Monetising childcare

The Economics of Childcare

Yet another budget sees another round of handouts to the childcare industry through payments to working mothers in the politically sensitive mortgage belt. Having failed to pass its contentious paid parental leave scheme, the government will instead hike childcare funding by 71% to $11bn in 2018-19. According to calculations by The Australian, families earning less than $65,000 will have 85% of their childcare costs subsidised per child up to $155 a day. Even the wealthiest families using childcare (defined as having an income above $185,000) will receive $10,000 per child, $2,500 more than they currently do. The new policy (which subsidises between 50 and 85% of costs) is so generous that some families will receive more in childcare funding from taxpayers than their family income!

It begs the question of why the government is trying to lure women into the workforce at any cost, even if it costs the taxpayer more in childcare subsidies than the economic value of their paid work. In a free market, paid childcare can be seen to be a rational decision only for women who add economic value in excess of that represented by child rearing. With this policy, the government is creating market distortions by pushing women into any work that earns a paycheque. It raises the question of what is the point in incentivising a woman to earn say $35,000 p.a., and paying $60,000 p.a of taxpayer money to childcare centres? The subsidy creates an artificial demand in the childcare sector, pulling resources away from more productive sectors of the economy, while making it difficult for women who would generate greater economic value to find childcare. The women being nudged into low paying jobs will also be competing with workers whose maximum economic potential is in such jobs (such as less educated men).

A fair argument can be made that the true economic potential of a worker is not realised at the age when women typically give birth to children. A 27 year-old mother of two may not be earning much more than the cost of her childcare, but she may one day progress to become a significantly bigger contributor to the economy. For example, it can be pointed out that former Westpac CEO Gail Kelly had only been working at a bank for six years when she had her first child and it wasn’t obvious she would one day be running Australia’s second largest company, adding far more economic value than as a homemaker.

The purpose of policies such as childcare subsidies and paid parental leave is ostensibly to boost economic growth through higher labour market participation, maximising labour productivity by enabling women’s economic contribution. But when it pushes all women into the workforce indiscriminately with no assessment of relative economic value-add, the overall economic benefits are questionable.

Monetising childcare with a government-backed industry

We appear to be moving towards the monetisation of childcare. What was once an instinctive parental duty and selfless act of unconditional love risks turning into a corporatised activity subsidised by dollops of taxpayer funding. While monetising childcare increases nominal GDP, additional wealth creation is limited to cases where the mothers are generating more than the economic value of raising their children.

Childcare is likely to become the only privately-owned industry (except perhaps the defence sector) to be majority-funded by the government, an outcome that media commentary appears to have missed. Like other private industries that are funded mostly by the government or implicitly protected by the government (such as banks), this move will lead to similar issues of moral hazard in childcare that ought to be scrutinised.

However, childcare has managed to carve a special place for itself and seems exempt from the suspicion and wariness with which big businesses and private enterprise are often viewed.

For example, while running schools and hospitals for profit is anathema for many on the political Left, raising and nourishing a child for profit is universally acceptable. One might have expected anti-capitalists to be more discomfited by an industry that sees an infant as a source of revenue and baby food and toys as expense items on the income statement. 

While there was a fair amount of outcry when the big banks were given temporary taxpayer assistance during the financial crisis, there was little controversy when multibillion-dollar childcare centre operator ABC Learning was given $56m in a partial government bailout in 2008 to keep it running while it was restructured.

The Feminist Tug of War

When examining childcare and women's participation in the workforce, a tug of war appears to emerges between these three 'feminist' aims:

•  High quality childcare
•  Affordable childcare
• Equal representation of women in traditionally male-dominated jobs

Fundamentally, this is like trying to link three points of a triangle with a string that is only long enough to connect two. Any two of the three aims are achievable, with achievement in the third exerting an opposite effect on the other two.

Ensuring high quality of childcare is the aim of the considerable amount of regulation that some commentators say is creating a supply shortage in the industry, and needlessly driving up the cost of childcare. For example, they argue childcare workers are required to be so highly qualified that they are more like educators than carers.

However, even if these unnecessary restraints were removed, the carer:child ratio will remain a key indicator of quality. Children need individualised attention, not merely the provision of nourishment, education, entertainment and security. There is thus an upper limit of children per carer that can be given a quality of care high enough to provide them the attention and emotional security that a biological parent usuallty provided.

Childcare is and seems likely to remain an almost exclusively female-dominated profession for obvious safety reasons. This means as the demand for childcare services increase, more and more women are needed to work in the childcare sector if quality and accessibility are to be maintained. This reduces the number of women available in other sectors of the economy and limits the scope for equal female representation in non-traditional roles. In other words, a monetisation of childcare entails a proportion of women who remain engaged in traditional roles, but get paid to perform them.

Fewer women working in childcare but in other areas means childcare will either be more expensive and high quality or affordable and poorer quality. 

An estimate can be made of the percentage of the female workforce that will need to be in the workforce if all children were looked after by professional carers. If every woman has 2 children on average, with an age gap of three years between them, and she looks after them full time until the youngest turns 6 and part-time until the youngest turns 12, that represents a total of 12 years away from the work force, or 30% of a roughly 40-year career. If no women worked, that would mean roughly 30% of working age women would be engaged in full-time unpaid childcare, with the proportion remaining the same if everyone swapped their children and paid each other to raise them

If the average optimum ratio is four children to one carer for example, that would free up half the mothers, but 15% of the female workforce would need to remain in childcare. The exact proportion will of course vary depending on the carer ratio but a significant proportion of women will need to be working childcare for it to be high quality and affordable

With 15% of the female workforce tied up in childcare, and after allowing for other predominantly female professions like as nursing and primary school teaching, opportunities for equal representation of women in less traditional fields become limited.

Childcare policy should not ignore choice

From an economic perspective the current policy is taking the approach that if a woman wishes to work, her childcare needs should be supported at all costs. Although there will be women whose net economic contribution will not justify the cost of the subsidy, the policy implicitly assumes that overall it will lead to a more productive workforce and higher economic growth. It is presumed there will be more high-earning female lawyers, managers and CEOs justifying their childcare subsidies than women who stay on the minimum wage.

However, this exclusively economic focus ignores the emotional and philosophical aspects of child rearing. When women are making the intensely personal choice of whether to spend time with their children or re-enter the workforce, it is questionable whether it is appropriate for government to be dangling such a huge carrot to nudge them to boost nominal (and possibly real) GDP.

Together with the cuts in benefits to stay-at-home mothers, government policy now almost seems to be making the moral judgement that a woman’s contribution is more valued outside the home, regardless of the economics. Or it can be seen as affording women a right to outsource childcare as long as they can be otherwise occupied with work or study.

Feminism was supposed to empower women to be able to choose if and how to raise children. Instead government policy has evolved into throwing money at women if they choose to work, and giving them the cold shoulder if they choose to become full-time mothers. 

Has the pendulum swung too far the other way from the repressive 50s? Have we moved from judging women who chose to work as bad mothers, to judging women who choose to stay home as bad, unproductive citizens?