Anna Godøy and Jennie Romich on the Impacts of Increasing the Minimum Wage for Working Parents and Child-Care Workers

Taylor [00:00:03] Hello, and thanks for joining us for the Poverty Research and Policy podcast from the Institute for Research on Poverty at the University of Wisconsin-Madison. I’m Nateya Taylor. For this episode, we are going to be talking with Dr. Anna Godøy and Dr. Jennie Romich about their individual research on the effects of increasing the minimum wage. First, we’ll hear from Anna Godøy, who will discuss how increasing the minimum wage impacts parental labor supply. Godøy is a senior research fellow at the Ragnar Frisch Center for Economic Research and an Associate Professor at the Department of Health Management and Health Economics at the University of Oslo. Her research interests include empirical labor economics, health economics, and policy evaluation. Anna, thanks for being here today.

Godøy [00:00:52] Thanks for having me.

Taylor [00:00:53] So first, can you start by defining parental labor supply?

Godøy [00:00:59] Sure. So, parental labor supply refers to the decisions that parents make and especially parents of young children, to participate in the workforce. So this includes deciding whether or not to enter or reenter the labor market. How many hours you work. So in this paper, we focus on, simple measure, of parental labor supply, namely the employment rate of parents with young children. So we look at kind of a more narrow definition, where we focus on families who have a child aged five or younger, where the parents might need extra childcare in order to be able to work.

Taylor [00:01:40] Can you also talk about how minimum wage affects the labor supply of parents with young children?

Godøy[00:01:47] Sure. So when we think about parents of young children, one way that they might be different than people who don’t have children or parents to have older children. Is this need for childcare services in order to participate in the labor market? Right. So if you think about, especially for mothers and maybe especially so for single mothers, in order to be able to participate in the labor market, you have to have access to some kind of dependable childcare while you’re away at work. So in the United States, there’s no universally available, free or low cost childcare. So depending on your family situation, if you don’t have access to dependable informal care, many parents have to buy childcare services in the market. And when parents go out and buy childcare services in the market, in particular formal childcare such as childcare centers, the centers typically provide some package with a set number of hours for a monthly rate. What that means is that before you can start working your first hour at the job, you have to put the big chunk of money down. So in other words, childcare for parents of young children functions like a fixed cost of work. So from economics, we know that whenever there are these fixed costs of work that can be cost is a commuting cost or some kind of investment cost, as opposed to more proportional cost to work. We know from economic theory that we can expect relatively small changes in wages to result in larger shifts in employment. And when we think about minimum wages and parental labor supply, one thing that was surprising to me when I started working on minimum wage is that the topic was how many minimum wage workers actually have children and are supporting minor children, because I think it’s easy to think about minimum wage work as something that’s mostly related to the teenagers who have maybe an extra job after school, to earn some pocket money. But in reality, we know that minimum wage work, it’s not just a transient state. Well, we know that a lot of minimum wage workers are supporting children, and that they have to find some way of organizing childcare and affording childcare. So during our sample period, about 3 in 10 minimum wage workers have children. And these are mostly mothers because women are overrepresented in women in minimum wage work. So when these parents decide whether or not to work outside the home, one of the things they need to consider is whether the job pays enough to cover the childcare costs. So if we’re thinking about a mother who is a low wage worker, an increase in the minimum wage could potentially shift that calculation so that it now makes sense to go to work rather than stay home.

Taylor [00:04:53] In the paper, you analyze the effects of minimum wage on the employment of parents with young children. So can you talk about the methods that you use to analyze those effects?

Godøy [00:05:06] Sure. So what we do is to implement what’s known as the difference in differences strategy, where we look at state minimum wage increases. We analyze how the employment rates of parents of young children live in these states that increase their minimum wages. Changes before and after the minimum wage increase is implemented. And we compare that to how employment rates change in places that don’t experience any changes in the minimum wage during the same period. So in this analysis, we want to make sure that we are indeed picking up an effect of the minimum wage policy and not some spurious changes in labor market, but local business cycles that might be correlated with these policy changes. The one thing we do is to focus on changes in employment, in jobs that pay close to the new minimum wage. So what we’re looking for in this analysis is to see whether there are any changes in employment rates for jobs that pay either just at the new minimum wage or a little bit higher. So these are the jobs that we think are really going to be affected by the changes in minimum wage legislation. While if we were to look at high wage jobs. These jobs are likely not affected. We don’t expect there to be any changes in the wage level for jobs that pay well above the new minimum wage. So if you were to see employment rates shifting in these higher paying jobs, we might worry that what we’re picking up is not the effect of the policy change, but rather some shift in local economic conditions.

