Reach into your pocket, rise of the care economy will come at a cost

From even before the days early last century when people began leaving the farm to work in city factories, the industry structure of our economy has always been changing. In the ’80s, we saw the decline of manufacturing and the rise and rise of the service industries.

We’re probably kidding ourselves, but it seems the pace at which the economy is changing is faster than ever before. What’s certain is that change is occurring in several fields.

As explained in a part of this month’s budget papers I call Treasury’s sermon, it’s happening on at least three fronts. What gets the most attention is our transition from fossil fuels to renewable energy. Then there’s all the change coming from the digital revolution, which is working its way through many industries, with the use of artificial intelligence expected to bring much more change.

But the industry trend that’s doing the most to change how we live our lives is the rise of the “care economy”. On the surface we see childcare, disability care and aged care, but looking deeper we see nurses, allied health professionals, social workers and welfare workers. There are those who work directly with people receiving care, and an army of support workers in clinics, kitchens, laundries and cleaning stations.

By Treasury’s reckoning, the proportion of our workforce employed in the care economy has gone from 2 per cent in the ’60s to 10 per cent today. About 80 per cent of these workers are women, and more than 16 per cent of all working women work in the care economy.

Treasury offers three main reasons for this rise. Most obvious is the ageing of the population, which is greatly increasing the demand for healthcare and aged care.

Less obvious, but more significant, is what Treasury calls “a transition from informal to formal care”. In the old days, women stayed at home to look after young kids, aged parents and anyone with a disability.

But once girls became better educated, more of them wanted to put their education to work in paid employment. So young children went to childcare, oldies went off to a home and, particularly since the advent of the National Disability Insurance Scheme a decade ago, people with disabilities got more professional care.

One of the simple truths of economics is that economies are circular. On the one hand, more women wanted to go out to paid employment. On the other, this created more paid jobs for women in childcare, aged care and disability care.

As medical science advanced, there were more jobs for women in hospitals and clinics, in the allied professions as well as medicine and nursing – which now requires a degree.

Our greater understanding of the way brains develop has prompted us to begin schooling one or two years earlier, and turn childcare into “early childhood education and care”. Play-based learning became a thing. And more childcare workers needed teacher training.

Treasury’s final explanation for the inexorable rise of the care economy is “increased citizen expectations of government”. Just so. Our growing affluence has involved increased demand for services best paid for via the public purse.

All this has a lot further to go. A former government agency expected the demand for care economy workers to double over the next 25 years or so. Fine – but that says we’ll all be paying a lot more tax to cover it.

And there are other reasons the cost of care will be increasing. One is the weird notion that women should be paid as much as men. Another is that we can’t go on exploiting the motherly instincts of women by paying those in caring jobs less than those in uncaring jobs (so to speak).

One reason we can’t go on underpaying care economy workers is that they ain’t taking it any more. There are shortages of workers, and those who do sign up often don’t stay long once they see how tough the work is.

This budget includes the cost of a special, 15 per cent pay rise for aged care workers, awarded by the Fair Work Commission because their work had been undervalued. Nothing to do with the cost of living – that’s on top. Don’t think there won’t be more work-value cases elsewhere in the care economy.

Then there’s the fate of the theory that getting the care delivered by private businesses would be more efficient and so save money. Wrong. They made their profits by cutting quality.

As for the runaway cost of the NDIS, I think it’s more a matter of providers seeing the government as an easy mark. The government’s hoping to limit the cost growth to a mere 8 per cent a year – but we’ll see about that.

In recent times, much of the nationwide growth in jobs has come from the care economy. Which should be a comfort to those wondering where the jobs will come from in future. I don’t see our kids and oldies being left to the care of robots any time soon.

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Caring folk care about early learning. So do hard-nosed economists

So, what did you make of the Albanese government’s Early Years National Summit at Parliament House on Friday? What? You didn’t hear about it? Well, yes, it got little coverage from the media. Yet another case of us letting the urgent and the controversial crowd out the merely very important and the encouraging. Maybe it’s a pity Peter Dutton hasn’t said he was thinking of opposing it.

