As families are still trying to cope with rising prices and declining real wages, a proposal from Sen. Bernie Sanders, I-Vermont, and Rep. Bobby Scott, D-Virginia, to increase the federal minimum wage to $17 per hour would drive up costs, especially for child care.
According to my original analysis, based on data of child care wages across the states and the economics of child care, a $17 per hour minimum wage would increase child care costs by an average of 20% throughout the U.S., costing a family with two children an extra $4,185 per year.
Most families today would be hard-pressed to come up with that extra money, especially considering that wages haven't kept pace with inflation. Over the past two years, the average worker has received a $4,300 pay increase, but inflation has eroded $7,000 of value, leaving everyday Americans $2,700 poorer.
Bad government policies were a primary cause of this decline in real wages. By driving up demand for goods and services through massive government spending increases and simultaneously restricting the supply of workers by offering excessive welfare-without-work benefits, federal policymakers drove up the wages that employers had to pay workers.
And when employers had to pay workers more for the exact same output, they had to raise prices. Wage increases are a great thing when they come from workers becoming more productive. But when they come from government mandates, they simply shift costs around; some people lose their jobs or have their hours reduced, and across the economy, family incomes decline and prices rise.
Indeed, one of the most significant price increases that would come from a $17 federal minimum wage would be higher child care costs. It's a very labor-intensive industry, with relatively low wages and stringent regulations that prevent child care providers from shifting costs to anyone other than families.
To get specific, my research indicates that a $17 federal minimum wage would increase costs by 20% on average. Worse still, low-cost states would be hit the hardest because a $17 minimum wage in Mississippi is equivalent to a $39 minimum wage in the District of Columbia.
Such massive cost increases would almost certainly price some families out of child care completely. Some parents who want to work would be pushed out of the labor force, leading to lower household incomes. Households that have only one parent and must use child care would be more likely to turn to non-licensed child care.
On top of that, child care jobs would be lost, even as employment among child care workers declined by 18.2% between 2019 and 2022.
Instead of mandating artificial wage increases that lead to unintended costs, lawmakers should implement policies that help workers earn higher wages of their own accord. That includes better education opportunities, making it easier for businesses to invest in their workers, and keeping doors open to flexible independent work opportunities.
Moreover, while child care is expensive, policymakers can help more families to find the care they need, from the provider they want, at a cost they can afford, by easing regulations on child care providers, allowing lower-income parents to use Head Start funds at a provider of their choice and eliminating barriers to employer-provided child care.
And for all families — whether they use child care or not — reduced government spending with lower and broader-based taxes can empower parents to make the choices that they desire for their families.
Rachel Greszler is a senior research fellow in the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation.
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