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Childcare – Professor Sir Donald MacKay

The Gender Gap and the Opportunity

Previous blogs argued that the recovery from the “Great Recession” was essentially supply side driven. This resulted from a major shift in employment from the public sector to the private sector and, within the labour force, a marked secular increase in female labour force participation. The latter continued through the recession and the recovery. In terms of academic qualifications in Scotland, at school, college and university, women score more strongly than men

Over the last four decades woman have become a substantially higher proportion of the labour force in many of the higher paid occupations, such as accountancy, law and medicine. And yet, although the direction of change toward less gender inequality is unmistakable and will continue for the foreseeable future, the pace of change lags significantly behind that of countries which have economic and social characteristics not hugely dissimilar to our own – I cite Iceland, Norway, Sweden, New Zealand, Denmark, Finland, Canada, Luxembourg, Belgium and France, but exclude a smaller clutch of countries which are not in north-west Europe.

At present, the gender pay gap in Scottish local authorities is 15%. Women account for 44% of chief executives but are over-represented in lower skilled and lower paid jobs. Amongst the higher paid professions, gender discrimination is most evident in the legal profession.  The Law Society of Scotland reports that, for the first time, the majority (51%) of Scotland’s solicitors are women and women account for 64% of last year’s new entrants. However, there is a large overall gender pay gap of 42%, which widens for women aged over 36. Amongst solicitors, women are likely to remain associates or assistants rather than partners. At the apex of the legal profession, the Faculty of Advocates reports that only some 19% of QCs are women. Even here the direction of change is self-evident but slower than in many other countries in north-west Europe. To a lesser degree but still noticeably, the same pattern exists across the higher paid professions.

Work/Life Balance
One major barrier to a better work/life balance for women has been the limited availability and cost of childcare. Reducing the cost and time burden of childcare can be expected to increase the years spent in paid employment by women with childcare responsibilities. The resultant income and employment gains are likely to be particularly evident for women working in higher paid activities and professions.

Confucius declared that “It is not easy to find a man who can study for three years without thinking about earning a salary.” Today he would surely include “or a woman.” This suggests that the sheer weight of numbers of well educated and trained women will accelerate major shifts in the work-life balance of females toward more work and higher salaries. The experience in North West Europe is that generous childcare provision can assist further increases in female labour market participation and reduced gender inequalities in pay.

The Scottish Government flagship labour market project in its White Paper, “Scotland’s Future,” was that an extended system of childcare could increase employment and incomes, particularly for females, and generate additional tax revenues. That this is the likely direction of change cannot be in serious doubt, but the devil will be in the detail – as usual!

Why Now?
One of the unfortunate results of devolution has been that the major opposition parties in Holyrood have swallowed wholesale the Westminster dictum that “the duty of the opposition is to oppose.”  It would be better if the word “sensibly” was added to this injunction and the reaction to the enhanced childcare proposals proves the point.

The First Minister recently declared that “the most transformational investment the next SNP government makes is not in any road or bridge – it will be a revolution in childcare provision.” The main  opposition argument has been that devolution already provided the Scottish Government with the authority to provide enhanced childcare and that, if it was such a good idea, it should get on with it forthwith. The Scottish Government did have the relevant legal power but no sensible government would have pressed further ahead unless it had access to a major part of the increased tax revenues (mainly income tax and VAT) flowing from an increase in female labour force participation.

Under the ancient regime almost all of any increase in tax revenues from rising personal income and expenditure would have accrued to Westminster. Quite simply, a childcare system which is going to work could not have been funded generously as per the smaller countries of north-west Europe. The opposition parties probably knew this, or else were guilty of woeful ignorance. Let us be charitable and assume the former applies!

JB Say
The Scottish Government’s working paper on childcare (“Childcare and Labour Market Participation – Economic Analysis”) argues that its impacts “can be defined as demand-side. However, the greatest benefit for the Scottish economy will stem from the transformational supply-side impacts it could have.” As JB Say would have put it, “Supply creates its own demand.”