In truth, the government’s election promise – to do a better job of delivering what’s now called ECEC, early childhood education and care – is its most expensive and, after climate change, probably its most important. The two have much in common, of course: the wellbeing of our kids and grandkids.

Note the way our need for affordable and available childcare has morphed into a concern to start children’s education much earlier than age 5.

Neuroscience long ago established that our brains develop continuously from birth to adulthood, but the development in the first five years of life is crucial to later development. It’s determined partly by our genes, but also by our experiences in the early years. Children who are badly treated, or don’t get enough attention, are likely to have problems in later life.

To put it more positively, there’s now much evidence that good quality early childhood programs help children get a better education. Starting earlier seems to help kids “learn how to learn”. All children benefit, but those from disadvantaged homes benefit most.

Other research shows that early learning leads to better health, reduced engagement in risky behaviours such as smoking, drinking, drug taking and over-eating, and stronger civic and social engagement.

These benefits to individuals are, in themselves, sufficient justification for government spending on early learning. But the benefits spill over to their families and the wider community.

As well, the economy benefits from having more people working rather than in and out of unemployment. This improves government budgets by increasing the number of taxpayers, as well as by reducing the need for remedial spending on school drop-outs or people with literacy problems. Or those who’ve got into trouble with the police.

The American economist and Nobel laureate James Heckman has found that quality early education helps break the cycle of generational poverty. And skills developed through quality early childhood education can last a lifetime.

Last week’s summit brought together 100 experts to help the government develop an “early years strategy”. To see what’s been happening, it helps to start with childcare, then move on to early education.

The Morrison government reduced the cost of childcare for second and subsequent children, but Anthony Albanese topped that by promising to increase the subsidy to up to 90 per cent for the first child, starting in July.

This was Labor’s biggest election promise, costing more than $5 billion a year. It has also asked the Productivity Commission to review the childcare system and asked the Australian Competition and Consumer Commission to develop a mechanism to regulate the cost of childcare.

But cost is only one problem. Many families have trouble finding a place for their kid. Research by Victoria University’s Mitchell Institute has found that more than a third of Australians live in regional and rural areas where three children vie for each place. Areas with the highest fees usually have the highest availability of places, suggesting private providers go not only where the demand is, but also where they’re likely to make higher profits.

I trust you noticed that all those wonderful benefits came from quality care. Successive federal governments have worked to increase the quality of childcare, including improved ratios of staff to kiddies. This helps explain why the cost of childcare keeps rising.

Politicians and economists tend to see the main benefit from more and cheaper childcare as allowing more women to get paid employment. This is about gender equity, not just a bigger economy.

But another reason childcare keeps getting dearer is the push for childcare to be about early education – “play-based learning” – not just child minding. This means getting better qualified carers, including a proportion with teaching qualifications.

The other part of the early education push is the introduction of “universal” preschool education for 4-year-olds. The previous government started this some years ago, with the states. Now the push is for preschool to be extended to 3-year-olds. And last year the Victorian and NSW premiers announced plans for greatly increased early childhood spending, particularly on preschools.

What more the feds will be doing, we’ll know when they produce their early years strategy. But whatever the plan, it’s unlikely to succeed unless it involves higher pay for childcare workers – paid for by the government, not parents.

Considering the many benefits of early education, however, the extra cost should be seen as an investment in our children’s wellbeing. Not to invest what’s needed would be to “leave money on the table”, as economists say.

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Want a more capable nation? Start younger

The older I get, the more unimpressed I become with both sides – all sides – of politics. And the more disdainful I become of people who let loyalty to a particular party determine their support or opposition to particular policies. Don’t think for yourself, just follow your herd of choice.

On the other hand, since I do care about policy, I shouldn’t be slow to give a tick to whatever side is first to come up with a good one. So, two cheers for Bill Shorten for promising to extend universal access to preschool to three-year-olds.

