Higher Minimum Wage Leaves Working Poor Without Childcare

Oakland’s voters who approved the March 1 increase of the minimum wage to $12.25 apparently drank the Kool-aid that it would “help the poor.” Tell that to the working poor parents who will now be scrambling to find good, affordable child care:

Workers who benefit from Oakland’s minimum wage hike might soon lose a service that enables them to work in the first place. It turns out the well-intentioned law is putting a financial squeeze on Oakland’s child care industry, leading some providers to panic.

“Panic” may help sell newspapers, but those who have to keep their doors open deal more in Cold Hard Facts:

Revenues < Expenses = Bankruptcy

So when its main expense (labor) increases by more than 36% overnight (from $9 to $12.25 per hour), Cold Hard Facts say: Increase Revenues or Decrease Expenses.

For a non-profit early childhood development center in Oakland which had recently garnered the highest rating in the county, the only way “out” is decreased costs. Parents of the 63 children cared for there—all working poor—pay little to nothing for the care provided five days a week, every week of the year. Because it is a nourishing environment—providing professional care, guided recreation, stories, socialization and pre-school instruction—it is by definition very labor intensive. And much of that labor is provided by minimum-wage teachers’ aids. The immediate, first-year budget shortfall to meet the mandated wage increase: $146,500

But it’s really more than that: in practice, a rise in the minimum wage puts upward pressure on the pay of those employees who had been earning above minimum wage, but whose relatively higher pay has now disappeared with the mandated minimum-wage increase—so the amount needed to keep everyone equal “relatively” is actually closer to $200,000.

Unfortunately, as a non-profit, it can’t raise “prices” and it doesn’t have an angel it can tap to write a check, so cuts are the reality to keep the doors open.

Infant care, which demands a higher teacher:child ratio, will be discontinued, and staff let go accordingly.

Bottom line: the elimination of care for 11 infants of the working poor, and the jobs of three teacher aids.

This means working poor parents of infants in Oakland now have fewer sources for their care, with higher costs. And three formerly minimum-wage workers are now unemployed.

And that’s just one childcare center. The story is similar across the sector, as reported by the San Francisco Chronicle. Will parents be able to re-juggle their household budgets and work schedules to ensure their children are well cared for while they work?

San Francisco also raised its minimum wage, and on both sides of the bay the immediate effect has been the close of a popular science fiction bookstore, restaurants—from highest rated to humble Chinatown establishments—and worsened job prospects for youth.

In any case, it’s time to wake up and face reality: raising the minimum wage is a lousy way to “help the poor.” As noted here:

...minimum-wage workers are typically not in low-income families; instead they are dispersed evenly among families rich, middle-class and poor.

Virtually as much of the additional earnings of minimum-wage workers went to the highest-income families as to the lowest. Moreover, only about $1 in $5 of the addition went to families with children supported by low-wage earnings. As many economists already have noted, raising the minimum wage is at best a scattershot approach to raising the income of poor families.

Just another tragic tale of those for whom “Sorry, Your Minimum Wage Law Is a Nightmare.”

Mary L. G. Theroux is Senior Vice President of the Independent Institute.
Posts by Mary L. G. Theroux | Full Biography and Publications
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