Abstract

All parents with children aged under five should have choices when balancing their time between working, caring for children, and participating in other activities such as studying or volunteering. Parental engagement in paid work delivers many short- and long-term benefits to individuals, their children, society and the economy. By international standards, New Zealand women aged 25-34 years have a low rate of participation in the labour market. Through supporting quality early childhood education services which are ‘employment-friendly’, government policy can both support increased parental engagement in paid work and increase early childhood education participation by the children of these workers. The overall benefits from a sole parent gaining employment are even greater – for individuals, their children and New Zealand society. Employers can do a lot to support parents of young children to engage, or re-engage, with the workforce following a suitable interval after the birth of their children. Employers derive significant benefits from having a more stable and connected workforce and, while government can assist employers in providing early childhood education support, the benefits to employers need to be taken into account in developing new policies. The two major strategies we propose for increasing employment-friendly early childhood education are: providing funding that encourages early childhood education services to support parents in paid work, and setting suitable incentives for employers to help their employees meet their parental responsibilities. These strategies should be cost-neutral to Government.

Recommendations

The ECE Taskforce recommends:

33. consideration of incentives and assistance to enable employers to support their employees who have young children, possibly as part of the new funding system

34. creation of significantly stronger mechanisms to support parents to remain connected to paid work, by combining existing subsidies from the Ministry of Social Development and Ministry of Education into a single, coherent, transparent payment.

Introduction

All parents should be able to achieve suitable balance in their lives to be able to meet the various demands on their time.

The Taskforce proposes that a future priority focus of early childhood education funding and regulatory policy should be on supporting parents who wish to participate in paid work while actively engaging in the work of parenting. Alongside this, there must be suitably designed incentives and support for non-working sole parents to obtain worthwhile employment, or improve their readiness for work.

However, the focus on promoting employment should not overlook the importance of direct parent-child nurture. A parent’s entry or re-entry into the labour force should not occur too soon in their new child’s life, or result from undue financial pressure. Paid parental leave provisions have an important part to play in this.

Experience in New Zealand and elsewhere confirms that early childhood education policies which promote the increased supply of, and use of, employee-friendly early childhood education services can result in greater numbers of parents entering (or reentering) the workforce.

The direct results of employment-friendly early childhood education policies include:

• increased parental participation in paid employment
• better retention and development of parents’ job-related skills and ongoing
  engagement with the labour market
• more participation by employees’ children in quality early childhood education, and
• reduced levels of child poverty.

Getting ‘buy in’ from employers for work-related early childhood education will improve the balance between parenting and labour-market participation. Since parenting results in the development of many skills that are of high relevance to the modern workplace, family-friendly workplace policies can create short-term and long-term value for employers, employees and the economy as a whole.

Relevant Policy Design Principles

The Taskforce considers that early childhood education policies that allow parents choices in how they balance parenting and participation in paid work will:

• promote economic growth
• ensure efficient use of government funds
• encourage parental connection to the workforce, and
• support parents to combine paid work with good parenting (supporting their children’s learning and development).

Background

The changing sector

A variety of public funding streams currently support the use of early childhood education by parents. Over $1.55bn will be spent by Government in 2010/11 on early childhood education. This will be through: funding supplied directly to the providers of early childhood education services by the Ministry of Education (by far the largest source at $1.4bn); income-tested and targeted childcare subsidies paid by the Ministry of Social Development to early childhood education services on behalf of identified users ($150m); and an unknown but small amount of tax deductible expenditures. However, only the childcare subsidies and tax credit expenditures – perhaps 10% of this overall taxpayer assistance – explicitly support parental choice to participate in the paid workforce. The subsidies from the Ministries of Education and Social Development could be integrated to deliver more coherent early childhood education support.

Significant and long-term changes are underway in the patterns of users’ demand for early childhood education services. In particular, there is an increased demand for those services that enable the parents of young children to work. This has led to a drop in the demand for services that operate for limited hours per week or that require significant parent involvement during work hours. Some key observations are:

• There is strong growth currently in Education and Care services and Homebased Networks which now hold almost two thirds of licensed early childhood education enrolments.
• Current mature service types (providers losing sector share of enrolments but otherwise holding fairly constant numbers of enrolments) are Kōhanga Reo, Playcentres and the Correspondence School. These service types generally require direct parental participation.
• While there is a slight increase in the number of Kindergartens, overall they appear to be a static service as they are collectively losing overall enrolments and have a declining relative sector share of total enrolments.