The Coalition government and its predecessors, together with the state governments, have done a good job of ensuring almost all four-year-olds are now attending preschool for the equivalent of two days a week during the school year (though, for reasons I can’t fathom, the feds have insisted on guaranteeing funding for only a year at a time).

Trouble is, getting four-year-olds to preschool takes us only halfway to catching up with most other advanced economies, even New Zealand. So, with any luck, Scott Morrison won’t be too proud to match Labor’s promise to extend it to three-year-olds.

Why is an economics writer getting so excited about preschools? Because I can’t think of any other single initiative more likely to benefit us socially and economically.

And to do so at a relatively modest cost to taxpayers – particularly when you remember that the kids you help most will end up working more and paying more tax, while costing the government less in welfare benefits and accommodation courtesy of Her Maj.

For anyone who’s been living under a rock for the past 25 years, perhaps the most important and useful scientific discovery of our times is that the human brain develops rapidly in the first five years of life, and both the nurturing and the intellectual stimulation a child receives in that time has huge influence over their wellbeing during their lives.

An independent report prepared last year for state and territory governments by Susan Pascoe, of the Australian Council for International Development, and Professor Deborah Brennan, of the University of NSW, found “extensive and consistent” research evidence of the benefits of quality early childhood education.

The years before school are “the period when children learn to communicate, get along with others and control and adapt their behaviour, emotions and thinking".

“These skills and behaviours establish the foundations for future skills and success. They are provided in most, but not all, homes”, the report says.

Quality early childhood education gives all children the best chance of establishing these capabilities. Without these foundations in place, children often struggle at school, and then often go on to become adults who struggle in life, it says.

This is why the measured benefits of early education are greatest for vulnerable or disadvantaged children, including Indigenous children. “Support for these children is vital – children who start school behind their peers stay behind. Quality early childhood education can help stop this from happening, and break the cycle of disadvantage,” the report says.

It finds that quality early childhood education makes a significant contribution to achieving educational excellence in schools. There’s growing evidence that participation in early education improves school readiness and lifts NAPLAN results and scores in international tests.

“Children who participate in high-quality early childhood education are more likely to complete year 12 and less likely to repeat grades or require additional support."

It also has broader impacts: it’s linked with higher levels of employment, income and financial security, improved health outcomes and reduced crime. It helps build the skills children will need for the jobs of the future.

These days, childcare and early childhood education overlap, which explains why childcare is now called ECEC – early childhood education and care. Ordinary childcare for the under-threes now involves a higher proportion of TAFE-trained early childhood educators.

The two years of preschool we’re considering would occur in a range of settings: long daycare centres, community preschools and kindies, and schools. For parents with children already in care, 15 hours a week would be funded by the government, cutting costs to families.

But all this talk of “education” doesn’t mean hothousing young minds. As Professor Alison Elliott, of Central Queensland University, explains, learning is “play-based” – meaning children learn through play, both self-directed (“free play”) and guided by a trained adult following the official “early years learning framework”.

Preschool gives children access to a four-year degree-qualified early childhood teacher. Elliott notes that one problem in expanding preschool to three-year-olds is the present extreme shortage of early childhood teachers and educators.

But for those who’ve wondered “where will the jobs come from?” – especially after the robots arrive – what’s a problem for some is an opportunity for others. Such skilled jobs are likely to be full-time and permanent; they won’t be in the “gig economy”.

And those jobs will be created by bigger government – greater provision or subsidisation of public services, paid for by our higher taxes. In this and other areas, government will be a key source of additional employment.

Pascoe and Brennan point out that the linking of childcare and early childhood education allows governments to deliver us a “double dividend”: if they do it right, they can subsidise childcare to encourage parents’ participation in the paid workforce, while also promoting children’s wellbeing, learning and development. Sounds good to me.

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If we had more sense, we'd push early childhood education

Did I tell you that my grandson, fast approaching his second birthday and not many months away from losing his status as our one and only grandchild, is a budding genius?

His educational development is supervised by his father, who, being a doctor, started with identifying parts of the body. My grandson's always being quizzed, and loves showing off how much he knows.

