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.