Taylor [00:06:44] Now, can you also talk about your findings from the analysis on the effects of raising minimum wages for parents who have younger children?

Godøy [00:06:56] So the key finding of our paper is that increases in the minimum wage significantly raise the employment rate among single mothers with young children. So one or more children with five years old or younger. And our estimates indicate that a 10% increase in the minimum wage increases the employment rate of these mothers by about 2.5% on average. And these increases are entirely driven by jobs that pay at or just above the minimum wage. We don’t find anything happening with these higher paying job. The one thing we do in this paper is to look at why parents who are out of the labor force, are not working for their stated reasons, for not working. And what we find is that following minimum wage increases, there’s a sharp drop in the share that report that they are not working in order to take care of family due to family obligations. Finally. We use survey data to look at childcare arrangements. Using data from a survey of income and program participation. In this analysis, we find significant increases in the use of formal childcare following these minimum wage increases.

Taylor [00:08:10] And along with childcare cost. Can you also talk about how increasing the minimum wage impacts family responsibilities?

Godøy [00:08:21] So our findings suggest that these higher minimum wages of parents, especially single mothers, afford childcare, which in turn facilitate their participation in the labor force. So by raising our income, these higher minimum wages reduce the relative burden of childcare costs, making it feasible for parents to go to work. And again, especially for single mothers who don’t have a partner in the home and care for the child. So we find that this leads to a decrease in the number of parents who stay out of the labor force to care for children so they can increase the paid childcare services, rather than parents, staying at home and not going to work.

Taylor [00:09:03] Can you also talk about the relationship between increasing minimum wage and child poverty?

Godøy [00:09:10]  The minimum wage is the policy that targets everyone, right is not particularly targeted towards children. And still, what our finding seems to suggest is that a higher minimum wage could still be an effective policy tool if we want to reduce child poverty because of this greater employment response among this group of single mothers. We know it’s a group that is at high risk of experiencing child poverty.

Taylor [00:09:44] And lastly, what future policy recommendations do you have in regards to minimum wage and childcare costs?

Godøy [00:09:55] Childcare costs as a real barrier to parents being able to participate in the labor market and provide for their families. And given that constraints, our findings point to these higher minimum wages as a possible policy measure to reduce child poverty. So even though it’s not targeted specifically at families with young children, because we have this significant positive employment effect, an increase in the minimum wage would still be an effective policy measure to reduce child poverty.

Taylor [00:10:24] Next we’ll hear from Dr. Jennie Romich, who will discuss how increasing minimum wage affects childcare workers and the childcare business. Romich is an Associate Professor of Social Work at the University of Washington. Director of the West Coast Poverty Center, an active member of the Center for Studies of Demography and Ecology and an IRP affiliate, Romich studies resources and economics and families, with a particular emphasis on low income workers, household budgets, and families interactions with public policy. Jennie, thanks for joining us today.

Romich [00:10:59] Happy to be with you.

Taylor [00:11:01] So one of your research studies focuses on how Seattle’s minimum wage increase to $15 impacts the childcare sector. Can you first talk about what the average wages of childcare workers were before Seattle’s $15 minimum wage ordinance was passed?

Romich [00:11:20] Sure thing. Childcare is a notoriously low paid, area of work. In our study, the baseline. So, after the wage ordinance was passed, but before anything had taken, taking effect, we found that the median wage for workers in that industry was $15.50 an hour. Some people earned higher. Of course, the average was a little higher, but those numbers include everybody who works in the sector, both frontline workers and people who are center directors or, you know, work in accounting or computer services or whatever for larger organizations like childcare chains. So, I think overall that that the typical frontline worker was probably making just around $15 an hour in 2014.

Taylor [00:12:24] So now can you talk about what demographics of people were most impacted by the increased minimum wage and why?

