Concept Paper: Importance of Studying “Economics of Child Care” in the context of Australian...

Copyright ©, 2015, DIVIP IT Australia (Pty) Ltd. All other trademarks and copyrights are property of their respective owners

1

Importance of Studying “Economics of Child Care” in the context of Australian experience

Authors:

Dr Nisa Medagama (Economics Researcher, Lecturer, Statistician and Training Consultant) http://www.linkedin.com/in/nisansalam Qualifications: PhD-Economics, MA-Economics, Bachelor of Commerce (Hon), SAT (AAT), SAP HANA

Certified, Certificate IV in Training & Assessment - Australia, Certificate III in Early childhood Education – Australia

Contact authors or to see more articles:

Visit http://www.divipit.com.au/ to contact us and see more articles we have written on the topic.

Document Version Control:

V1.0 – Released on 30.03.2015

Abstract

Child care industry is important to an economy mainly because of its positive impact on labour force participation of women, community infrastructure growth, early child hood growth and development through proper education. In Australia there is a high demand for quality early childhood care services compared to its supply. Having a vast multicultural population, the impact from the child care industry on the socio-economic setting of the country is of significance. This concept paper is an attempt to introduce a proper framework for evaluating the impact from the child care industry on different segments of the economy.

http://www.linkedin.com/in/nisansalam

http://www.divipit.com.au/


2

1 Introduction .................................................................................................................... 3

1.1 Why Child Care industry is important to the economy? ........................................... 3

1.2 Why child care is an economic problem? ................................................................ 3

1.3 What motivates us to develop CCE as a separate branch of study? ....................... 4

1.4 Why is it important to include CCE in University Curriculums? ................................ 4

2 The Model/ framework for CCE ...................................................................................... 6

2.1 Components of the model for CCE ......................................................................... 6

2.1.1 Child Care Demand ......................................................................................... 7

2.1.2 Child Care Supply ............................................................................................ 7

2.1.3 Market Equilibrium ........................................................................................... 8

2.1.4 Influential Factors ............................................................................................ 9

2.1.5 Micro Economic Evaluation .............................................................................. 9

2.1.6 Macro-Economic Evaluation .......................................................................... 10

2.1.7 Planning, Budgeting and Monitoring .............................................................. 11

2.2 Actors of the Economics of Child Care .................................................................. 13

2.2.1 Families ......................................................................................................... 13

2.2.2 Government ................................................................................................... 13

2.2.3 Child Care Service Providers ......................................................................... 13


3

1 Introduction

1.1 Why Child Care industry is important to the economy?

Child care is a rapidly growing industry with a considerable input to economies of many countries. The most distinctive and concerned aspects relating to child care industry involves cost, quality and mode of care. Due to the substantial amounts of child care costs to working parents of young children in need of care, the government intervention is apparent in this market to eliminate market imperfections and/or for income redistribution purposes.

The Demand for child care services in the economy mainly depends on cost and availability of care as well as on women's participation in the work force. The supply of child care is directly affected by government policies, regulations as well as by child care related education options and population growth in the economy. The market price of child care services vary between different geographic locations such as regions, states, suburbs etc. and may depend on availability of care, average parental income and mode of care. Child care industry is important to an economy mainly because of its positive impact on labour force participation rate of women, on community infrastructure growth and on early child hood growth, development and education.

1.2 Why child care is an economic problem?

There are many reasons to consider child care from an economic perspective. One of the main reasons is the cost of child care consuming a significant portion of house hold income of families with young children. Hence, the financial pressure in addition to emotional pressure of separation from young kids, lead to further reduction of women’s participation in the workforce. Many governments have intervened to upturn the affordability of child care by way of child care rebates, tax benefits and various income support schemes resulting in higher public expenditure. Hence, provision of cost effective affordable child care to meet the demand has become an economic problem worldwide.

Further, unequal access to childcare can intensify a range of income, gender, and social disparities. The most important issue child care industry face today is “how best to care for the children”. The quality, cost and availability of care would be the deciding factors in seeking a care facility for young children by working parents. Lack of quality can negatively affect a child’s growth and development whereas high cost and unavailability can negatively impact the work force participation of women. In other words child care industry can impact the economy of a country negatively at present as well as in the future if due measures are not taken by the relevant authorities. For example, there are an estimated 3.6 million children under the age of 12 currently in need of some form of care in Australia including before and/or after school care, long day care, family day care, occasional care and informal care (AWCCI, 2013). Further, the demand for child care is expected to grow as fertility rates rise and net immigration continues to hike in the country. Therefore, the overall effort by the economy would be to function in a manner to provide high quality, affordable and accessible child care to all families in need of care.


