If the Activity Test was abolished women’s workforce participation would rocket: research

New analysis released this morning by Impact Economics and Policy has found that abolishing the activity test for access to subsidised early childhood education and care (ECEC) could increase employment of mothers with children under five years of age by almost 40,000 and increase Australia’s GDP by up to $4.5 billion.

 

The report undertakes analysis for the first time on the impact of 2011 Paid Maternity Leave reforms which reduced job search costs for women with young children by maintaining their relationship with their employer. Impact Economics and Policy modelling shows that the 2011 Paid Maternity Leave reforms increased employment amongst women with children under five years of age by 74,245 hours, adding $8.5 billion to GDP in 2021-22.

 

The report finds:

 

•     Under the Activity Test, access to subsidised ECEC is linked to both parents’ participation in labour market activities, which is contributing to 126,000 Australian children from low-income households missing out on ECEC.

 

•     Rather than acting as an incentive to work, the Activity Test is creating additional barriers through increasing job search costs and abolishing the Activity Test would increase participation of mothers with children under five years of age in the labour market.

 

•     The majority of the participation increases would be amongst women in households with incomes below $72,000, with participation amongst this group estimated to increase by 20,790 women. Over 50 per cent of these gains would be amongst single mothers.

 

“The Child Care Subsidy Activity Test was envisaged as providing an incentive for parents, particularly women, to return to work or increase their workforce participation but it is not working that way,” said Dr Angela Jackson, Lead Economist, Impact Economics and Policy.

 

“We know low-income families, single parents, First Nations families and parents who are shift workers are among the most impacted by negative impacts from the Activity Test.This new report shows for the first time the scale of missed opportunity – an end to the Activity Test could lead to a substantial increase in participation and lift GDP by $4.5 billion per year.”

 

“We can see from the huge increase in participation of mothers with children under five following the introduction of Paid Maternity Leave the power of policies that make returning to work easier,” she continued.

 

Removing the Activity Test, Dr Jackson argued, reduces the costs of looking for work, takes away complexity and red tape for women with young children looking to return to work.

 

“This increases choice for women and families, bolsters family income at a time of rising cost of living and interest rate rises, and unlocks new workers at a time of a national labour shortage. If we look overseas to countries that don’t have this Activity Test, places like Sweden and Quebec, they have much higher rates of female participation and hours worked than Australia.”

 

“At a time when Australians are looking for assistance with cost of living, a change to the Activity Test can deliver non-inflationary relief while growing the economy by multiple billions. Few reforms can boast a similar return on investment,” she said.

 

Access the report here.