Flat White

Even a magic nanny would struggle with childcare policy

12 February 2018

1:00 PM

12 February 2018

1:00 PM

The threat by childcare union, United Voice, to strike next month over low wages reflects a bizarre belief that government is a Mary Poppins who can miraculously produce a 30 per cent pay rise from an empty carpet bag. Pity the childcare workers being fed this fantasy by the union, which purports to represent their interests.

The real-world risk is that any policy attempt to increase nominal wages would do more harm than good. It would inflate operating costs for employers, leading to higher out-of-pocket fees for parents — who would then reduce their demand for childcare. Employers could end up closing down less profitable childcare centres and employing fewer workers … the worst possible outcome if you want all childcare workers to be better off.

As economists never tire of pointing out, there is no free lunch. The only way to increase real wages in the long run is by workers becoming more productive. While the government does not set award wage rates — it can cheerfully pass the buck to the Fair Work Commission on that score — its over-regulation of a sector can kill any prospect of productivity growth.

Unfortunately, this is the case with government actions in the childcare sector. Through the so-called National Quality Framework, the government imposes mandatory standards and worker qualifications on child-care providers.

Some of these standards can actually restrict the ability of workers to become more productive on the job. For example, a competent, energetic worker may be perfectly capable of providing quality service to more than five children — a form of productivity — but this might be prohibited under staff-to-child ratio rules.

The government also imposes costs on childcare workers, by pushing them to obtain professional qualifications. The union might be surprised to know that the childcare sector does not exist to serve the interests of workers. It exists to serve consumers — mums and dads — who ultimately drive demand for childcare services. So if parents do not value the extra qualifications enough to pay a premium for them, then employers will not pay their workers more for being qualified.

And parents will obviously look to alternatives if they are unwilling to pay more for ‘quality’ in formal childcare.  After all, many parents continue to rely on informal childcare, such as grandparents — the majority of whom presumably do not hold certificates in early childhood education.

What is the solution then? At the very least, childcare providers should be allowed to compete more freely on quality, rather than through mandated standards. Stripping away non-essential standards would reduce operating costs for childcare providers and allow them to seek genuine productivity improvements to support wage growth.

Without any incentives for productivity improvements, it is doubtful that childcare workers will ever achieve a meaningful pay rise. And their union will continue to wait in vain for Mary Poppins to materialise from the sky.

Eugenie Joseph is a Senior Policy Analyst at the Centre for Independent Studies.

Illustration: The Walt Disney Company.

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