The Effect of Minimum Wage Increases on the Child Care Industry

I examine the impact of state minimum wage increases on an important yet understudied low-wage industry: child care. Using a staggered difference-in-differences design that exploits variation in timing of state minimum wage increases, I document arguably causal estimates of minimum wage effects on child care wages, employment, and prices paid by families. The implied elasticity of minimum wage increases with respect to hourly child care wages is 0.23. I find no statistically significant adverse effect on employment. These results suggest that child care wages could be increased, providing economic benefits to child care workers, without the consequence of job loss. Finally, heterogeneity analyses reveal that the minimum wage relative to the median wage matters. In states with higher relative minimum wages, the minimum wage elasticity on child care wages is .48, about three times greater than in states with below median relative minimum wages. Similarly, while there is no effect of minimum wage increases on child care prices in states with lower relative minimum wages, the elasticity of minimum wage increases on prices is .73 in states with higher relative minimum wages, a result which could impact families’ ability to participate in formal child care