Reducing gender inequality and boosting the economy: fiscal policy after COVID-19

Introduction

The economic impacts of the COVID-19 health crisis have increased gender inequalities in the Australian labour market. With women over-represented in lower-paid, insecure and casual jobs, and shouldering the majority of unpaid domestic and care labour prior to the pandemic, the crisis has rapidly widened the gap between men and women’s economic security.¹ The prolonged economic downturn is expected to deepen this pattern further. Economic stimulus policies that prioritise gender equality will be essential to building a recovery that is inclusive and maximises jobs, productivity and human capital formation.

Labour force survey data covering the immediate impact of the crisis show that women’s employment has been hardest hit, contracting by 7.4 per cent between February and May 2020 compared with 5.6 per cent for men, equating to 457,000 jobs lost by women.² The female participation rate has also fallen sharply – down 3.5 per cent compared to 2.7 per cent for men. The withdrawal of so many women from the labour market reflects not only the severity of the economic contraction, but also the intensification of women’s domestic workload during the COVID crisis and complex household calculations about women’s labour supply. Current policy settings on the cost of early child- hood education and care (ECEC) are likely to further constrain women’s re-engagement in the labour market during the economic downturn.

Sustained unemployment and withdrawal of women from the Australian labour market will cost the Australian economy billions of dollars in lost productivity and growth, compromising women’s long-term economic security.³ The good news is that governments can use fiscal stimulus as a powerful policy tool to boost women’s employment while also strengthening economic growth.⁴ The remainder of this paper will highlight two areas of fiscal policy that can deliver a strong, gender-inclusive recovery.

Stimulus investment in social infrastructure

Traditionally, economic stimulus has been focused on large-scale physical infrastructure projects that disproportionately employ men and leave women largely excluded from the immediate benefits of stimulus measures. However, a growing body of literature is pointing to the economic benefits of ‘gender-responsive fiscal measures’.⁵ New research on the employment gains of investment in social infrastructure, such as education, health and care services, show there are more employment-intensive and gender equitable forms of macro-economic stimulus available to governments during periods of economic crisis.⁶

A study of seven OECD countries shows that public investment equal to one per cent of GDP in labour intensive care industries generates more total employment, including indirect and induced employment, than investment in construction – especially for women, and almost as much employment for men.⁷ The economic simulation for the Australian economy shows that:

• The boost to direct employment from a one per cent GDP investment in care industries is almost five times greater than the direct employment generated in construction;
• The impact of one per cent GDP investment in care industries on the overall rate of employment (direct, indirect and induced)⁸ would be twice that of investment in the construction sector;
• Women stand to gain two-thirds of the new jobs created under the care sector scenario but only one-third of jobs generated if the investment was in construction;
• Investment in care reduces the gender pay gap whereas investment in the construction sector widens the existing gender employment gap in favour of men.

Other recent analysis reveals the employment and gender equality benefits of stimulus in labour intensive feminised sectors. Comparing a $1 million public investment in education, health and construction, Richardson and Denniss estimate the employment boost from stimulus in male-dominated construction to be minimal (only 1.2 jobs) compared to the female-dominated education (14.9) and health (10.2) sectors.⁹ Of the jobs created in education and health, the majority are estimated to go to women (10.6 and 7.9 respectively) with only 0.2 of the jobs in construction.¹⁰

Employment creation for men is also greater in education and health than in construction. This is not to suggest that stimulus should not be made in construction, only that government should take a more balanced approach to fiscal policy that reflects the contemporary structure of the economy, generates maximum employment outcomes per investment dollar and includes women.¹¹

COVID recovery stimulus in the care, health and education sectors has additional economic benefits: it increases community wellbeing and human capital formation, boosting long term productivity; it frees those with caring responsibilities (mostly women) to engage in paid work by making care services more widely available; and the well-being impact of increased resourcing and jobs in health, education and care ameliorates broad patterns of socio-economic inequality and disadvantage that the pandemic crisis has exposed and increased.¹²