4

In addition, development of the child care industry contribute to the creation of direct and indirect job opportunities such as child care educators, support staff, trainers and other related work. In terms of employment child care industry provide opportunities for youths to enter into the labour market with a responsible and rewarding career in the early childhood education and care. Child care industry also has a capability to create small businesses in the economy by creating opportunities to open family day care businesses leading to financial independence of women who decide to stay at home looking after children while earning an income.

Irrespective of different family and cultural circumstances it is a known fact that high quality, safe and professional childcare services can positively influence the growth and development of young generations to come. It also contributes to the ease of mind of parents regarding the safety and wellbeing of their children, resulting in an efficient workforce with higher motivation.

1.3 What motivates us to develop CCE as a separate branch of study?

Child care industry is an important segment in the economy. Provision of child care services influence labour supply and the demand for labour in a positive manner. Labour supply increases due to women’s participation in workforce when child care services are available at affordable prices. Further this industry has a huge potential to add new employment opportunities to the economy in the area of early childhood education and care, positively influencing the demand for labour.

Despite the massive importance of child care industry to an economy, it is apparent that only a few numbers of studies and research work has been carried out to understand the real importance and impact of it worldwide. Due to lack of further study and research, the formulation of best policies to further develop the industry in order to bring full potential benefits to the economy are hindered.

According to our observations the lack of research work done relating to Child Care Economics (CCE) is mainly due to the non-existence of a valid framework of study. Without a proper framework, economic research studies in this area have been conducted in a haphazard and country specific manner. The absence of a basic model that illustrate the fundamental aspects, market forces and other economic traits relevant to child care industry and the relationships between these elements has to be overcome by forming a structural model that can facilitate current and future research studies.

To remove study limitations and develop CCE as a robust economic branch of study we are introducing a structural model. Our primary objective is to facilitate smooth undergraduate and postgraduate study and also promote new research in the area of Child Care Economics (CCE). We expect that this model would provide inspiration to conduct new research studies as a result of structural assistance given in analysing the economic impact from child care industry. Hence, we welcome new views or ideas, agreements or disagreements, further suggestions, new schools of thoughts regarding the model in the attempt of developing CCE as a new branch of economics.

1.4 Why is it important to include CCE in University Curriculums? Globally many Technical and Further Education (TAFE) Colleges, Registered Training Organizations (RTO’s) and universities offer certificates, diplomas, advance diploma and degree level qualifications in early year’s education and care in collaboration with the vocational training sector. All these qualifications are more focused towards developing a


5

carrier pathway for students who wish to find employment opportunities in child care industry. However, irrespective of the increase in demand and supply of child care services and its importance to the economy worldwide, CCE is not studied at universities as a separate economics subject. Therefore it is really important to consider the inclusion of ‘child care economics’ (CCE) as a subject in university curriculums. Initially it can be introduced as an optional subject area in social science and economic course streams in universities. Child Care Economics (CCE) considers how different ways of resource usage (allocation) can have different effects on child care market and on the economy at large. Further CCE involves examining of resource distribution and allocations to Child care industry in different regions of the world during different time periods. It also examines the consequences and impacts of limitations in resource allocation on child care costs as well as effects to intended and unintended interested parties. The knowledge and skills gained through studying CCE, can be applied in analysing the relationships between the suppliers (Child care centres) and consumers (families). CCE can cover a detailed investigation regarding the effects of different types of child care options varying from family day care to long day care, occasional care and outside school hour’s care. Further, the influences coming from actions by government, professional groups, insurance providers, communities, work health and safety regulators, Industry quality control agencies on child care providers and consumers can also be properly examined under a separate branch of study.


6

2 The Model/ framework for CCE

By introducing a ‘Model’ of study we hope to provide a proper framework of study for anyone interested in child care economics. The model is motivated by following factors;

Importance of a unique framework of study for future research students in the area of child care economics.

