We need to keep closing the workforce participation gap

The Australian economy has generally bounced back well from the COVID-19 recession, but the road to recovery will remain bumpy. Now that JobKeeper has ended, all eyes will be on the labour force, with some estimating that 125,000 to 250,000 people could lose their jobs after the end of the program. The Federal Government may need to look for additional stimulus in the upcoming budget.

In 2021, this is not just about splashing cash, but making smart investments to build productive capacity in the longer term. A policy that ticks both these boxes is expanding childcare subsidies – it supports a crucial sector during the economic-recovery period, increases workforce participation from parents (particularly women) who are better able to return to work or increase their employment, and creates long-term benefits through children entering education earlier.

Benefits of expanding access to childcare

Recent CEDA research by Sydney University Associate Professor Elizabeth Hill found investing in social infrastructure such as education, health and childcare services creates more jobs than investment in physical infrastructure – particularly for women, but almost as much for men. The boost to direct employment from an investment in care industries is almost five times greater than that of the same investment in construction.

Population growth and migration have held up economic activity in recent years – with a lack of this in the short-term, productivity and participation will be the key determinants of the economic recovery. Making childcare more affordable makes it easier for parents who have lost work or hours to pick up work when available.

As well as a short-term boost, greater female workforce participation would substantially increase Australia’s long-run economic potential. The gap between men and women’s participation represents unutilised talent and resources and potential gains to economic growth and development. Businesses are also keen to increase their pool of diverse talent and encourage women to continue their careers and current policy positions make this more difficult. Parents with young children face major financial disincentives for working more than three days a week – we should remove these roadblocks and provide more support to parents wanting to re-engage in the workforce or increase their hours.

Increasing workforce participation is by no means the only benefit of increasing access to childcare. Access to affordable high-quality early childhood education has lifelong benefits for children (particularly children from disadvantaged backgrounds), families and government budgets. Early childcare education provides children with critical skills and increased cognitive capabilities, giving them the building blocks for lifelong success.

Delivering these benefits

There are a few policy options that could improve access to childcare and workforce participation. While these have clear budgetary impacts, they would deliver significant benefits.

While universal provision of childcare would provide widespread benefits, the budgetary impact would be substantial. It would also require a significant ramp up in childcare centres and trained staff – something that is unlikely to be achievable in the short-to-medium term. The sector would be unable to provide adequate quality of care with the increase in demand from universal childcare unless it was phased in slowly and with appropriate support to expand and train the workforce.

On the other end of the scale is tax deductibility of childcare. While this is a relatively low-cost option, it would mainly benefit higher earning households rather than supporting the women and children that need it most.

A pragmatic change that could be implemented in the upcoming May budget would be an expansion of the Child Care Subsidy (CCS). This would be the most direct way to reduce costs for families and improve workforce disincentives. As detailed by the Grattan Institute and the Front Project, CEDA supports increasing the maximum CCS from 85 per cent to 95 per cent, flattening the taper rate and removing the annual cap. This change would deliver the greatest benefits in a sustainable manner.

To get the full participation benefits of childcare, other things need to change including access and hours of childcare, paid parental leave, employer attitudes, flexibility, and incentives to encourage men to share caring responsibilities. As workers return to offices in a post-COVID environment, evidence is emerging that more women than men want to continue working from home to better manage caring responsibilities. Employers and the community need to ensure that the benefits to flexible arrangements work for all employees in the long run and that a lack of face time doesn’t further hold back women’s careers in the way that many part-time arrangements have.    

The labour market has rebounded more quickly than was expected at the outset of COVID-19 and it has been great to see female participation bounce back alongside it. However, female participation was increasing considerably before COVID, and we don’t want to lose those gains. The gap between the female and male participation rate is still substantial: expanding child care subsidies will help us support women who want to work while ensuring children receive the long-term benefits of early childhood education.