President Biden recently proposed a $15/hour minimum wage for childcare workers, for whom the current median wage is $12.24/hour, meaning half the childcare workers in the US get less than that. In some states, they get a whole lot less. For instance, in Iowa the median wage for childcare workers is $9.79/hour.

Some employers are able to absorb minimum wage increases by increasing labor productivity - producing more output per worker. However, this isn’t possible in the childcare business, due to mandated staff-child ratios, which vary somewhat across states. So with large minimum wage increases, employers have little choice but to pass on the extra cost to the consumer, typically parents or government agencies. According to one estimate, a $15 minimum wage for childcare workers would increase US childcare costs by an average of 21 percent —an extra $310 per month for two children. But in some states the increase would be much higher, over $500 a month for two children.

In most states, non-affluent parents would struggle to meet the additional expense. Imagine if you’re bringing home $1500 a month and the childcare bill just went up $150-$500 a month. That’s not a viable situation, especially for parents stuck in poorly paid service jobs. It’s hardly worthwhile for a single parent or the lower-paid parent in a two-parent household to continue working in these jobs if most of their take-home pay went to childcare alone.

These two tables tell the story, starting with the current cost of childcare in the US, Iowa, and California:

Now the additional expense if the minimum wage for childcare workers went up to $15/hour:

Basically, lower-income parents are barely able to afford childcare services as it is and with a $15/hour minimum wage for childcare workers, it would be well-nigh impossible. So it makes sense that Biden is also requesting $225 billion to go toward covering child care costs for low income and middle class parents with children five or younger. His stated goal is to make sure families earning up to 1.5% of their state’s median income pay no more than 7% of their income on child care.

Think about it. In 2019, the lowest state median income was about $45,000/year, so under Biden’s proposed plan, families earning $67,000 ($5600 a month) would qualify for the federal government’s childcare subsidy regardless of the state they live in, assuming they paid more than $392 a month for childcare. They would qualify for childcare assistance no matter what their other expenses - especially the cost of housing, which varies greatly depending on where one lives. For instance, the current Fair Market Rent* for a three-bedroom apartment is $1005 in Iowa and $2,103 in California.

I agree that childcare needs to be subsidized for some parents but Biden’s proposal goes way beyond what’s necessary. And it’s really, really expensive. There's got to be a better way.

Next: A better way.

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* Fair Market Rent is determined each fiscal year by the Department of Housing and Urban Development (HUD) and is used to set payment standards for federal housing assistance programs. Fair Market Rent is the 40th-percentile of typical rentals in a given region.

References:

ProCare, “Child Care Costs by State 2020,” https://www.procaresoftware.com/child-care-costs-by-state-2020/  

Rachel Greszler, “The Impact of a $15 Federal Minimum Wage on the Cost of Childcare”. February 11, 2021 https://www.heritage.org/jobs-and-labor/report/the-impact-15-federal-minimum-wage-the-cost-childcare