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Estimating the cost of raising child care workers' wages for state subsidy programs: A methodology applied to California's new state minimum wage law

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. (author abstract)
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