Subsidised early childhood education and care (ECEC)

Affordable and accessible high quality early childhood education and care (ECEC) is a critical piece of economic infrastructure in normal times, and even more so in the COVID recovery. The Prime Minister, Scott Morrison, acknowledged the sector’s ‘vital’ economic contribution as essential to ‘running Australia’ when he announced free ECEC as part of the child care relief package in April.¹³ But by early June, the government announced free ECEC would end, and introduced a transition package that reinstated the Child Care Subsidy (from 13 July 2020) under which many parents pay a gap fee.¹⁴ ECEC advocates, providers and researchers are concerned that the return to the previous system is not the most appropriate funding model for an economy with high rates of unemployment.¹⁵ Advocates are particularly concerned that if the out-of-pocket cost of ECEC for families facing unemployment or significant economic insecurity remains high, it will be women who forgo employment and retreat to the home to undertake child and other care duties that the pandemic has intensified.¹⁶ The slump in female workforce participation in April and May shows the crisis is already having a negative impact on women’s labour supply. The return of out-of-pocket fees for ECEC is likely to increase this trend, particularly given the high effective marginal tax rates that are a structural feature of the interaction between Australia’s ECEC system of subsidies and other family payments.¹⁷Results from initial surveys by the sector confirm this possibility and suggest the current structure of ECEC policy will not support a dynamic and gender inclusive economic recovery.¹⁸

Public subsidies for ECEC that provide universal access for all Australian children would deliver a triple-win for the Australian economy. First, they would support women’s labour force participation in the recovery period, generating billions of dollars in national wealth and boosting GDP.¹⁹ Second, the upswing in demand for ECEC would generate additional jobs in the ECEC sector, the majority of which would be done by women.²⁰ Third, universal access to ECEC will promote the education, well-being and life-chances of all children, especially those from vulnerable households.

The interests of children have been largely missing from the debate about ECEC that the pandemic has sparked. UNICEF reports the number of vulnerable children has increased on account of pandemic-induced unemployment and the impact of the lockdown on health and schooling.²¹ ECEC can help prevent the long-term impact of this disruption on children’s learning and development outcomes. Stimulus investment in ECEC will pay strong economic dividends and curb intergenerational inequality.²²

The conditions of the COVID crisis call for a more systematic review of public funding for ECEC. The pandemic provides government with an opportunity to review and reconstruct public funding for ECEC to deliver long term participation and productivity benefits that will support the recovery and deliver prosperity into the future.²³

These gender-responsive fiscal measures do not stand alone. They must be supported by two other essential inputs: women’s inclusion in leadership for recovery planning²⁴ and gendered employment analyses of all recovery policy options, including the impact of fiscal policy on unpaid work. Unpaid work must be included as part of the policy landscape given its massive contribution to economic growth and productivity.²⁵ Failure to do so will distort policy making.

The economic cost of a gender-blind approach to the government’s COVID recovery strategy will be very high in terms of Australia’s economic growth and prosperity. It will compromise the efficiency of our labour markets, constrain productivity, and limit wellbeing while increasing economic insecurity and reducing labour force participation for women. Current fiscal policy settings will discourage women’s labour force participation, but it is not too late to change tack. The economic downturn is expected to be long and deep, leaving government plenty of opportunities to implement gender-responsive fiscal measures: Australia’s prosperity and wellbeing depends upon them doing so.