Already he can count – provided you don't test him too closely above two or three – and, courtesy of Play School, can sing the alphabet song, whether or not he's invited to. He misses no more than a few of the letters, and is always careful to sing zed rather than zee.

Do I worry about how he'll manage to scratch out a living in the looming, frightening world of robots and artificial intelligence? No I don't. Not with the parents he's got.

For centuries the great advantage has been seen as inherited wealth. But, as The Economist magazine pointed out a few years ago, in the knowledge economy it's probably just as advantageous, maybe more, to inherit your intelligence from two highly educated, well-paid, education-conscious and bookish parents.

Of course, not every Aussie kid is as fortunate as any grandchild of mine. Which is why I worry a lot about the continuing high high-school dropout rate. Join the workforce without even a good grasp of the basics and the rest of your working life is likely to be "problematic", as mealy mouthed academics say.

It's also why I get so annoyed with politicians – and Treasury and Finance econocrats – who regard early education as just another of the outstretched hands that must be given something, but never enough to fully exploit its potential to improve our wellbeing, social as well as economic.

The good news is that Simon Birmingham, federal Minister for Education and Training, announced over the weekend the government's decision to spend $440 million extending for a year the "national partnership agreement" on universal access by four-year-olds to early childhood education, while federal and state ministers continue "negotiating" (haggling over) a new long-term agreement.

The bad news is that, when it comes to making sure all children attend preschool, we started much later than most of the other rich countries, and aren't catching up nearly as fast as we would be if we had more sense.

Our politicians on both sides think their interests are best served by using the limited funds available to placate as many interest groups as possible, rather than spending money where it's likely to yield the most lasting benefit.

Our econocrats ought to be encouraging their masters to spend more wisely, but if they are it's news to me. They seem to think it their job to disapprove of all extra spending equally. Not working well so far, guys.

There are no magic bullets in government spending, but putting money into early education – whether by lifting the quality of childcare, or beefing up preschool – comes a lot closer than most of the other things governments spend on.

We've known it for decades, but the evidence keeps growing. According to the Ontario early learning study, "the early years from conception to age six have the most important influence of any time in the life cycle on brain development and subsequent learning, behaviour and health".

Early experiences and stimulating, positive interactions with adults and other children are far more important for brain development than previously realised, it says.

According to a paper on early childhood education, issued last year by Dr Stacey Fox and others, of the Mitchell Institute at Victoria University, "investing in early learning is a widely accepted approach, backed by extensive evidence, for governments and families to foster children's development, lay the foundations for future learning and wellbeing, and reduce downstream expenditure on health, welfare and justice".

While all children benefit from high-quality early learning, research also shows that children experiencing higher levels of disadvantage benefit the most, and can even catch up to their more advantaged peers, the paper says.

In an earlier Mitchell report, Fox says that nearly a quarter of Australian children arrive at school with significant vulnerabilities – in their knowledge and communication, their social skills and emotional wellbeing, or in their physical health.

Here's a surprise: a child's risk of being developmentally vulnerable is closely, but inversely, correlated with their socio-economic status.

After five or six years, we've got close to achieving universal access by four-year-olds to a potential 15 hours a week of preschool. The only state dragging the chain is NSW (yeah, but look how much bigger its budget surplus is).

But kids from disadvantaged homes are less likely to be getting the full 15 hours. And there's strong evidence that two years of preschool – that is, starting at three – yields more than twice the benefit.

British research shows 16 year olds who attended at least two years of preschool were three times more likely to take a higher academic pathway after leaving school.

It's easier to get kids up to speed in preschool than at any later level of education. Clearly, the smart way to improve the performance of the whole system is to start at the bottom. Make sure we get preschool right, and the benefits will flow on to schools, TAFE and uni.

Nah, too much trouble. Let's just give ourselves a tax cut. My grandkids will do fine.

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Our kids need social skills, not just high marks

My father raised me to be contemptuous of fashion in all its forms, and I try not to be overawed by the rich and powerful. But, like my mum, there's one thing I am impressed by: brains.