Clarification of structure, relationships and economic aspects relating to the child care industry’s sustainability in the economy.

Development of new knowledge/ideas in the area of CCE

2.1 Components of the model for CCE

Demand for Child Care- Barriers to access

- Relationships- Need

Supply of Child Care- Cost of care- Incentives

- Legal requirements- labour turnover

Market Equilibrium

Micro Economic Evaluation

Macro Economic Evaluation

Planning Budgeting & Monitoring

Influential Factors

- Cost effectiveness- Alternative care- Amount of care

- Inter regional comparisons of performance- International comparisons of performance

- LFPR of mothers- Cost of formal care- Family income level- Early years education- Socialization & Behaviour guidance

- EYLF & NQF standards- CCB & CCR schemes- Tax allowances- OHS requirements


7

2.1.1 Child Care Demand

The demand for child care is a derived demand from the demand for work by parents, specifically mothers. However, centre based long-day care is also demanded as an option for basic early year’s education for young children by some parents. Demand for child care is different from the demand for most other goods as parents spend and purchase child care in order to obtain a quality service not for themselves but for their young children.

Demand for child care basically depends on the mother’s decision to join the work force. Especially if both parents are working and informal care options are unavailable, as with the situation of recent migrants, parents have to select among different types of paid care suitable for their needs. The level of income earned and the hours of work by the mother can also influence the preferred type of care varying from family day care, long centre based care, occasional care, in-home care etc. The demand for care is also affected by the type of relationship between parent, child and carer. Better and strong relationships between the three parties affect demand for care positively and vice-versa. At present with an increasing number of children accessing child care services, parents have concerns regarding service quality in child care. Demand is high for quality child care centres resulting in long waiting periods for families to enrol their young children for a spot.

Better strategies are necessary to identify future areas of demand and establish good connections between local councils, state governments and child care service providers in order to assist parents in accessing and evaluating services efficiently. Further, income level of mother and family also have an impact on the demand for paid child care since child care costs account for a larger portion of their total spending. Hence, effect from price of care on the demand for care may be different among low income earning families and high income earning families in the economy.

2.1.2 Child Care Supply

At present, child care industry is overwhelmed by an increasing demand compared to supply worldwide. Working parents are finding it increasingly difficult to secure adequate child care places for their children, resulting in long waiting times to enrol kids for day care centres. There is an excess demand for child care mainly due to reasons such as increased participation of women in the workforce, general idea that long day care provide children with better early year’s education and socialising skills, availability of government funding and accessibility of care. However, the availability and accessibility of long day care for babies and toddlers is not sufficient and as a result parents sometimes have to wait for years to receive a place at a centre in close proximity. Generally the child care rates are also high for younger age groups.

The supply of child care normally lags behind increasing demand, which makes it difficult for working parents to acquire proper child care for their young ones. This forces many working women to either resign from current job roles in order to take on child caring roles, rely on grandparents or hire expensive private carers. It has been observed that the high cost associated with providing care and low profit margins also contribute to the insufficient supply of care. Further, strict government regulations relating to quality of care measures based on staff child ratios and qualifications of educators result in incurring more costs to centres. Generally, the average salaries paid to educators is low compared to salaries paid in other professions which results in high labour turnover and dissatisfaction among workers and also contributes to the low quality of the service and sometimes closure.


8

Low level of incentives allocated to child care industry by the government is another reason for insufficient supply of care. Hence, government impose new policies and regulations from time to time in order to make the child care industry more attractive to families and more profitable to providers.

2.1.3 Market Equilibrium

Child care market is basically a privately paid market. The price of paid child care can vary depending on the type of service (whether family day care, centre based long-day-care, occasional care, etc.), geographical region of the service (urban or rural locality) and on type of facilities provided. High priced care generally has a negative impact on the use of paid care by working mothers. The price of child care may influence choices such as the mother's decision to work; the decision whether to purchase paid child care or to use unpaid informal care; and, if paid care is chosen, the type of care. However, the value of informal and unpaid childcare is almost impossible to calculate as it operates in a core economy where time is given as a gift or as part of a mutual exchange. Unpaid child care is provided based on informal human and social assets such as love, empathy, energy and past experiences.

