How Will Higher Minimum Wages Affect Family Life and Children’s Well-Being?

Abstract

In recent years, new national and regional minimum wage laws have been passed in the United States and other countries. The laws assume that benefits flow not only to workers but also to their children. Adolescent workers will most likely be affected directly given their concentration in low-paying jobs, but younger children may be affected indirectly by changes in parents’ work conditions, family income, and the quality of nonparental child care. Research on minimum wages suggests modest and mixed economic effects: Decreases in employment can offset, partly or fully, wage increases, and modest reductions in poverty rates may fade over time. Few studies have examined the effects of minimum wage increases on the well-being of families, adults, and children. In this article, we use theoretical frameworks and empirical evidence concerning the effects on children of parental work and family income to suggest hypotheses about the effects of minimum wage increases on family life and children’s well-being.

The early 21^st century brought a wave of new minimum wage laws and increased minimum wage rates around the United States and the world. While the United States has long had a federal minimum wage, many states, counties, and cities have recently passed local laws setting minimum wage rates well above the current federal rate of $7.25 an hour. Since 2014, 18 states updated their minimum wages, and more than two dozen localities—including Chicago and Los Angeles—created minimum wages above federal and state levels. Many of these laws set the minimum wage at $15 per hour or create a schedule for reaching that level in several years (1). In addition, between 1999 and 2015, many countries—including Britain, China, Germany, Ireland, and Kenya—created or substantially revised national minimum wage laws (see Table S1; 2).

Children are both direct and indirect targets of minimum wage policies. Creating or raising a minimum wage can affect the employment and financial well-being of adolescent workers directly. The policy may also affect younger children indirectly through changes in families’ economic circumstances and parents’ stress, or changes to the quality or cost of nonparental child care. The effects of increased minimum wages are usually felt by children in female-headed, immigrant, and racial-minority families because these families are overrepresented in low-paying jobs. Because economic conditions and caregivers’ relationships with children have far-reaching implications for health, academic achievement, and economic success in adulthood, these indirect effects may affect individuals’ well-being and their social and economic mobility (3).

In this article, we review research on the economic effects of minimum wages. Then, drawing on multidisciplinary theory and evidence, we examine the potential effects on three groups: adolescent workers, children with parents working at or near minimum wage, and children in nonparental care. We conclude with suggestions for research.

Employment Effects of Minimum Wage Laws

For hourly workers, wage rate is the key component of compensation and, together with work hours, determines take-home earnings. In the United States, work earnings comprise, on average, 60% of low-income families’ before-tax income (4). Holding employment status and work hours constant, higher wages will increase earnings and income, and should increase the welfare of parents and children. However, economic theory predicts that higher minimum wages will reduce demand for labor as employers adjust to higher payroll costs, suggesting that reduced jobs or hours might offset the increase in wages (5, 6). Evidence about whether such disemployment effects occur and, if so, by how much, varies considerably. A recent meta-analysis concluded that a 10% increase in the minimum wage would lead to a decrease in employment rates of between 0% and 2.6% (5). Fewer studies have examined the effects of increases in minimum wages on hours worked in the United States and other developed countries, and results are inconsistent in terms of the direction or size of the effects (5).

Most research on minimum wage has leveraged small differences or changes in minimum wage rates, which are dwarfed in size by recent increases in the United States and internationally. For instance, in the United States in 2010, 13 states had so-called super-federal wage rates, on average 8.4% higher than the federal rate of $7.25 per hour. By 2016, 30 states and the District of Columbia had super-federal minimum wages, which were on average 21% above the federal minimum of $7.25 (based on authors’ calculations using 7). Bolivia increased its minimum wage 20% in 2011, and Kenya increased its minimum wage 18% in 2017. In an examination of the effects of recent minimum wage increases in Seattle (from $9.47 to $11 and then to $13 per hour, 16% and 18% increases, respectively) on the number of jobs paying less than $19 per hour and hours worked in such jobs, wage increases were more than offset by reductions in hours, leading to a net loss in earnings to workers (8).