 

The female activity rate in Scotland is above the UK average but was lower than 9 OECD countries in 2012 – as shown in Figure 1 below.

female workforce for Sir Donald blog

The working paper suggested that raising the Scottish female participation rates to Norwegian and Swedish levels would result in an annual increase in output of £1.4 billion (1.1%) and £2.2 billion (1.7%) respectively. These calculations are based on constant prices and might be expected to be achieved at the conclusion of a 5-10 year period, the earlier date being highly dependent on dependent on the nature of the childcare proposals which are implemented. Here there is much to be learned from our own experience and that of the Scandinavian countries in particular.

The January 2014 paper estimates that the required expansion of childcare services would, when fully implemented, create some 35,000 jobs. The staffing of primary schools would suggest that most of these new jobs would be filled by women. Now any observer should be wary of official estimates of good news and it is prudent to check whether there is any independent estimate of the possible economic impact of improved childcare.

A study by PwC – “Women in Work Index” (March 2016) – estimates the economic impact if UK female participation rates moved up to the level of female participation rates in other European countries. Given that the Scottish female participation rate is slightly above that of the UK and income per capita is slightly below the UK average, it could be expected to have around its 8.4% population share of any UK gains calculated by PwC. The UK potential gains, as estimated by PwC are very large, and applying a population share would provide much better outcomes than those suggested in the Scottish Government’s working paper.

Raising the UK female employment rate to Swedish levels would raise UK GDP by £170 billion and, on a population share basis; the increase in Scottish GDP would be around £14billion per annum. Eliminating the gender earnings gap would raise UK female earnings by £80 billion and in Scotland the same process would result in an increase in female earnings of nearly £7billion.

At this point we have to draw back and remember the Keynesian dictum that “the long run is only for undergraduates.” And I always bear in mind my statistics lecturer who declared that “extrapolation is a substitute for thinking!” The Scandinavian quiet revolution in childcare is the result of a long process which recognises that the best equaliser is a hand up not a hand out. But the Scandinavian experience was, from the outset, based on sensible principles, whereas the early Scottish experience has produced a familiar post-code lottery because the provider and not the consumer too often has the final say in the nature of the service provided.

It would be unrealistic to expect the level of income generation in Scotland to match Swedish levels inside a decade and much more sensible to consider that matching the Danish outcomes in a 5-10 year period would be more easily achievable. But even this requires recognition that the Scottish Government has to deliver an appropriate funding model and a truly national programme must accredit nursery provision and respond to the very different demands which will be generated by different family choices.

What kind of childcare?
The intention of the Scottish Government is that each three and four – year-old should be entitled to 600 hours of government-funded nursery provision per annum. This is generous but, if it is to be effective, the Scottish Government must ensure that it has put in place the necessary funding and the means of providing the range and quality of provision which parents are entitled to expect.

Fair Funding for our Kids recently observed that “For many children and working parents in Glasgow and beyond, the system is not delivering a model of childcare that matches the needs of the modern working family …  (and that)…. thousands of families across Scotland are unable to access their legal entitlement to free childcare because most council nurseries do not offer suitable hours for working parents.”

The Family and Childcare Trust believe that fewer than one in six of councils have the capacity to meet the needs of working parents. Reform Scotland observes that the funding solution should be a nursery entitlement which follows the child. But the corollary of this is a one size fits all policy will never meet the needs of many parents. If the customer knows best, as she or he usually do, then they must be able to use their virtual voucher at accredited nurseries.

I hope that the Scottish Government will not repeat the mistaken named Person approach which will find it difficult to reach those families who actually are in need, while wasting resources annoying well functioning families who will resent outside interfering.

These standards should be set by Education Scotland and the Care Inspectorate. They should ensure that the present post- code lottery does not endure, but flexible enough to accept that the best is not “the enemy of the good.” Local authorities are often well placed to provide good facilities for childcare but it must be recognised, that if another supplier, whether a charity or private supplier, meets the required standards, then they must be able to accept the virtual voucher which follows the child.

The First Minister is right to emphasise the major social and economic benefits which might be realised by an effective childcare programme. Yet, if the aims of a national programme are to be met, the Scottish Government must provide the funding and the framework within which families can access the form of childcare which best meets their needs. The clock is ticking and the prize is to deliver results commensurate with the Danish experience within the 5-10 year interval!

Post script

I have benefitted from a number of discussions with Reform Scotland but remain solely responsible for any errors of omission.