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Working mothers and the cost of daycare

Tarja Viitanen imageThe proportion of women working across the world has increased hugely since the 1960’s, yet some things haven’t changed - the cost of childcare remains a primary concern for working mothers.

The huge cost of childcare is an economic issue as well as one for individual families.

University of Otago Business School Researcher Tarja Viitanen has been studying this effect in New Zealand and in the UK. Her studies are showing there is a significant and sizable effect on the cost of child care on the labour supply in the UK.

A third of net income is now being spent on child care in New Zealand. Because child care costs represent such a significant portion of the working mother’s income, it is influencing their decision on when to return to the workforce.

“Sometimes it’s cheaper to stay at home, and even middle to higher income families devote a large percentage of their income to childcare.”

This has an effect on labour supply - often highly skilled workers are removing themselves from the workforce based on childcare costs alone, sometimes over quite a few years. Investment in the education of these women is not being utlilised to its full extent, and there is a gap - employers have fewer options to choose from when filling experienced positions. There is a section of a highly education workforce that needs more support.

New Zealand doesn’t subsidise child care, although it offers 20 hours of free education for children over three. However, child care in many countries, including Finland, is highly subsidised. This has the effect of reducing the gap in inequality and giving working mothers choice.

Currently, little is known about the effect this lack of subsidy is having on New Zealand’s economy, but it’s hoped the data from this study will guide policy development. Producing substantive data on the impact of the cost of child care is having on the workforce over time gives policy makers objective information to make well-informed decisions that shape the future shape of labour supply.

Contact Details

Dr Tarja Viitanen
Department of Economics, Otago Business School
Tel. 03 479 5296
Email: tarja.viitanen@otago.ac.nz

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