The Effect of the Minimum Wage on Childcare Establishments

Katharine C. Sadowski

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Childcare is essential for working families, yet it remains increasingly unaffordable and inaccessible for parents and offers poverty-level wages to many employees. While research suggests minimum wage policies may improve the welfare of low-wage workers, there is also evidence they may increase firm exits, especially among smaller, low-profit firms, which could reduce access and harm consumer well-being. This study is the first to examine these trade-offs in the childcare industry, a labor-intensive, highly regulated sector where capital-labor substitution is limited, and to provide evidence on how minimum wage policies affect a dual-sector labor market in the U.S., where self-employed and waged providers serve overlapping markets. Using variation from state-level minimum wage increases between 1995 and 2019 and unique microdata, I implement a cross-state county border discontinuity design to estimate impacts on the stocks, flows, and composition of childcare establishments. I find that while county-level aggregate establishment stocks and employment remained stable, establishment-level turnover increased, and employment decreased. I reconcile these findings by showing that minimum wage increases prompted reallocation, with larger establishments in the waged-sector more likely to enter and less likely to exit, making this one of the first studies to link null aggregate effects to shifts in establishment composition. Finally, I show that minimum wage increases may negatively affect the self-employed sector, resulting in fewer owners with advanced degrees and more with only high school education. These findings suggest that minimum wage policies reshape who provides care in ways that could affect both quality and access.

Keywords: Child Care; Early Childhood Education; Minimum Wage (search for similar items in EconPapers)
JEL-codes: H32 H44 H75 I21 I28 J13 J38 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-inv and nep-lma
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https://www2.census.gov/library/working-papers/2025/adrm/ces/CES-WP-25-53.pdf First version, 2025 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:25-53

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