Economic theory predicts that disemployment effects vary by economic and policy contexts. For instance, we expect effects to be larger in small, open economies (like Seattle), where it is easy for jobs and workers to move, than in regions or countries. We also expect effects to be smaller in developing countries, where work is less formalized and regulated. However, studies of developed countries other than the United States (5) and of developing countries (9) yielded the same hodgepodge of positive, negative, and null effects on employment as in the United States. Clearly, the mix of results within countries makes it difficult to compare countries.

The economic effects of minimum wage increases will most likely affect three groups of children: adolescent workers, children with parents working at or near minimum wage, and children in nonparental care. Next, we describe the potential pathways and evidence related to each group.

Adolescent Workers

Adolescent workers are the only group of children for whom we would expect direct effects through changes in employment opportunities, wage rates, hours, and earnings. In the United States, 91% of workers ages 16 to 19 work at or below 150% of the federal minimum wage, $10.88 per hour (10). Many, but not all, countries allow subminimum wages for adolescent workers (for examples, see Table S1). U.S. law allows employers to pay a special minimum wage of $4.25 to workers under 20, but only for the first 90 consecutive days of employment. Some countries (e.g., Ireland) have a permanent lower rate for youth, while others (e.g., Germany) have no minimum wage for youth or a minimum wage that covers all workers regardless of age (e.g. China; 2, 11).

Much of the evidence on the employment effects of the minimum wage focuses on adolescent and young adult workers. Comparing the results of individual studies offers no clear pattern, with positive, null, and negative effects on adolescent employment estimated in different studies using different methods. However, two meta-analyses suggest that minimum wage increases have had no effect on adolescent employment in the United States, but may have had small negative effects in other developed countries (5). A few studies of minimum wage increases and adolescents’ wages and earnings have consistently found positive effects on hourly or weekly earnings (5).

Higher pay for work could increase the payoff to working relative to attending school, leading adolescents to work more hours, have less time to study, or even quit school to work full time (see Figure 1). Being part of work environments and earning money at work could also hasten adolescents’ transition to adulthood in ways that affect fertility or risky behaviors (12). In research on adolescent work and its effects on schooling, full-time, but not part-time, work affects school enrollment and engagement adversely (13–15). In addition, in studies of adolescent work, full-time work is associated positively with fertility and substance abuse (13, 16, 17), with some studies finding these effects only for White or economically advantaged youth (18). The few studies of minimum wage increases and adolescent schooling yield mixed results. In one U.S. study, laws increasing minimum wage reduced mandatory schooling only when students were permitted to drop out before age 18 (19). No studies have examined the effects of minimum wage increases on fertility or substance abuse.

Figure 1.

Summary of potential effects of minimum wage on family life and children’s well-being.

Children with Parents Working at or Near Minimum Wage

In the United States, fewer than a third of workers earning at or near minimum wage have children at home (20). Minimum wage increases could benefit or harm children indirectly by changing families’ resources and relationships (Figure 1). Research on the effects of parents’ work on children’s development suggests three main pathways of influence: family income and resources, parents’ time and routines, and parents’ stress and parenting practices (21–23). Mandating an increased hourly wage may affect all three pathways, although the specific effects depend considerably on how the policy affects employers’ and employees’ decisions about employment and hours. In fact, in two recent studies, increasing the minimum wage reduced infant mortality and low birthweight through decreases in maternal smoking during pregnancy and increases in prenatal care, both of which could be affected by income, time, and stress (24, 25).

Family income and resources

Family income provides children with basic needs, developmentally appropriate stimulation, high-quality health and child care, and access to educational and cultural opportunities. Higher income during childhood is associated with more favorable outcomes in every domain of child development, and with adult health and earnings, although much of this evidence is correlational (26). Evidence of a causal relationship is strongest for school achievement and test scores, based on natural experiments that relied on changes to income support policies in the United States and Canada (27–29); in these studies, a $1,000 increase in family income was associated with an average 0.06 standard deviation increase in children’s reading and math test scores.