The chart below shows changes in the proportions of early childhood education service numbers from 2001 to 2009.

Figure 1: % change in number of ECE service types 2001–2009[1]

 

Source Data

Shared features of growth services are that they are more flexible; require less personal parental involvement; and make more hours available. Also, a smaller group of parents – such as shift workers – may need to access 24/7 early childhood education services continuously throughout the year.

Overall, it appears clear that employees’ early childhood education needs typically are for high-quality services to which they can fully entrust their child during their work time; that operate with hours which match working needs; are conveniently located; and are priced affordably so that participation in paid work is attractive to families.

These trends are significant. Taken as a whole, they tell us that an increasing number of parents want early childhood education services that allow them to participate in paid work.

Labour force indicators

From 1989 to 2009 there was a significant increase in labour market participation for females aged 25-34 years (which is the age range within which most women are likely to have children). Despite this increase, New Zealand still has relatively low participation for women in this age group compared to the rest the OECD. We ranked 24 out of the 29 countries in 2009[2].

Figure 2: Changes in female labour force participation by age, 1989–2009[3]

 

Source Data

Figure 3: Labour force participation rate of men and women by age group, 2006[4]

 

Source Data

A larger percentage of women (35%) are employed part-time than men (12%).

Figure 4: Sole parent employment rates across the OECD, around 2007[5]

 

Source Data

Sole mothers are less likely than partnered mothers to participate in the workforce in full- or part-time employment as the following chart shows.

Figure 5: Labour force participation rate of sole mothers and partnered mothers aged 20–54, 2006[6]

 

Source Data

Supporting employment – UK and Denmark[7] High-quality child care is guaranteed for every child in Denmark. In addition to this support, families can receive other benefits such as paid parental leave and single-parent allowances. As a result of this assistance in meeting their early childhood education and care responsibilities, most parents can work if they want to and, in fact, choose to work. In the UK, as part of analytical work undertaken for the Social Market Foundation and the Daycare Trust, Pricewaterhouse Coopers conclude (2004) that quality early years childhood education and care provides many social and economic benefits, in particular through increased female employment: High quality, affordable early years provision can boost female employment levels, which, in turn, can help both to increase economic output and reduce child poverty, much of which is linked to low employment levels of lone parents in particular. In the longer term, higher female employment can also help to meet the economic and financial challenges of an ageing population, as can the potential increase in future productivity.

Income and children

The amount of money available to a household with young children significantly influences the resources available to those children and, longer term, their life chances. These effects are more marked for lower income households (e.g. those headed by sole parents on benefits) or those facing high living costs (e.g. those having high housing expenses).

There is strong evidence – worldwide – that poverty can be ‘inherited’ to a significant degree. Growing up in a benefit-dependent household is associated with a higher probability of the next generation being on benefits. The level of household income in a child’s early life influence the life choices available to that child.

Compared to other OECD countries, New Zealand has a relatively high proportion of children living in sole-parent households. For example, in 2006 21.4% of all 0-14-year-old children were in sole-parent families, as against 16.8% in Australia, which is much closer to the OECD average of 15.9%[8].

Participation by a parent in the labour force can benefit the individual involved, their child, their household and ultimately the economy and the nation. Apart from various financial benefits for households that arise from adequately remunerated employment, there are potentially wider, and longer term, social and cultural benefits to be gained from delivering employment-friendly early childhood education.

As noted above, more money coming into a household generally makes a positive difference for children. The 2010 Welfare Working Group summary paper[9] comments:

A lack of paid work raises the likelihood of children being in poverty. Nearly 60 percent of all children living in poverty are in households where no adults are in paid work. A further 10 percent of children living in poverty are in households with no adults working full time.

Child poverty rates are much higher for children in households where there is no adult in paid work. As shown in Figure 6, the child poverty rate in 2008/09 was 74% for children in workless households and 11% for households where at least one adult was in full-time paid employment[10].

Figure 6: Child poverty rates by work status of adults in the household (2009 data)[11]

 

Source Data

The Welfare Working Group also noted that children growing up in poorer households are more likely to:

• have worse educational outcomes
• have worse health outcomes
• have higher rates of hospitalisation
• live in overcrowded homes
• have poorer access to good nutrition, and
• have more restricted access to primary health services.

