Increased spending on childcare – more likely to be effective – to be curbed while prime minister throws money at costly scheme

Abbott’s paid parental leave will do little to bring women to the workforce

A review of research and data suggests Tony Abbott’s proposed paid parental leave (PPL) scheme will probably fail to achieve any significant lift in women’s participation in the workforce. More worrying is that spending on childcare, which is much more likely to achieve this aim, is to be constrained by the budget in a way the PPL scheme is not.

Last week, to coincide with International Women’s Day, the prime minister was out and about spruiking his proposed paid parental leave scheme.

As I have noted before, the Productivity Commission found that PPL schemes like Abbott’s with “full replacement wages for highly educated, well-paid women, would be very costly for taxpayers and, given their high level of attachment to the labour force and a high level of private provision of paid parental leave, would have few incremental labour supply benefits”.

I’m never one to suggest a big-spending government is a bad thing, but I do prefer my big spend to deliver more than just “few” benefits. And given we’re talking about a policy that will cost about $3.6bn a year more than the current scheme, it’s pretty clear the Productivity Commission was right about it being “very costly”.

The crux of the issue is women’s labour force participation. Currently 58.4% of all adult women participate in the labour force (ie. as workers, or looking for work); compared with 70.9% of adult men.

The reason for the gap is because of the decline in participation of women aged 25-34 compared to men:

This drop in participation after the 20-24 age bracket has consistently been the biggest difference between male and female participation.

Things are a lot better than they used to be. In the late 1970s the gap between the male and female participation rates during the prime earning ages of 25-44 was about 45 percentage points. Now it is down to about 16:

The drop in women’s participation in the 24-34 and 35-44 brackets is known as the “nappy valley”. As with the reduction in the gap between male and female participation, the depth of this “valley” has also closed.





In the early 1980s the drop in participation for women after 25 years of age could be up to 18 percentage points. And it would never recover. Now there is virtually no difference – in fact the age bracket with the highest female participation rate is the 45-54 age group.

The nappy valley has become a plain; but for men it is a hill – the prime wage earning ages of 25-44 years are the years when men are most likely to be working.

Will Abbott’s PPL help this? The Productivity Commission thinks it might, but only very little at a very great cost. This is not because paid parental leave doesn’t help raise the participation rate – it does – the question is how much more benefit will be gained from increasing the length and amount of the leave and whether that increase is value for money.

A study last year by the OECD on drivers of female labour participation found PPL schemes definitely did improve participation, but the increase in participation from increased spending on such leave schemes is less tangible.

What it did find, however, was that the link between increased spending on childcare and improved female participation was “unambiguous”.

It compared spending on PPL and childcare and noted that “policies to foster greater enrolment in formal childcare have a small but significant effect on full-time and part-time labour force participation – and these effects are much more robust than the effects of paid leave or other family benefits”.

This reflects the work of the IMF last year, which found that “if the price of childcare is reduced by 50 per cent, the labour supply of young mothers will rise on the order of 6.5 to 10 per cent.”

This is relevant when you consider the budgetary situation both Joe Hockey and Tony Abbott have painted, and that the current review of childcare conducted by the Productivity Commission stipulates any recommendation must “consider options within current funding parameters” – ie. no extra funding.

The reality as well is that the current PPL scheme is not poor in comparison to most other nations. And some nations with smaller PPL schemes like Canada and New Zealand actually have higher female participation rates among 15-64 year olds than does Australia:

But participation isn’t everything. If female participation is high, but women are mostly working in low-paying jobs with little chance for advancement, that is hardly a good result. A 2012 study attempted to examine the situation from a broader context.

It looked at the “inputs” each country had in place to improve female participation – from steps that governments and the private sector did to improve the economic position of women to the education attainment of women as well as maternity leave and childcare access.

It then looked at the “outputs” of women’s participation in the national economy – such as the ratio of pay between women and men, as the proportion of women among technical workers and also numbers of senior business leaders.

It combined these two to arrive at what it called the “Third Billion Index” (which represents the approximately one billion women, “in both developing and industrialised nations, whose economic lives have previously been stunted, underleveraged, or suppressed”).

According to these measures Australia, it may surprise you to know, is ranked equal highest with Norway:

On the “Access-to-Work” input, which included pay childcare access and maternity leave provisions, Australia ranked 6th.

The reality is that given our current position, any gains in women’s participation are always going to be at the margin – our big steps in women’s participation occurred in the 1980s and 1990s owing to societal changes as much as anything else.

It means we should not waste resources on grandiose policies that might satisfy the PM’s vanity, but do little to achieve an improvement in female participation.

And given the government has placed spending limits on any new childcare policies, it is a case of their constraining the most likely performer in order to blow money on a policy much less likely to succeed.

That’s not what you should do in any budget, let alone one that is apparently in an emergency.