Endnotes

1. Cooper, R. and S. Mosseri ‘Pandemic has impacted women most significantly’ June 5, 2020 https://www.smh.com.au/business/workplace/pandemic-has-impacted-women-most-significantly-20200604-p54ziu.html
2. ABS labour force survey, Cat no. 6202.0 – Labour Force, Australia, May 2020. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0
3. Gaps in gender equality pre-COVID have been estimated to cost the Australian economy approximately $225 Billion or 12% GDP, see McKinsey Global Institute, The Power of Parity: Advancing Women’s Equality in Asia Pacific, April 2018. https://www.mckinsey.com/featured-insights/gender-equality/the-power-of-parity-advancing-womens-equality-in-asia-pacific.  More targeted estimates have found that if an additional 6 per cent of women entered the workforce, up to $25 billion would be added to GDP (Grattan Institute, 2012, Game-changers: Economic reform priorities for Australia); and the OECD estimates that closing the gender participation gap by 75 per cent could increase growth in Australian GDP per capita ( OECD, 2012, Closing the Gender Gap: Act Now).
4. Fabrizio, S, A Fruttero, D Gurara, L Kolovich, V Malta, M M Tavares and N Tchelishvili, 2020, ‘Women in the Labor Force: The Role of Fiscal Policies’, IMF Staff Discussion Note No. 20/03. https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2020/02/11/Women-in-the-Labor-Force-The-Role-of-Fiscal-Policies-46237
5. Ibid.
6. See for example, Antonopoulos, R. and K Kijong, 2011. Public job-creation programs: The economic benefits of investing in social care? Case studies in South Africa and the United States, Working Paper, Levy Economics Institute, No. 671; Ilkkaracan, I., Kijong, K., and Kaya, T. 2015. The Impact of Public Investment in Social Care Services on Employment, Gender Equality and Poverty: The Turkish Case. İstanbul Technical University, Women’s Studies Center in Science, Engineering and Technology and Levy Bard Institute. http://www.levyinstitute.org/pubs/rpr_8_15.pdf
7. de Henau, J and S. Himmelweit, 2020, ‘The gendered employment gains of investing in social vs. physical infrastructure: evidence from simulations across seven OECD countries’, IKD Working Paper No. 84 April 2020, http://www.open.ac.uk/ikd/sites/www.open.ac.uk.ikd/files/files/working-papers/DeHenauApril2020v3.pdf The study includes Australia, Denmark, Germany, Italy, Japan, the UK, and the USA.
8. Direct employment includes employment created in the industry in which investment takes place; indirect employment refers to those jobs created by new demand in that sector; and induced employment includes the employment effects of increased household income generated by the initial investment.
9. Richardson, D. and R. Denniss, 2020, ‘Gender experiences during the COVID-19 lockdown, The Australia Institute, June 2020. https://www.tai.org.au/sites/default/files/Gender%20experience%20during%20the%20COVID-19%20lockdown.pdf
10. These results only refer to the direct employment effects of additional spending on each industry and does not include the indirect or ‘second round’ employment effects that can be expected over time.
11. The Productivity Commission recently acknowledged that failure to include sectors such as healthcare and social assistance, education and training, and public administration and safety from assessments of national economic performance “is increasingly problematic given their increasing significance.”(2019, p5) https://www.pc.gov.au/research/ongoing/productivity-insights/2019/productivity-bulletin-2019.pdf
12. Noble, K., P. Hurley and S. Macklin, June 7, 2020, ‘Number of Australia’s vulnerable children is set to double as COVID-19 takes its toll’ https://theconversation.com/number-of-australias-vulnerable-children-is-set-to-double-as-covid-19-takes-its-toll-140057; Andrew Leigh ‘The poor bear the burden of the coronavirus downturn, but inequality is not inevitable in Australia’ https://www.theguardian.com/commentisfree/2020/apr/13/the-poor-bear-the-burden-of-the-coronavirus-downturn-but-inequality-is-not-inevitable-in-australia