My job brings me into regular contact with the econocrats at the top of the Reserve Bank, Treasury and other departments. Let me tell you, they're the brightest of the bright. I have to keep telling myself this as I struggle to keep up with them. All of them could hold down jobs as professors, or earn a lot more money in business.

These days, most have PhDs - though it's disturbing that, so far in his time as Prime Minister, Tony Abbott has relinquished the services of five economist department secretaries: Dr Martin Parkinson, Dr Don Russell, Blair Comley, Dr Ian Watt and now Dr Paul Grimes. Not sure we have that many brains to spare.

In recent years, however, I've realised that being super-bright ain't enough. To be really successful you also need "people skills". I've decided an extra unit of EQ - emotional intelligence - is worth a lot more than an extra unit of IQ. And if a genie appears from a bottle, that's what I'll ask for.

Most of our politicians have heard that the development of children's brains is hugely significant in influencing their success throughout the rest of their lives. Hence governments' increasing attention to early childhood education and care.

What people may not realise is that brain development doesn't matter just because of its effect on kids' intellect. As a new report from the Organisation for Economic Co-operation and Development, The Power of Social and Emotional Skills, makes clear, it matters also for children's social development.

We don't need telling about the importance of "cognitive" skills. These days, governments conduct periodic tests of children's literacy, numeracy and scientific literacy as they progress through the school system.

They make the results available directly to parents, but also put them on websites so the whole world can compare the academic performance of particular schools. Teachers object that good teaching involves a lot more than the three Rs and that the emphasis on competition via "metrics" encourages schools to "teach to the test" and spend much time drilling for coming tests.

The OECD's PISA exercise now compares our cognitive tests with those undertaken in other countries, so that every year or so we agonise because we've slipped back in the international comp on this cognitive measure or that.

The point of this latest report is to agree with the teachers: there is a lot more to the adequate development of our kids than just nurturing their IQs. It finds that children and adolescents need a balanced set of cognitive and social and emotional skills in order to succeed in modern life.

Cognitive skills - as measured by achievement tests and academic grades - have been show to influence the likelihood of individuals' success in education and the jobs market. They also predict broader outcomes such as our self-perceived health, social and political participation, and trust.

But social and emotional skills - such as perseverance, sociability and self-esteem - have been shown to influence numerous measures of social outcomes, including better health, improved subjective wellbeing (aka happiness) and reduced odds of antisocial behaviour.

If that doesn't impress you, try this: cognitive skills and social and emotional skills interact and cross-fertilise each other, empowering children to succeed both in school and out of school.

For instance, social and emotional skills may help children translate intentions into actions, and thereby improve their likelihood of graduating from university, sticking to healthy lifestyles and avoiding aggressive behaviours, the report says.

For children who are talented, motivated, goal-driven and collegial, and thus more likely to weather the storms of life, cognitive skills aren't enough. They need to be combined with social and emotional skills, which include conscientiousness and emotional stability.

The report stresses that "skills beget skills". They build on each other, and the earlier kids start acquiring them and the firmer their foundation the more skills are gained and the better the kids do in life.

You may say that children from "good" homes will acquire social skills from their parents without any fuss. That's fairly true and it's why, apart from making attendance at preschool universal, early intervention programs are best targeted at disadvantaged families, offering parents training and mentoring.

But though an early start is best, children's acquired skills remain malleable through adolescence. Programs aimed at older children emphasise teachers' professional development. Among adolescents, mentoring seems to work well, while hands-on experiences in the workplace can instil skills such as teamwork, self-efficacy (strong belief in your ability to reach goals) and motivation.

Improvements in social skills don't necessarily require major reforms or resources but can be incorporated into existing curricular and extracurricular activities, the report says. A lot of social and emotional skills can be gained from sport, arts clubs, student councils and voluntary work.

The report finds that recent developments allow us to measure social and emotional skills reliably within a particular culture and language. I reckon that as long as we retain our obsession with measuring and comparing academic performance we need to balance this with regular measurement of progress in acquiring social skills.

Surely our econocrats are bright enough to see that.