Similarly, small changes in price of child care may induce large supply responses. Subsidies lower the cost of child care to parents and are therefore likely to increase the demand for care. However, according to evidence, supply of care will also rise to meet an increase in demand for care without much of a change in the current price. As a result, in the absence of other changes, the benefits of a subsidy accrue to the consumer. However, the benefit of the subsidy policy would accrue entirely to the providers if the amount of child care available were fixed. Due to a government subsidy, the increase in demand would drive up prices. The price would rise by the amount of the subsidy, so that parents would end up paying the same amount as they had been before the introduction of the subsidy, and the providers of care would receive an increase in fees equal to the amount of the subsidy. However, under normal circumstances the amount of supply of child care responds positively to an increase in demand and as a result the benefits of the subsidy ensue to the consumer.

The cost of child care is becoming unaffordable for working parents resulting in more women staying at home to look after their young children. Price of child care may also increase due to increases in prices of essential goods such as milk, food, vegetables, fruits, grocery, stationary, cleaning and hygienic products, tissues, rent and insurance premium payments etc. in addition to salaries. Such increases in upkeep cost generally results in increased costs to the care provider, from which significant part has to be borne by the parents due to the resulting increase in child care fees.

Another factor that influences market equilibrium through demand for care is the time/amount of care requirements. When there are more young families with young preschool children, there would be more demand for long day care. When there are more school aged children, the demand for outside school hours care would increase in that particular area. Supply would respond accordingly in order to maintain the market equilibrium price and quantity.


9

2.1.4 Influential Factors

One of the major factors contributing to child care demand may be the labour force participation of young mothers. Due to insufficient income and high cost of living, women with young children have to take the decision of whether or not to work. However due to high costs associated with formal child care this is only practical in situations where there are only one or two young children in a family. Otherwise, the income from work would be insufficient and unattractive after paying for child care fees of three or more children. Hence, when the number of children seeking care is more so would be the cost borne by parents. Family income level has to be high in order to finance increasing child care costs. In other terms the opportunity cost of looking after children at home has to be higher for mothers to take the decision of participating in the work force.

Formal child care is sought by families for certain other reasons as well. These reasons include; unavailability of informal care, providing a proper early years education for young children, have some personal time from time to time, socialisation of children and provision of early behaviour guidance. However, the extent of influence from all possible factors in addition to cost of child care has to be analysed separately in order to decide the most significant factor out of all.

2.1.5 Micro Economic Evaluation

The government intervenes by way of child care benefit schemes (CCB) and child care rebates (CCR) for parents who seek paid child care services for children. Hence, the public expenditure component consists of child care benefit payments and rebates paid out of government tax income. Private expenditure consists of the remaining expenditure portion borne by families seeking child care.

Child care services are becoming more and more expensive for working parents, which is one of the main reasons for the decline in women’s participation in the workforce. With the high cost of child care, a growing number of women are finding that a bulk of their salaries go directly to child care payments, which leaves only a little financial incentive for them to work. For example, in Australia though the current Child Care Rebate (CCR) covers up to $7500 of child care costs per year, it is increasingly becoming insufficient given that child care fees are in excess of $100 per day per child for long day care. The median cost per week had been $63 for long day care, $25 for before and after school care and $30 for family day care (graph). With more than one child in need of care in a single family, it is not necessary to mention that the rebate is far more insufficient. It was found out in year 2014, that most Australian families (55%) now pay more than $300 per week for child care (CareforKids.com.au)

Source: Australian Bureau of Statistics- Early childhood census June 2011


10

The average cost of care per hour/per day for different types of care providers is given in the following table.

Source: CareforKids.com.au

Most young families with grandparents or relatives prefer to obtain informal child care. Being informal and free most of the time, the value of informal care options is difficult to measure. Informal care is mainly an ‘exchange’ of support, love and care among relatives in an extended family environment. Though informal care is an alternative it is not available for many families and as a result formal care options in the form of family day care, occasional care, long day care and outside school hour’s care is sought after by many parents. For instance, 78 percent families use centre based long child care, 16 percent use grandparent’s help, 16 percent use before/after school care, 13 percent use family day care and 11 percent obtain the service of nanny/in-home care at present (CareforKids.com.au). The selection of type of care depends on the age group of child, time period/hours, accessibility of care facility and cost of care. For example for young preschool aged kids long day care provided at a centre or at a family day care would be relevant. Whereas, for school aged kids outside school hour’s care and vacation care would be the appropriate type of care.