Observational studies suggest that a boost in income is more valuable to children in low-income families and younger children than to children in high-income families and older children (3). If higher minimum wages lift families with infants, toddlers, and preschool-aged children out of poverty, they may be particularly beneficial. However, the evidence is inconsistent on whether and how much the minimum wage affects poverty rates. In most studies, a minimum wage increase modestly reduced poverty in the short term (30, 31), but in at least one study, short-term reductions faded or reversed over time (32). If minimum wage increases reduce the number of jobs, they could expose children to loss of income and the stress associated with parents’ job loss, which is associated with behavior problems in children (33, 34). Even if workers remain employed and their earnings increase after a hike in the minimum wage, at least three factors might offset these increases in income: First, employers may decrease other parts of the compensation package to comply with the wage increase. Second, in many countries, when increases in minimum wages boost family income for low-wage workers, those workers may become ineligible for other public benefits, such as subsidized housing and tax credits (35). Third, firms could pass the costs of minimum wage increases to consumers as price increases, which would diminish the benefits of an increase in income by reducing families’ buying power. This is particularly likely for goods and services produced, sold, or provided by low-paid workers, such as restaurant food and child care.

Parents’ time and routines

The time parents spend with children is fundamental to many developmental tasks, from forming secure attachment relationships early in life to supervising behavior in adolescence and conveying social capital (e.g., trust and involvement in institutions) across the span of childhood. Indeed, Mayer’s seminal work, What Money Can’t Buy (21), suggested that, above a certain threshold of income, parents’ interactions with their children are more important to children’s outcomes than income.

Wage level can determine the balance between the time parents spend at work and the time they spend caring for children. Higher wages could allow some parents to substitute time at home for time at work, while others may be encouraged by higher wages to work more. Laws mandating higher wages could also lead employers to reduce hours to meet higher payroll costs. Overall, little evidence suggests that increases in the minimum wage reduce working hours in the United States, but studies in the United Kingdom and Seattle pointed to declines in hours worked (5, 8). We know little about whether these reductions reflect employers’ or workers’ preferences.

Parents’ stress and parenting practices

Family economic stress theory from developmental psychology suggests that economic hardship increases parents’ stress, which in turn decreases quality of parenting. In particular, parents who report greater stress related to raising children are also less sensitive, warm, and consistent with their children (36). This pathway partially explains the relationship between economic hardship and children’s behavior problems (e.g. 22, 37, 38). An increase in wage rates could decrease economic stress and improve workers’ sense of value and efficacy at work. However, stress might also increase for workers who lose hours or a job as a result of an increase in the minimum wage.

Children in Nonparental Child Care

Wage mandates might also affect children in nonparental child care, even if they do not have a parent working at or near the minimum wage. This is particularly true in the United States, where many child care providers earn wages near the minimum wage. Nationwide, the U.S. median hourly wage in 2015 was $9.77 for a child care worker in a center, $12.44 for a self-employed home care provider, and $13.74 for a preschool teacher (39). The material deprivation and stress associated with low income affect individual workers’ health, which in turn can affect the quality of care provided to children (40, 41). Hence, holding employment and hours constant, higher wages may lead to higher quality care. Furthermore, centers that have to pay higher wages might hire more educated workers, which could increase the quality of care.

At the same time, rising wages for early child care workers translate into higher labor costs for center operators. Wages in the sector are low enough that increases to $10 or $12 per hour may trigger wage increases for the lowest-paid employees. And employers may have to raise wages above mandated minimums to maintain fair wage scales and attract qualified workers (42). Center owners or directors could adapt to these shifting financial constraints in ways that reduce the quality of care, such as increasing child-to-staff ratios, limiting enrichment activities (e.g., field trips, music instruction), or relying more heavily on processed, prepared food. If a minimum wage increase were to affect the well-being of the child care workforce or the quality of care provided, we might see effects on children’s illness and injury, language development, or behavior problems.