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Raising mothers' job participation only half the story

I'm not sure how many barbecues it's stopping these days, but the issue you and I call childcare and the politically cool call ECEC - early childhood education and care - is still one of great concern to experts ranging from hard-headed economists to soft-hearted social workers, not to mention the odd parent.

From a narrowly economic perspective, childcare matters because any problems with it limit women's participation in the paid workforce and economists have decided increasing the "participation rate" of women and older workers is a key to reducing the budgetary cost of an ageing population and to maintaining our rate of economic growth.

With girls now more highly educated than boys - and with the taxpayer having contributed significantly to funding  that education - it's been obvious for a few decades that it makes little sense to allow the conventions of a labour market designed for men to prevent women from participating fully in the workforce.

Taxpayers want a return on their investment, economists want faster growth, and the women want to take advantage of their education by earning money and enjoying the greater mental stimulation that goes with a job.

Under pressure from families across the country, governments have been struggling to make the appropriate renovations since the days of Bob Hawke and Paul Keating. Their cumulative alterations and additions have been a bit patchwork.

One early move was to reduce the cost of childcare by introducing a means-tested childcare benefit. Then the Howard government added an unmeans-tested 30 per cent rebate of parents' net childcare costs. The Rudd government raised the rebate to 50 per cent.

Next came Labor's relatively frugal paid parental leave scheme, which Tony Abbott promised to top with a scheme much more generous to higher income-earners. Most of these measures came as election promises.

But under immense pressure from his colleagues, Abbott has now abandoned this promise, accepting the argument that, if there's any extra taxpayers' money to be spent, improving the cost and availability of childcare would be more effective in raising women's participation.

The government will now consider the recommendations of a report from the Productivity Commission in preparing a "families package", to be announced in the next few months.

The commission's main proposal is for the means-tested benefit and the unmeans-tested rebate to be rolled together into a means-tested "early care and learning subsidy". At little extra cost to government, and little change in the present overall average subsidy of about 65 per cent of cost, the new arrangement would increase the subsidy going to low to middle-income families and reduce it for high-income families.

For families with two kids in care, we're talking about gains of up to about $20 a week or losses of up to about $10 a week.

But the commission is quick to warn that such a change is likely to produce only a small increase in mothers' participation in the workforce. It estimates an extra 25,000 people working part time, equivalent to about 16,400 working full time.

Of course, the government could induce more participation if it was willing to spend more on the subsidy. It had planned to cover the cost of its more generous paid parental leave scheme by imposing a levy on big business. Will it make big business help bear the cost of higher participation?

But the cost of childcare is just one of the financial factors affecting mothers' decisions about whether to take a job and how many hours to work. The commission notes sadly that "the interaction of tax and welfare policies provide powerful disincentives for many second income earners to work more than part time".

It's trying to say that when their husbands have reasonably paid jobs, mothers who earn more don't just pay tax on their earnings, they have their family tax benefit cut back, leaving them without much to show for their efforts.

It's one of the great drawbacks of Australia's unusually heavy reliance on means-testing and probably does a lot to explain why our rates of female participation are lower than in other English-speaking countries.

But none of this explains why childcare has become "early childhood education and care". It's in response to the growing scientific evidence that children's experiences in the earliest years of their lives greatly affect the development of their brains, with implications for their wellbeing - and misadventures requiring government intervention and expense - throughout the rest of their lives.

Far too slowly, these insights are affecting government policy. They've had a big effect on childcare, leading to better paid and qualified carers and more emphasis on nurturing infants' mental development.

As part of this, there is federal and state agreement to increase the proportion of children either attending a dedicated preschool or participating in a preschool program in a long-day care centre.

"The benefits of quality early learning for children in the year prior to starting school are largely undisputed, with evidence of immediate socialisation benefits for children, increased likelihood of a successful transition into formal schooling and improved performance in standardised test results in the early years of primary school as a result of participation in preschool programs," the commission says.

The greater emphasis on early childhood development is one area where our economic aspirations and social aspirations fit together well.

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