Accessible, affordable and flexible child care is crucial for women with young children in making decisions relating to employment opportunities such as whether to remain in or resign or return to the workforce, type of work (casual, part-time, fulltime) and hours of work. Overall, these decisions influence the national output at the macro level.

2.1.6 Macro-Economic Evaluation

The impact that the child care industry has on the rest of the economy is an important area where research is lacking at present. The economy in terms of economic output, creation of jobs, provision of tax revenue and growth of businesses engaged in supplementary services and products are areas that are positively affected by child care industry. Thus spending on early childhood care industry creates demand for other suppliers and also for other businesses where carers and their families shop. Overall, spending on child care industry supports many jobs, both direct jobs in the child care industry and also jobs in connected industries such as educational supplies (toys, story books, stationary and other), food, health care and other businesses varying from furniture and fittings, sport, entertainment and photography.


11

In addition to promoting the workforce participation and productivity of parents, proper child care supports the cognitive and social development of children, who would grow up to be individuals more likely to make positive social and economic contributions. Parents need the support of reliable, affordable quality child care in order to productively participate in the workforce. Due to the child care industry’s positive impact on other industries in the economy, it is important to stimulate and uphold the industry to withstand periods of recession and high unemployment as well.

Child care sector has been traditionally underrepresented in economic analysis due to it being considered from an informal, welfare or education frame and not as an economic sector in its own right. Nevertheless at present increased interest is being paid to the child care sector by economists and child care policymakers. Recent research studies worldwide have reinterpreted child care as an important economic sector and attempt to develop better data on demand, supply, costs and prices in the child care market.

2.1.7 Planning, Budgeting and Monitoring

.

For government intervention in the child care market, as well as for the choice of policy there should be an economic rationale. If the low quality of care purchased is a result of lack of information for parents or due to external benefits associated with child care, a possible approach for the government is to regulate the quality of child care. Imposing or amending regulations relating to child care industry mainly affects the supply side of care. However, the regulations have to be enforceable and mandatory in order to actually increase the quality of regulated care. On the other hand, compliance with regulations can be costly if they lead to rise in prices or profit losses due to being mandatory requirements. (e.g. minimum child staff ratios, technological improvements etc.). These types of profit losses can drive some care providers out of the market and also result in price increases due to low supply of services in a particular area.

Regulations and licensing provisions are determined at the state or local level and can vary widely. There are regulations that have to be followed in providing care as well as in training staff for the role of child care educator. In providing care for children, the services must adhere to different requirements relating to educator to child ratios, safety and health issues coming under WHS legislation, food preparation related regulations, document maintenance, disability regulations, etc. As educators’ qualification level and experience is important in measuring quality of care, another important area of regulation that can be used by the government to improve quality is regulations that affect child care providers. In training workers, the educational institutes should adhere to AQTF (Australian Quality Training Framework) standards to maintain required quality of training in any industry. Other than these, there may be organization specific regulations as well. There is a lack of information relating to areas such as; how regulations relating to different aspects of care affect the supply of regulated care; the effect of regulations on prices charged by child care providers and how regulations affect parents' use of regulated care.


12

High quality childcare is known to positively affect the physical and mental growth and development of young children and hence especially beneficial for those children from financially or socially unstable backgrounds or whose parents have little education. The positive impact from proper child care is strongest in children’s early years and benefits continue to be felt through school years and into adulthood. However, parents have trouble evaluating the extent of quality of care their child is receiving due to several types of information imperfections that may exist in the child care market. An accepted measure used to maintain quality is the restrictions relating to staff-child ratio. This is a quality vs quantity kind of measure. In other terms higher the number of children per carer, lower will be the quality of care. However, in deciding the numbers, the age limit of children is given priority and the ratio varies between different age groups. For example, as infants need more care, there will be less number of infants for one carer compared to other higher age groups.