International research supports the view that the best means of reducing poverty is through engagement with paid employment, for example:

…in terms of poverty-reduction effectiveness, there is a much stronger argument in favour of…supporting mothers’ employment especially at the low end of the income distribution. The incidence of child poverty falls by a factor of 3-4 when mothers work – in particular in the case of lone mothers[12].

It is crucial to ‘make working pay’ through suitably designed incentives that:

• do not, for example, create steep effective marginal tax rates or simply replace (‘crowd out’) existing private expenditures
• support employment in work that is suitably remunerated and utilises skills, and
• acknowledge other associated costs of using early childhood education, such as transport costs.

The nine hours per child per week subsidised childcare hours that unemployed parents receive – above the current 20 Hours ECE – should be preserved or increased. This would both ensure ongoing educational benefits for their children, and that unemployed parents are not discouraged from seeking employment or enhancing their skills.

Employers and the workplace

We know that employers can play a key role in growing the supply of employee-friendly early childhood education. For example, they can directly support early childhood education use through providing workplace early childhood education services; having special arrangements with outside early childhood education providers; or through financially assisting parents to use early childhood education. Sole parents in particular may require child-related employer assistance to make it feasible for them to work.

Employers can gain value from providing suitable child education and care services for their employees. These include greater staff loyalty and commitment that may be reflected in (say) reduced staff turnover and greater productivity, and more generally these policies can enhance the organisation’s reputation as a good place to work. Examples of employer supported child- and family-care, and early education assistance for employees are outlined in the report by the Australian Government Agency Equal Opportunity for Women in the Workplace (18 January 2006), and include:

• child-care centres
• family day care
• holiday care
• before- or after-school care
• referral services
• financial subsidies
• reserved places in centres.

More generally, employers can indirectly support parents through making ‘family-friendly’ changes to workplace and working arrangements. Examples are: using flexible working hours; allowing children in workplaces in controlled situations; using telecommuting technology so parents can work from home; and more generally finding ways to help employees achieve a balanced response to their working and parenting pressures.

The Government can support and lead change. Employer-supported initiatives and services could be directly or indirectly supported or mandated by Government and could involve collective or individual agreements with employees – such as a ‘salary sacrifice’ where early childhood education is provided in return for the employee accepting a lower salary, and thus avoiding having to cover early childhood education expenses out of their after-tax earnings.

Managing responses to change

There might be a temporary shortfall in early childhood education supply if the growth in demand for employee-friendly services exceeds the capacity of the sector to supply such services. Additional government support might be needed, at least initially, to help meet this new demand. Examples of extra assistance could include capital funding assistance.

Certain substitution effects are also likely – i.e. where demand and costs are shifted towards publicly funded alternatives.

The effectiveness of childcare support is, however, reduced by two types of substitution effects. First, provision (i.e. Government support) of childcare partly substitutes for private expenditure, to the extent that working mothers previously bought private childcare services. Second, childcare subsidies may encourage working mothers to switch from unpaid and informal childcare arrangements to paid and formal childcare.[13]

While the first of the above shifts in demand (from private to public expenditure) imposes certain deadweight costs that would need to be mitigated, the second shift (from informal to formal care) represents a desired outcome that could be promoted by appropriate public policy. Additionally, the second type of shift (informal to formal) can have the added benefit of enabling the informal caregiver to choose to participate in paid work, including in the formal early childhood education sector.

Being connected – women returning to work[14] In its 2010 report on mature-aged women, the Australian Productivity Commission notes that gaps in a woman’s work history – such as for caring for children – negatively impact promotional opportunities and subsequent earnings capacity. The importance of staying well-connected to the workforce is highlighted. The more labour market experience a woman has in her younger years, the more likely it is that she will participate in the labour force in later life (this is termed labour force ‘persistence’). Labour force persistence is relevant for understanding the nature of the barriers that mature-aged women are likely to face when seeking to re-enter the labour force. These barriers are particularly relevant for mature-aged women who are marginally attached to the labour force. This also points to the importance of assisting younger women to remain in contact with the workplace, if they desire, during their child bearing/raising years. The provision of universal paid parental leave may assist in this respect.

Submissions Summary

Government departments told us in their submissions that early childhood education contributes to labour force participation.