Romich [00:12:33] When we think about people most impacted, the first people I think about are people who are going to be paid more as a result of the minimum wage being raised, and those are current minimum wage workers. The Bureau of Labor Statistics puts out national information about, minimum wage workers and what that data shows is that minimum wage workers are younger than the average worker, are more likely to be under age 25. They are also disproportionately workers of color, and women. And nationwide, workers paid the federal minimum wage or close to it are more likely to be in the southern states. Washington actually, because we’ve always had a higher state or we’ve had a higher, state minimum wage that’s higher than the federal minimum wage for a while. We don’t have many workers close to the federal minimum wage. But my guess is those same demographics are true within our state as well.

Taylor [00:13:48] So now can you talk about what methods you use to analyze the effects of minimum wage on the childcare sector?

Romich [00:13:56] This was part of a project that looked at a lot of different aspects of the Seattle minimum wage. So some of what we learned about the child care workers was because we set out to look at the child care industry, in particular. And some of it was we were looking across all industries, but our data did contain child care workers. So the team I was part of, we did have some folks who interviewed child care center directors and had in-depth conversations with them about how this mattered. We also used the Seattle business license data and through a sample of all businesses, or actually all employers, businesses and nonprofit organizations within the city. And because child care businesses and childcare nonprofits are part of, the local ecosystem. Some of the employers we surveyed were child care workers. So we we analyzed those in particular. And then finally we use State earnings records that were reported to the Washington State Employment Security Department. They administer the state’s unemployment insurance system, and all employers, or almost all employers, have to do reports to the UI system, to the unemployment insurance system. And so we really had three different kinds of data and kind of three corresponding types of methods to look at the child care sector.

Taylor [00:15:41] So after gathering all of that data, what did you all find in regard to increasing the minimum wage and its effect on the price and quality of childcare?

Romich [00:15:54] The first. And one of the overarching themes, I think, is that whether you are a for profit child care director or center or a nonprofit child care center director, you’re always balancing lots of different considerations. And the minimum wage is only one of those. So people do this work, because they want to see kids have good quality care. They want to have jobs for the workers who are there. And they want to be serving the community. And they’re kind of always thinking about these different dimensions. And that came out in some of the interviews that we did as they talked about, you know, this is making it more difficult for us to do our work. But, you know, I just reach out to other directors and we all kind of figure out how we’re going to make a plan for this in terms of how individual or how how they responded as a group. Most of them did raise wages. So they told us on the survey that depending on the year 70, 80, 90% of them reported that they did raise wages because of the ordinance going into effect. And they did that in part by raising prices for childcare or adding some fees. Those were really their major responses. A small number said they’ll do things like reducing workers hours or reducing headcount, or not giving people as much in, wage increases as they might have otherwise. But for the most part, centers figured out a way to offset the additional cost. Without really making big changes in their programing. And I will also say this is this is really just a descriptive study with the work we did at the time. We didn’t, we didn’t have a comparison group. We just tried to track kind of how did things change within the city of Seattle. Not necessarily. What was the overall impact of this?

Taylor [00:18:14] Now transitioning a little bit. Can you talk about how higher minimum wages impacted children’s wellbeing?

Romich [00:18:21] Yeah, I think thinking about minimum wages and kids wellbeing you really have to think about the full ecosystem, or the the full set of systems that kids are involved in. You know, luckily we live in a country without too much child labor, so this isn’t going to be affecting what kids themselves, or at least what young kids are earning. There will be some direct effect on adolescent workers. And then the impact on kids who are younger than adolescents, who are too young to be working in the, in the market, will mostly be indirect effects. So I’ll talk about that. It really depends on how the the impacts of the minimum wage trickle into the family. So minimum wage increases for families with low paid workers. It may result in some increased hours and some increase or some increased, hourly pay and increased wages. It may also have some somewhat offsetting effects on either how easy it is to find a job, or how many hours you can have when you when you get a job. There’s a large debate on that, which is kind of beyond the scope here. But I think that the thing to think about is, as parents, jobs change and as what parents earn changes, those effects can trickle down into kids. Because it might change how much income families have. It might change how much time parents have with kids, and it might change the parent’s stress level or the cognitive load, kind of all the things that parents are having to think about. If income goes up, that might mean things like parents can more easily afford food kids like or could afford, better quality childcare, or could afford things like, treats or extracurricular activities for the kids. If parents end up being less stressed or spending less time at work that could have positive payoffs in terms of, they’re able to their ability to respond to the kids, to have a, a good relationship with them and to to be responsive parents. And kind of all these things go into raising a kid. They go into to wellbeing. So there are lots of different ways. But overall, I wouldn’t expect any huge impact on child wellbeing just because of the minimum wage. If it affects ours, it’s going to be a fairly small effect. And probably dwarfed by other demands in families lives. So I think we’re looking at kind of modest changes. It could potentially have bigger impacts on young workers. And this is actually work that we’re, that we have underway now to try to understand, the impact of the minimum wage on younger workers. It took a really long time for us to be able to assemble the data to do this. The, the data I talked about earlier, the unemployment insurance records. They don’t tell you anything about the personal demographics of the worker. So if you see somebody who’s earning $15 an hour, you don’t know whether that person is, you know, a 40 year old child care worker or a, you know, 18 year old who is just entered the labor market for the first time. You know, in the kid in their first job. So we have finally put together the data that we need to figure out how young workers are affected. We don’t have any published results yet, but overall, I would say our results are consistent with the idea that this doesn’t make any massive change in anybody’s life. And so if there are effects on young workers, they’re likely pretty modest and probably only affecting a small subset.