Finally, as centers adjust to increased minimum wage rates, they may pass some of the cost to consumers in the form of tuition increases. Increased tuition could push families into lower-quality informal care settings (43, 44). Child care costs are also related to mothers’ decisions to work, which can affect women’s employment rates and gender equity in the labor market (45). The potential consequences of higher child care costs will disproportionately affect lower-income families, the very families minimum wage laws are supposed to help.

Next Steps for Research

Most evidence on the effects of minimum wage increases on economic outcomes relies on relatively modest variation in U.S. state minimum wage laws prior to 2012. The more substantial recent increases in state and local minimum wages in the United States and worldwide provide an opportunity for additional and more comprehensive study of the effects on workers, families, and children. Evaluations of implementation of the recent laws and descriptive studies of workers, families, and children can illuminate how policy trickles down to affect individuals’ and families’ lives. Experimental or quasi-experimental studies of the causal effects of minimum wage increases can test impacts on specific parent- or family-level mechanisms, or on a range of children’s outcomes. Three promising areas for research include studies of how minimum wage increases affect transitions in emerging adulthood, family life, and the availability and quality of child care.

Effects on Major Transitions in Emerging Adulthood

Minimum wage increases offer the opportunity to understand more fully the connections among the labor market, youth employment, and attainment in early adulthood. Research should track adolescent and young adult employment overall, as well as by subgroups of youth likely to be more vulnerable to disruption early in life, including youth from low-income families and racial minorities. Survey and administrative data can track how wage laws affect high school completion, entry into and completion of postsecondary education, and early labor market outcomes, while interview or ethnographic data can describe how youth think about and experience different contexts in early adulthood.

Heterogeneous and Downstream Effects on Family Life

For children of parents earning low wages, understanding the effects of minimum wage increases requires careful attention to the influence of a heterogeneous labor market and the interface between work and family. Are the earnings or employment status of parents more or less likely than those of childless workers to be affected by changes in wage laws? How do changes in earnings, public assistance, and parents’ time come together to affect investments in children? In addition, if employers adapt to higher labor costs by changing the requirements or scheduling of jobs, researchers should examine whether and how such changes affect families’ routines or parents’ stress.

Implications of Minimum Wage Increases for the Availability and Quality of Child Care

Because many child care providers in the United States earn wages just above minimum wage, workers in the out-of-home care sector are likely to be affected by increases in minimum wage laws. Research should track changes in the price and quality of care after an increase in the minimum wage, ideally in a quasi-experiment that compares times and locations. Data from child care providers on staffing, revenue, and spending would also be useful to consider. Researchers can also examine government labor or licensing data to look for changes in the child care workforce. More generally, new wage laws are an opportunity to understand how work conditions for child care providers affect providers’ well-being and the quality of care.

Conclusion

Overall, the effects of increasing the minimum wage on family life and children’s well-being are ambiguous. The implications for children depend on employers’ and workers’ responses, and are moderated by individual families’ relationships and resources. Policy changes that increase adolescents’ work hours above part time could decrease youth’s engagement in school and increase their risky behaviors. Overall, the effects of minimum wage increases on children whose parents work at or near the minimum wage will depend on the balance of impacts on parents’ employment, family income, and parents’ stress. To the extent that increases in the minimum wage boost family income and reduce poverty, they could benefit many domains of children’s development and promote intergenerational mobility. Negative effects on children would be most likely if increases in minimum wage lead to job losses or unwanted cuts in work hours. Finally, increasing the minimum wage may alter the price or quality of child care. Some children will be affected across more than one of these categories, so research should allow for additive or interactive effects. The effects of increasing the minimum wage on economic outcomes and families’ economic well-being may also vary by country-specific policies and economic contexts.