13. On 2 April 2020, the Australian Government announced the Early Childhood Education and Care Relief Package. Prime Minister, Minister for Education, media release, April 2^nd 2020 https://www.pm.gov.au/media/early-childhood-education-and-care-relief-package; 9 News, April 2^nd https://www.youtube.com/watch?v=9mbi4rum9aI
14. https://ministers.dese.gov.au/tehan/return-child-care-subsidy
15. Early Childhood Australia, May 2020, Submission to the Senate Select Committee on COVID-19 and The Australian Work + Family Policy Roundtable, June 2020, Submission to the Senate Select Committee on COVID-19 https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/COVID-19/COVID19; Georgia Dent, 19 June 2020 ‘Dan Tehan: Please note more research showing families cannot afford pre-COVID19 childcare fees’, https://womensagenda.com.au/latest/dan-tehan-please-note-more-research-showing-families-cannot-afford-pre-covid19-childcare-fees/; June 5 2020 ‘1 in 4 families will face higher out of pocket fees for childcare in July’ https://womensagenda.com.au/latest/1-in-4-families-will-face-higher-out-of-pocket-fees-for-childcare-in-july/
16. Priestly, A., 9 June 2020, ‘As childcare fees are reintroduced in July women’s participation will pay the cost.’ https://womensagenda.com.au/latest/as-childcare-fees-are-reintroduced-in-july-womens-participation-will-pay-the-cost/; The Parenthood, Media release 1 June 2020, https://d3n8a8pro7vhmx.cloudfront.net/theparenthood/pages/20/attachments/original/1590987325/200601_-_Full_survey_data_case_against_snap_back_MR.pdf?1590987325;
17. Stewart, M. August 2018, ‘Personal income tax cuts and the new Child Care Subsidy: Do they address high effective marginal tax rates on women’s work?’, TTPI – Policy Brief 1/2018, https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2018-12/complete_gender_tax_cuts_m_stewart_august_2018.pdf
18. The Parenthood, Media release 1 June 2020, ibid; F. Hunter ‘Thousands of families could withdraw from childcare if fees reimposed’, The Sydney Morning Herald, May 29^th https://www.smh.com.au/politics/federal/thousands-of-families-could-withdraw-from-childcare-if-fees-reimposed-20200529-p54xq9.html
19. McKinsey Global Institute, 2018, ibid.
20. More than 90% of ECEC workers are female. https://docs.education.gov.au/system/files/doc/other/2016_ecec_nwc_national_report_sep_2017_0.pdf
21. Noble, K et al, 2020, ibid (footnote 8); UNICEF, April 3 2020, ‘Protecting the most vulnerable children from the impact of coronavirus: An agenda for action’, https://www.unicef.org/coronavirus/agenda-for-action
22. Analysis commissioned by the Front Project, and conducted by PwC, showed that every dollar invested in pre-school education returns $2 in national economic benefit to the country, https://www.thefrontproject.org.au/initiatives/economic-analysis. US analysis finds access to high quality ECEC delivers an economic return as high as 13% per year, per child, over a lifetime, see https://www.nber.org/papers/w11331.pdf and https://heckmanequation.org/resource/13-roi-toolbox/
23. Wood, D., K. Griffiths and O. Emslie, April 27, 2020, ‘ Permanently raising the Child Care Subsidy is an economic opportunity too good to miss’ https://theconversation.com/permanently-raising-the-child-care-subsidy-is-an-economic-opportunity-too-good-to-miss-136856
24. United Nations, 9 April 2020, Policy Brief: The Impact of COVID-19 on Women, https://www.unwomen.org/en/digital-library/publications/2020/04/policy-brief-the-impact-of-covid-19-on-women; Garikipati, S. and U. Kambhampati, June 3,2020, ‘Leading the Fight Against the Pandemic: Does Gender ‘Really’ Matter?’. Available at SSRN: https://ssrn.com/abstract=3617953 or http://dx.doi.org/10.2139/ssrn.3617953
25. Elson D. 2004, ‘Social Policy and Macroeconomic Performance: Integrating ‘the Economic’ and ‘the Social’’. In: Mkandawire T. (eds) Social Policy in a Development Context. Social Policy in a Development Context. Palgrave Macmillan, London, https://doi.org/10.1057/9780230523975_3

Originally published by the Committee for Economic Development of Australia (CEDA)