The Treasury said:

Empirical evidence shows that subsidising the cost of childcare and [early childhood education] does increase the female labour force participation rate. The [early childhood education] Childcare subsidy influences the labour force decision by increasing the net return that mothers can get from working. Furthermore, if the quality of [early childhood education] is high and is perceived by parents to be beneficial for their child, then participation in [early childhood education] is likely to be higher as well.

The Ministry of Women’s Affairs (MWA) said:

Government’s goal for women is firmly directed towards lifting our country’s economic performance. This goal explicitly links women’s economic success with New Zealand’s economic success as a nation. Accordingly, MWA’s current priorities include women being fully engaged in the economy, and our work is focused on removing barriers to women achieving their potential through workforce participation.

Greater access to early childhood education for Māori, Pacific and sole parent families will not only support improved educational outcomes for their children, it will support women more likely to be marginally attached to the labour-market improve their employment outcomes. We are, however, concerned that tighter targeting of government support for [early childhood education] could lead to a reduction in women’s labour force participation for middle-income earners, thereby potentially compromising the government’s overarching objective of improving economic growth.

The Department of Labour said:

Empirical studies that measure the direct effect of childcare subsidies on parental employment indicate that childcare subsidies and expanded [early childhood education] supply increase maternal employment and that effects are larger for low income groups. Evidence suggests that childcare subsidies are more effective when they are linked to employment participation, have a sizeable impact on costs and are targeted to low income workers and sole parents.[15]

Other submissions noted the value of paid parental leave in enabling employees to spend suitable time with their children while maintaining their links with employment. Individual submissions suggested extending paid parental leave to between six and 12 months – up from the current 14 weeks. One submission suggested increasing paid parental leave to six months while reducing early childhood education funding for children under six months.

Proposed Policy Direction

We conclude that early childhood education policy should give funding priority to services that are employment-friendly and that provide improved choice to people who are parents seeking, or in, employment; are upgrading skills; or undertaking useful work – through, say, volunteering.

Employment-friendly early childhood education services are those that:

• meet high-quality standards for service delivery
• have flexible hours of operation which meet the needs of working members of society
• operate with parental input, to the extent employees can participate in working hours
• are affordably priced, and
• are conveniently located.

Early childhood education payments could in theory be linked to a variety of items of expenditure (e.g.; child; child early childhood education ‘place’; service development investment/compliance; certain business costs; early childhood education hours; parent or household). These early childhood education payments could be made through different funding mechanisms, and be made to differing payees (early childhood education provider; parent; employer; agent). We have considered these options in arriving at our proposed methods of funding.

Our proposed new funding mechanisms are explored in Essay 3: Reforming Funding Mechanisms. We propose that new funding mechanisms focus directly on subsidising the hours of service provided to a specific child, and at graduated payment rates that recognise the costs of meeting both their specific educational and other needs.

Some regulatory changes are likely to be needed to set up an effective suite of incentives for supporting increased provision of employment-friendly early childhood education services. For example, there may need to be requirements on some workplaces to provide access to, or support for, childcare by their employees. In its 2004 policy recommendations for New Zealand, the OECD stated that we should:

Enhance the family-friendly nature of workplaces, for example, through the introduction of subsidies to employers for participating in initiatives that provide workplaces with tailored advice on family-friendly policy practices, and ensure long-term enterprise commitment through regular assessment or audits.[16]

We suggest that Government consider how to set these requirements and provide the right mix of incentives.

Anticipated Outcomes of the Policy Change

If adopted, the policy changes we recommend would:

• promote economic growth, through changed early childhood education policy settings that contribute both to increasing economic output and minimising costs or inefficiencies in the economy – such as by reducing the level of currently unused labour force capacity (as represented by non-working parents of dependent children)
• ensure efficient use of government funds through ensuring that early childhood education funding supports the delivery of quality early childhood education services; maintains strong and clear incentives concerning the appropriate use of early childhood education; and minimises any deadweight costs and fiscal risks
• encourage parental connection to the workforce through providing effective support and encouragement to parents and other primary caregivers for engaging in employment, and encouraging employers to support provision of quality early childhood education that is convenient for employees to use.

The wider impacts of employment-friendly early childhood education policies would include higher female labour force participation rates; greater GDP per head; an improved fiscal position through more tax being paid by parents engaging in the paid workforce; and better work-life balances in families. More money coming into households is likely to produce better child outcomes. Other related results include the delivery of high-quality early childhood education that supports children’s learning and development; increasing parental involvement and interest in early childhood education; and re focused services that promote a child’s connection with their parent’s workplace and employer.

