The possible consequence of a $15 minimum wage: higher child-care costs for families

Personal finance

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The push for a higher federal minimum wage could help those who are underpaid, particularly child-care workers.

However, raising that minimum pay rate could also make child care unaffordable for many families.

Such is the Catch-22 that policymakers now face as they look to rebuild the economy from the Covid-19 pandemic, according to recent research from the Bipartisan Policy Center, a Washington-based think tank.

“The business model for child care is broken, and Covid taught us that,” said Linda Smith, director of the early childhood initiative at the Bipartisan Policy Center.

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Moreover, raising the minimum wage could create a “vicious cycle with no end in sight,” she said.

“If parents can’t pay any more, it will basically exclude more parents from child care, not increase their access to it,” Smith said.

The federal minimum wage is currently $7.25 per hour. However, legislators have proposed kicking that hourly rate up to $10 per hour or as high as $15 per hour.

In 2020, the hourly median pay for child-care workers was $12.24 per hour, or $25,460 per year. That is below the federal poverty level of $26,200 for a family of four, according to the Bipartisan Policy Center.

Raising the minimum wage to $10 per hour would not help most child-care workers, according to the research, due to the fact that 84% of those professionals already earn more than that rate. The remaining 16% earn within $1 of the proposed $10 rate.

However, a $15 per hour minimum wage would result in a boost for more child-care workers, due to the fact that 71% of professionals now earn between $10 to $14 per hour. Another 16% would see a 50% wage increase because they now earn less than $10 per hour. Meanwhile, 9.8% earn wages within $1 of the proposed $15 per hour rate, and 3.9% earn more.

Many families already have a tough time covering the costs of child care, a recent survey by the Bipartisan Policy Center and Morning Consult found.

About 47% of parents said the most they can afford to pay is less than $200 for child care per week. Respondents who were most likely to fall in that group included parents with incomes under $50,000, as well as service and trade workers.

Stabilizing child care means putting money into some kind of grants or contracts and that that, in turn, can help with the workforce issues.
Linda Smith
director at the Bipartisan Policy Center

Therefore, the question that needs to be asked with regard to a minimum wage increase is what impact such a raise would have on the operating costs of child-care programs and who would pay for that, Smith said.

“Stabilizing child care means putting money into some kind of grants or contracts and that that, in turn, can help with the workforce issues,” Smith said.

The child and dependent care tax credit, which was expanded for 2021 under the American Rescue Plan Act, is one way that is available to offset those costs. The credit enables taxpayers to offset some of the expenses they incur while working or looking for work and paying for someone to care for a loved one.

However, many parents — 48% — said they are not aware they can claim more child-care expenses when they file this year’s tax returns, according to the Bipartisan Policy Center and Morning Consult survey.

Parents were also evenly split — with 39% each — as to whether they would prefer just tax refunds to help them with child care or a combination of both government subsidies and tax refunds.

Ideally, businesses should also take part in helping to make child care more accessible, because they benefit, too, Smith said.

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