In April 2016, California passed legislation to increase the state minimum wage annually until it reaches $15 an hour in 2023 for all businesses. As a result, child care centers and licensed in-home providers will be required to increase the wages of their employees who currently earn less than the new minimum wage. Because a large proportion of workers in the child care industry is low-wage, this could have a significant impact on providers. Providers with private clients may respond by raising their prices to cover the cost of the wage increase. However, the amount providers receive for caring for children covered by state child care subsidy programs is determined by state and county reimbursement rates. Without the ability to change the amount charged for caring for subsidized children, child care centers or licensed in-home facilities may not be able to cover the cost of raising workers’ wages to the new minimum wage.
In this memo, we describe a methodology we have developed for estimating the additional child care subsidy funding needed to cover the cost of a state minimum wage increase for programs administered by the California Department of Education (CDE) and the Department of Social Services through the CalWORKs 1 (Welfare to Work) program. The challenge is that standard government datasets are not able to provide accurate estimates of all of the components needed for this estimation. Therefore, the logic of our method is to (a) use administrative data to estimate the number of child care workers in California who care for subsidized children, and (b) use worker survey data to estimate the wage increases that child care workers will receive as a result of the state minimum wage increase. We then combine these estimates to calculate the total subsidy share of the cost of the mandated wage increases.