Childcare Costs and the Minimum Wage

I have been vocal about my opposition to raising of the minimum wage in these pages. Type “Minimum Wage” in the search box above for more links.

Here is an example from the real world. I happen to work in the subsidized childcare business. In California, as cited in this example, and all around the country, low-income families receive assistance for their childcare costs if their income is below a given threshold as it relates to family size. These programs have been in place since welfare reform under the Clinton administration in the mid 1990s. Overall, the programs have been very successful, as they benefit the children, who are not at fault that their parents are poor, or irresponsible, or didn’t plan well. Money put into education is many times more effective than money put into the correctional system later – if education failed. But that is a subject for another article.

We have a system in place where low-income people get assistance with their childcare. If such a low-income worker gets an “artificial raise” due to an increased minimum wage, that raise can easily move the person out of the current income threshold for free childcare and now the parent has to contribute to the childcare cost.

This could mean that in the end, the parent may actually end up with less money in her pocket than before. The only difference is: The state does not pay anymore, it’s the employer that does. The state saves the expense, and in pretty much all cases the money will be used to sponsor another needy family and child, one that was on the waiting list for funds and care slots.

Artificial tinkering with a balanced system does not work in nature, and usually it does not work in economics, and the side-effects of artificially inflating somebody’s pay go much further and have more ripple-effect than meets the eye. This was just one example.


The article has some inaccuracies, one of which I thought I should point out:

Alerna Capiro is now paying the child care fee. She hires her mother, Etelvina Capiro, to babysit her 2-year-old. The state pays Etelvina a nominal amount for that care. Why does grandma do it? She said because it is her granddaughter.

The grandmother that takes care of the child is considered by the state a “license-exempt provider.” In some states those providers are also called “informal providers.” There is a regional market rate at which the state reimburses such providers, and it is not at all “nominal.” It can be significant. There is an entire sizable childcare provider community based on informal providers around the country, and in some states more funds go to informals than formal providers.


14 thoughts on “Childcare Costs and the Minimum Wage

  1. And so needier families and children are the ones who end up losing out…is that right? Why fix something when it is not broken, unless potential repercussions are thought through and addressed? I’d always thought raising the minimum wage is a good thing, but you’ve just shown me how to appreciate the counter-argument. Is this what is called the rigours of polemics? Only you do it in such a cool and measured and logical way.

    1. I have strong thoughts on minimum wage. Search my blog for that keyword and you’ll find a number of arguments. Whenever people, especially politicians, think they can regulate balance, something gets upset. A glaring example in nature are rabbits and Australia, I guess.

      1. Gosh, Norbert, I had to Google to learn about Australia’s relationship with rabbits. And I LIVE here. If only you could see my hangdog expression. I suppose you were referring to myxomatosis — something I haven’t known until now. You always remind me why I am your keen follower.

      2. Yes, then they had to resort to unnatural practices to correct an unnatural practice. Makes me think also of China’s one-child policy (and Singapore’s two-is-enough) which they are trying hard now to remedy. Anyhow, happy new year, Norbert, to you and Trisha and children.

      3. Oh, yes, China’s policy is such an example. It probably saved the world from another 500 million people in the last 30 years, but it’s going to be a challenge for their economy in the next 30 years.

      4. And find themselves being overtaken by India as the most populous nation in the next 10. Which then brings the issue of sustainability to mind…I suppose the challenge remains in achieving that elusive balance.

      5. My pleasure. I’ve always enjoyed posts when you slip in mentions of Trisha or Chelsea or your cool son. Not only are they heartfelt, they are funny and witty and gorgeous.

  2. Given your discussion on the redistribution of wealth since the1980’s which I totally agree with, I am somewhat surprised at your views on minimum wage. While the rising tide of today’s distribution of wealth toward the wealthy, raising the minimum wage is at the moment one of the only ways of balancing a small portion of this inequity.

    Economics, unlike nature is a human invention and as such has two characteristics that differentiates it from nature. First, as a human invention it is subject to flaws and there are many of them. The second is that large parts of the economic framework are very poorly understand. Nature doesn’t really have these limitations. The Adam Smith and David Ricardo understanding of supply and demand theory are beautifully deceptive but very incomplete and inadequate.

    Keep in mind this theory was formalized when slavery and indentured servitude were still prevalent if on the downward trajectory. It would be easy to imagine that the modern ideas of Keynes and Galbraith and others are necessary to provide a modicum of balance to a system that theoretically, at least, could accommodate these sort of labor systems.

    1. I know, my views on minimum wage are ideologically opposed to my views on redistribution. Be that as it may, I am essentially in favor of meritocracy, and a minimum wage just does not fit there. I think wage is one of those things that the market determines best. The fact that I have been a life-long employer probably contributes to that. Regarding “redistribution,” it’s been happening because the uneducated masses allow it. And that CAN be changed with education. So I am not in favor of government “doing anything” about it, I am in favor of the people refusing to be abused.

      Easier said….

  3. BTW, I know you like to read and a great book that forecasts trends in capitalism in the 21st century. It is called, deceptively enough, Capital with the subtitle ‘in the 21 century’ by a French Economist named Thomas Piketty and is available on Kindle.

    1. Ah, thanks. I’ll check it out. I just found that the Kindle edition is $23.99. That must be the most expensive book on Kindle ever. Needs Capital. I downloaded the sample – see how I read into it.

Leave a Reply