A new report finds that the Democrats’ wage hike would affect a crucial expense for many working families: child care.
A new report finds that the Democrats’ wage hike would affect a crucial expense for many working families: child care.
S enate Democrats reportedly intend to drop a $15 federal minimum wage from their COVID-19 legislation, after the Senate parliamentarian ruled that it could not be included under the budget-reconciliation rules. However, Senate majority leader Chuck Schumer insists that Democrats “are not going to give up the fight to raise the minimum wage to $15.”
So while it’s likely that the minimum-wage proposal will not make into law as part of Biden’s COVID package, the issue is not going away anytime soon. We cannot, therefore, avoid considering the severe consequences that doubling the federal minimum wage would have for American families.
In the debate over the minimum wage, jobs and wages are almost always at the forefront of the conversation. Proponents of a $15 federal minimum wage argue that it will lift workers’ incomes without causing significant job losses. Critics counter that it will eliminate millions of jobs, vastly outweighing any wage gains for remaining workers.
On this score, the evidence base overwhelmingly supports the policy’s free-market and fiscal-conservative critics. A recent literature review found that a “clear preponderance” of available economic research shows job losses associated with minimum-wage hikes. Meanwhile, the average estimate by the nonpartisan Congressional Budget Office is that a $15 minimum wage would eliminate 1.4 million jobs in 2025.
Evaluating the policy through this prism alone, however, is misguided.
Even if there were no attendant, negative employment effects, there would still be a strong case against the wage hikes. There is no such thing as a free lunch, after all. Often overlooked in this debate is that almost all of the costs of higher mandated wages are passed on to consumers, thus decreasing their purchasing power. This sort of pass-through hits the working class the hardest, and, in effect, completely undermines the policy’s purported goal.
For example, research shows that McDonald’s often responds to increases in the minimum wage not by slashing jobs — it’s more often small businesses that have to do that — but by passing on nearly all on the costs to consumers via price increases. But this phenomenon isn’t limited to industries such as fast food. Indeed, a new study reveals that a $15 minimum-wage would cause similar price increases in a crucial expense for many working families: child care.
Finding affordable child care is already a struggle for millions of Americans: It’s a consistent problem that sucks up huge chunks of limited household budgets and sometimes limits the ability of parents to work. According to Child Care Aware of America, child care costs an average of $9,100 to $9,600 per year nationwide, albeit with significant variations across different states and ages.
Many families spend from 10 to 30 percent of their income on childcare alone.
Child care is already difficult to afford, but would become much more so if the “Fight for $15” were successful, according to the Heritage Foundation’s Rachel Grezler. In a new study, Grezler concludes that because child care is a labor-intensive industry in which the hourly median wage is only $11.65, a $15 federal minimum wage will impose a massive increase in labor costs on child-care providers. The nature of this business means that employers are unable to do much about the size of their workforce in response to increased labor costs. Instead, providers will respond with massive price hikes.
“Childcare costs would increase by an average of 21 percent — an extra $3,728 per year for two children — and up to 43 percent, or more than $6,000, in some states,” Grezler reports. “The impacts would be greatest in lower-cost areas; in Louisiana, Oklahoma, and Mississippi, costs would surge between 37 percent and 43 percent.”
In all, ten states would see at least a 30 percent increase in child-care costs.
So, yes, working families, duped by progressive politicians’ rhetoric, might initially cheer if the “Fight for $15” is ultimately successful. But their good spirits will be short lived — tempered by the skyrocketing child-care bill that’s sure to follow.
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