Why Would an Increase in the Federal Minimum Wage Rate Be Harmful?

Families, communities, and nations are stronger when their leaders understand how the wage situation works. Millions of people are demanding an increase in the federal minimum wage rate to $17 per hour. However, the rise may make it impossible for some parents to continue working outside the home.

According to Rachel Greszler at The Daily Signal, an increase in “the federal minimum wage to $17 per hour would drive up costs, especially for child care.” 

According to my original analysis, based on data regarding child care wages across the states and the economics of child care, a $17 per hour minimum wage would increase child care costs by an average of 20% throughout the U.S., costing a family with two children an extra $4,185 per year.

Most families today would be hard-pressed to come up with that extra money, especially considering that wages haven’t kept pace with inflation. Over the past two years, the average worker has received a $4,300 pay increase, but inflation has eroded $7,000 of value, leaving everyday Americans $2,700 poorer.

Bad government policies were a primary cause of this decline in real wages. By driving up demand for goods and services through massive government spending increases and simultaneously restricting the supply of workers by offering excessive welfare-without-work benefits, federal policymakers drove up the wages that employers had to pay workers.

And when employers had to pay workers more for the exact same output, they had to raise prices. Wage increases are a great thing when they come from workers becoming more productive. But when they come from government mandates, they simply shift costs around; some people lose their jobs or have their hours reduced, and across the economy, family incomes decline and prices rise.

Indeed, one of the most significant price increases that would come from a $17 federal minimum wage would be in child care costs. It’s a very labor-intensive industry, with relatively low wages and stringent regulations that prevent child care providers from shifting costs to anyone other than families.

To get specific, my research indicates that a $17 federal minimum wage would increase costs by 20% on average. Worse still, low-cost states would be hit the hardest because a $17 minimum wage in Mississippi is equivalent to a $39 minimum wage in the District of Columbia.

Such massive cost increases almost certainly would price some families out of child care completely. Some parents who want to work would be pushed out of the labor force, leading to lower household incomes. Households that have only one parent and must use child care would be more likely to turn to nonlicensed child care.

On top of that, child care jobs would be lost, even as employment among child care workers declined by 18.2% between 2019 and 2022.

Greszler’s analysis of the effect of a wage increase on childcare shows that higher wages do not always mean a higher standard of living. Demands for higher wages have affected the increase of self-check outs in grocery stores and ordering fast food with machines. This brought about fewer jobs in retail business and fast out joints.

Greszler suggested other ways that can better help families. One of her suggestions is that “lawmakers should implement policies that help workers earn higher wages of their own accord. That would include better education opportunities, making it easier for businesses to invest in their workers, and keeping doors open to flexible independent work opportunities.” 

In addition, policymakers can ease regulations on those who provide childcare to “help more families to find the care they need, from the provider they want, at a cost they can afford.” They could allow “lower-income parents to use Head Start funds at a provider of their choice, and [eliminate] barriers to employer-provided child care.”

Another suggestion from Greszler would help all families even if they do not need childcare. The government should reduce its spending and require “lower and broader-based taxes.”

The bottom line is that individuals should be careful about their demands. Demanding an increase in the federal minimum wage limit could make life more difficult. Making informed decisions can strengthen families, communities, and nations.