to parents, who are already paying a high price.
Current Landscape. To better understand how minimum wage increases might impact the child care industry, we have compiled the varied levels at which states set their minimum wages, how those wages have changed from 2019 to 2021, and a comparison with state-level child care wages. About half (22) of states’ minimum wages are anchored to the federal level, while the remaining states set their own. Together, this data demonstrates how either of these federally mandated wage increases would help increase the wages of child care workers, including the percent change the proposals would have on their salaries. At the same time, the percentage change in salaries would have to be absorbed by child care providers’ incomes, and therefore, the larger the change the potential for a greater impact on tuition fees that parents must pay.
Impact of $15/hour National Minimum Wage Increase (refer to Figure 2)
- In the District of Columbia and Washington State, child care workers’ median hourly wage in 2020 was already higher than the proposed $15/hour federal minimum wage (though, it is important to note that some cities also already have a $15/hour minimum wage).
- In five states, child care workers’ hourly wages in 2020 were within one dollar of the proposed $15 minimum wage (above $14/hour): Colorado, New York, Vermont, California, and Massachusetts.
- In eight states, the median hourly wage of a child care worker in 2020 was $10.00 or less, meaning an increase to $15/hour would provide at least a 50% increase to their wages (and as high as 65% in Mississippi, where the child care worker median hourly wage was $9.09 in 2020).
- Child care staff in the remaining 36 states had hourly median wages that were between $10.00 – $14.00 an hour.
Impact of $10/hour National Minimum Wage Increase (refer to Figure 3)
- In 42 states and the District of Columbia, the median hourly wage in 2020 for a child care workers was above $10/hour, and therefore, a new minimum wage at the federal level of $10/hour would have less of an impact on workers and providers in these states.
- In eight states, the median hourly wage of a child care worker was within one dollar an hour of the proposed $10/hour minimum wage–between $9.09 – $10.00 an hour. In these states, a $10/hour minimum wage proposal could have a greater impact on workers and businesses than states where average wages are already above $10/hour.