Cost Considerations

Apart from the wider range of benefits (such as social-, educational-, or health-related) associated with a parent’s engagement in paid work, every person who enters the workforce and receives income makes a contribution to the economy as a whole through their household expenditures and also to improving the Crown’s fiscal position through tax payments. To the extent that people who would not otherwise have participated in the workforce can do so as a result of more employment-friendly early childhood education, the net positive fiscal effect is likely to be enhanced – for example, where benefits are no longer payable. There may be minor savings to Government in reduced central government transaction costs by combining existing early childhood education subsidies. Rather than increase costs for Government, we propose that Government considers what part of the cost should be borne by employers. Overall, our recommendations should have a positive fiscal impact.

The Change Process

A more detailed discussion of the phases and rationale for phasing referred to in this section can be found in Part One under Leading Change Processes.

Collective and coordinated action is needed to redirect early childhood education support towards supporting the employment needs of parents. We see Government setting the overall policy direction and playing a lead role in consulting key parties about the design of suitable mechanisms for increasing the supply, and quality, of employee-friendly services and family-friendly workplaces. But Government acting alone will not get us to where we want to be. The effectiveness of any new employment-focused early childhood education policies in delivering improved choice to parents (about labour force participation) depends on the willingness of employers, employees and early childhood education services to make practical and substantive commitments to action.

The main tool for implementing our recommendations from this essay will be the new funding mechanism, to be designed during phase two and implemented at the start of phase three.

References

1. Ministry of Education administrative data.

2. Statistical OECD, Extracts, Labour Force statistics by sex and age; Directorate for Employment, Labour and Social Affairs (2010). Organisation for Economic Co-operation and Development (OECD). http://stats.oecd.org/index.aspx

3. Statistics New Zealand. (2010). Household Labour Force Survey, June 2010 quarter. Wellington: Statistics New Zealand cited in Department of Labour. (2010). Labour force participation in New Zealand: Recent trends, future scenarios and the impact on economic growth. Wellington: Department of Labour.

4. Information provided by The Treasury.

5. Source: Directorate for Employment, Labour and Social Affairs (2010). Organisation for Economic Co-operation and Development (OECD) OECD Family Database “http://www.oecd.org/els/social/family/database” www.oecd.org/els/social/family/database: Paris OECD.

6. Information provided by The Treasury.

7. Alakeson, V. (2004). A 2020 vision for early years: extending choice; improving life chances. London: Social Market Foundation, pp 33-34.

8. Directorate for Employment, Labour and Social Affairs. (2010). OECD Family Database. Retrieved from http://www.oecd.org/els/social/family/database.

9. Welfare Working Group. (2010). Long-Term Benefit Dependency: The Issues (summary paper) Wellington,: Welfare Working Group, p13.

10. Perry, B., (2010); Household incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2009; Wellington: Ministry of Social Development cited in Welfare Working Group. (2010). Long Term Benefit Dependency: The Issues (summary paper), p14.

11. Source: Perry, B. (2010). Household incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2009; Poverty line is 60% of household income before housing costs, adjusted for family size cited in Welfare Working Group. (2010). Long Term Benefit Dependency: The Issues (summary paper), p14.

12. Esping-Andersen, G. (2008). Childhood Investments and Skill Formation. International Tax and Public Finance, (15), 19-44. doi:10.1007/s10797-007-9033-0 p25.

13. Jaumotte, F. (2003). Labour Force Participation of Women: Empirical Evidence on the Role of Policy and Other Determinants in OECD Countries. OECD Economics Studies, 2(37), 51-108, p61 notes.

14. Gilfillan, G. & Andrews, L. (2010). Labour Force Participation of Women Over 45. Canberra: Productivity Commission Staff Working Paper, overview, p sb:xxiii.

15. Working paper on childcare for sole parents and beneficiaries (August 2010). Report provided to Welfare Working Group by the Ministry of Education, Ministry of Social Development and Department of Labour, p4.

16. Organisation for Economic Co-operation and Development (OECD). (2004). Babies and Bosses: Reconciling Work and Family Life, New Zealand Portugal and Switzerland, Volume 3. Paris: OECD, p12.