Taylor [00:22:40] So my last question is, so what are some future policy recommendations in regard to raising the minimum wage and improving the wellbeing of both childcare workers, parents and their children?

Romich [00:22:54] Okay, good. Good question. I have kind of two different sets of thoughts. One is about child care workers and one is about parents and families more generally. In terms of child care workers. I think that raising the minimum wage broadly will likely have some positive, impact on child care workers wages. But I think there is also a need to have attention to wages in that sector, kind of regardless of the minimum wage. You know, one thing the pandemic taught us is about what work is is essential. And child care work is is truly essential work. And I think it has long been recognized, as work that that’s undervalued. So I think while raising the minimum wage could help childcare workers, I think we should also keep working on trying to align with wages across different sectors. To be honest, childcare workers I think, are paid low in part because of who does the work. It’s often women and it’s often women of color. It’s people whose work gets devalued. And I think there needs to be a reshaping of how we value childcare workers. Kind of above the conversation about the minimum wage. So that’s one part. I think in general, if you’re thinking about raising the wage and. Raising the minimum wage and making sure that you’re not harming kids and parents. Thinking about stability in kids lives across systems would be helpful. I didn’t talk about it up front when we were talking about child care workers in particular, but we also had a qualitative part of the main study where we talked to low, low paid workers with kids, who were in any, any sort of industry. And one of the things that they expressed concerns about was that they would receive a increase in wages. They get paid more per hour, but then they would lose access to assistance that they were receiving. Seattle’s a really tough town to be a low paid worker raising kids in because it is incredibly expensive. And so a lot of the low paid workers we talked to, relied on housing subsidies or had their kids in care that was partially subsidized. And I think, honestly, the biggest thing you could do for kids is to support child care and don’t penalize parents or families or kids if the parents end up earning more. And this gets into some of the weeds on child care policy. And, and I know it’s been a change that the Federal Childcare Block Grant funding has allowed recently. But, you know, if we had a situation where if a kid qualified for care and was receiving a subsidy and was in a child care center, and they could remain in that care center or in that care setting until they no longer needed care, I think that would be a much better situation than the current one where, if they’re in a care setting and their parents start earning a lot more, they get bounced out because they’re no longer eligible for the subsidy. So we call these kind of marginal tax rate situations in the, in the nerdy, research language. But I think that’s a big thing with raising the minimum wage. And, and it was a true concern of parents that they didn’t want to. They wanted to earn more. They wanted to be paid more for their work, but they didn’t want to lose eligibility for the supports that were allowing them to keep their family heading in a good direction.

Nateya Taylor [00:27:05] Well, thank you so much for sharing all your insights about the minimum wage and your research.

Romich [00:27:12] Oh, absolutely. Thanks for having me talk about it.

Taylor [00:27:16] Thanks so much to Dr. Anna Godøy and Dr. Jennie Romich. They joined us to discuss the effects of increasing the minimum wage on parental labor supply and on childcare. You can find a link to the individual articles they coauthored on these topics in the program notes for this episode. The production of this podcast was supported in part by funding from the US Department of Health and Human Services. Office of the Assistant Secretary for Planning and Evaluation. But views expressed by our speakers don’t necessarily represent the opinions or policies of that office or of any other sponsor, including the University of Wisconsin-Madison. Music for the episode is by 808xri. Thanks for listening.