This story led off this week’s Early Childhood newsletter, which is delivered free to subscribers’ inboxes every other Wednesday with trends and top stories about early learning.
When states raise minimum wage, child care centers see less staff turnover, better trained employees, and improved teacher-child interactions, according to a study published in June.
But those wage hikes also brought some downsides: They tended to prompt centers to enroll more children, which increased child-to-staff ratios. Centers also enrolled fewer children from low-income families who use subsidies to pay for care, and parents left more negative reviews online, a possible side effect of providers raising their prices.
In the working paper, researchers looked at the effect on child care centers of raising minimum state and federal wages, using 20 years of wage data. They compared that data with surveys on the price of child care alongside data on child care quality — the amount of credentials teachers had and surveys examining the quality of their interactions — and they also looked at the number of children from low-income families served.
The researchers also combed Yelp – a website where anyone can leave reviews on businesses – to determine parent satisfaction of specific child care centers before and after minimum wage hikes. They found that a 10 percent increase in wages made it less likely that reviewers would give the center the highest possible rating on Yelp, and more likely that they would mention the cost of the center in their review.
“As it turns out, in this sort of tug of war, the parents seemed to be responding more to the increase in price than to the increase in quality, which is not too surprising because parents see prices very concretely,” said Chris Herbst, a professor at Arizona State University and co-author of the study with Jessica H. Brown, an assistant professor at the University of South Carolina. “It’s a very salient part of their child care experience, whereas they may not be able to observe so easily any improvement in their teacher behavior.”
Other studies on the effects of minimum wage hikes focus on the retail or restaurant industries, but those sectors have more wiggle room to absorb wage increases than child care providers do, the researchers noted; labor costs account for up to 70 percent of a child-care provider’s business expenses.
“Child care providers are not big, multinational companies making tons of money. They’re small businesses existing on razor-thin profit margins. So, if the minimum wage is increasing the pay for their workers but they’re not laying off any of their workers, they have to be making adjustments someplace else,” Herbst said.
Without an increase in other sources of funding, child care centers must raise the cost of their programs to make up the difference. And that increase in price is where researchers saw negative outcomes.
“What we find is that child care providers pass through their higher wage costs to parents, they increase enrollments as a way to make more money — which drives up child-staff ratios — and, interestingly enough, some providers choose to serve fewer or no children in the child care subsidy system,” Herbst said.
Because subsidies that help low-income families pay for care typically do not cover the full cost of a child care program, price increases may make it so parents or providers cannot afford to make up the difference.
“We have a couple of things that we can do to fix the problem,” said Anne Hedgepeth, chief of policy and advocacy at the nonprofit Child Care Aware. “We can improve subsidy payments and those rates so that low-income families continue to have access. We can increase public funding so that programs can pay for these increases and not have to pass them on to parents and families. And we can figure out other ways to resource child care and early learning so that the burden is not strictly with families.”
The working paper was released as some child care federal funds tied to Covid-19 pandemic aid have begun to dry up. The deadline for states to use those funds is September 30.
Some states have already started finding other sources of revenue to help make up the loss of those funds, but there has not been any federal funding announced to replace it. Without significant investment, it is likely the cost of child care will go up, she said. On July 11, the White House announced a proposal to make it easier for low-income families to access support through the Child Care & Development Block Grant program.
Ultimately, the working paper adds to the evidence that raising teacher wages improves child care quality, Hedgepeth said, but the key is making sure parents can afford it.
“Good things happen when you increase compensation for educators,” she said. “Because the quality is really tied to those educators that work with children every single day, and so that is the problem that we need to solve.”
This story about minimum wage hikes was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.