A free market system may not provide information to parents on the advantages and attributes of quality child care. It may also be difficult for parents to find out child care services/providers in their area and the attributes of various choices to determine quality. Parents report that they value good quality child care, but the chances are that they extensively overestimate the quality of care their child is receiving. Further, providers may be unable to obtain current information necessary to ensure quality of care they offer. Relating to monitoring if information is the issue, then government provision of information would be appropriate. One role for government is to provide information or encourage private agencies to provide information that educates parents and providers about the aspects of care that are important for child health and safety and for development. However, the attributes involved with quality of care, such as; the level of education and experience of carers, staff-child ratios, group size have little effect on service fees. The reason may be that parents are not willing to pay for these attributes of quality care even though they say that they care about quality. On the other hand, the quality of unpaid informal care is driven by different inspirations, such as the obligations of kinship and mutuality, love and kindness and pleasure of looking after the young.

Professional training opportunities for child care educators and higher wages can positively and directly impact the quality of care. Higher wages and professional development (PD) opportunities for care workers may significantly reduce the high labour turnover and resulting fall in quality of care. For example in Australia, training is normally provided via TAFE colleges or RTO’s that cater for vocational education sector. In order to attract prospective students, there are different levels of qualifications offered at these education institutes such as basic certificate level, diploma level, advance diploma or degree level qualifications relating to each and every industry. With the increase in number of students undertaking training, the minimum level of qualification is uplifting and this can result in improving the service quality of child care industry in the future. Lack of proper education opportunities for carers is a problem as this can directly impact the quality of care, sustainability of centres in the future, high labour turnover, increased settling time by new young children due to inexperienced carers, etc.

Technology is used specifically for hiring educators, delivering online education, administration activities at centres, financial transactions between parents and carers and for early year’s education activities with children at care facilities. For continuous professional development, certain courses are made mandatory for workers at centre based care. Hence, use of technology is becoming important in upgrading professionalism of child care workers in addition to administration purposes. The time limitation for further education due to high work load can be avoided by engaging in distance learning options. Hence, adherence to technological advancements is becoming essential in child care industry at present.


13

2.2 Actors of the Economics of Child Care

There are basically three parties involved in the child care industry of an economy. They are families with young children, Child care service providers and the government. These actors operate in the child care market with different objectives.

2.2.1 Families

The objective of families in the child care market is to obtain the highest quality of child care at an affordable price. The aggregate demand for childcare is formed by adding up the demand of all the families in the economy at a point of time. The demand for child care has an ‘indirect demand’. In other words, the demand for child care arises from the demand for work by women with young children, demand for early years education, demand for personal leisure time, etc.

Carrier mindedness, financial difficulties as well as educational qualifications and past experience can motivate women to seek employment opportunities that results in a continuous demand for child care. At present the traditional support system of grandparents is eroding due to many reasons including; frequent travelling by young families between states and countries, valuing of personal independence including grandparents, advancements in communication technologies that eliminate the need to live close by or visit relatives frequently and the preference for nuclear families over traditional extended family system.

2.2.2 Government

The government intervention is necessary to overcome externalities in the child care market. The objectives of government involvement may be the redistribution of income in the economy or provision of information to families and carers and to enforce policies and regulations to endure a quality child care industry in the economy.

The government intervention can be seen in providing financial support via child Care Benefit (CCB) and Child Care Rebate (CCR) schemes to eligible families. Also if information is lacking in the community regarding available child care options etc. the state government authorities get involved in distributing information by way of online registers, information booklets etc. The government also get involved in the enforcement of policies and regulations relating to training, assessment of adherence to guidelines in early years learning framework and quality assurance of care provided by services.

2.2.3 Child Care Service Providers

The main objective is maximising profits like any other service provider in an economy. However due to nature of industry and close contact with young children; quality, health and safety concerns matter significantly for long term survival. National Quality Standards (NQS) has to be followed in order to provide a quality service and for sustainability.


14

Child care providers, cannot influence the price of care nevertheless will react to changes in demand occurring due to government subsidies offered by way of benefits and/or rebate schemes for families (buyers). There is an indirect positive impact on the rest of the economy due to purchasing of essential services and goods from other connected businesses in the economy for continuous maintenance of a child care service.

References:

Australian Women Chamber of Commerce & Industry (AWCCI), 2013, “Child Care Issues Paper”, P.g. 4 – 6.

Concept Paper: Importance of Studying “Economics of Child Care” in the context of Australian...

Economy & Finance

Transcript of Concept Paper: Importance of Studying “Economics of Child Care” in the context of Australian...